April 2025 – APTMA

By Shahid Sattar | Sarah Javaid
In the aftermath of World War II, a new world order emerged through the formation of institutions like the UN, IMF, World Bank, and WTO – established to promote stability and cooperation, allowing major powers to coexist within a rules-based global system.

But in 2025, that post-war order is visibly fraying. The WTO’s dispute resolution arm is barely functioning just as new tariff wars reshape the global order.

It is in this context that American billionaire investor Raymond Dalio offers insights through his thesis on the rise and fall of empires – The Big Cycle. He argues that new world orders often emerge from the ashes of disorder, and that it is strong leadership and strategic foresight that determine whether a nation rises or sinks during these transitions.

In every war, there are winners and losers – but Dalio notes that neutral nations in great-power conflicts often outperform even the victors. During WWII, nations like Switzerland, Turkey, and Sweden avoided destruction and leveraged neutrality to grow economically and politically. They maintained trade with both sides, served as financial hubs, and positioned themselves for post-war growth.

While the U.S. and China escalate their rivalry today, nations in the middle may quietly grow stronger, richer, and more stable. India is a visible candidate – leveraging the tariff war to expand its influence, attract investment, and secure strategic deals, all without being a frontline player in the conflict.

But can Pakistan do the same?

To navigate the evolving world order as a beneficiary rather than a bystander, Pakistan must balance its foreign relations while undertaking institutional reforms at home. For this shift to occur, it first needs to avoid internal dysfunction (such as weak governance) and external collapse (like mounting debt and fiscal mismanagement).

The Big Cycle explained:

Dalio’s thesis can be summarized simply: economies rise, peak, and then decline. But first, they must rise.

As economies ascend, they are marked by strong institutions, capable leadership, technological progress, innovation, education, efficient resource allocation, and growing competitiveness. A wealth-generating class emerges, creating prosperity for both itself and the nation – enabling the country to capture a larger share of world trade as financial institutions such as banks and markets begin to thrive.

At their peak, however, economies face rising debt, internal discord, and dwindling reserves – signs of decline before emergence of a new order.

The Rise and Fall of Nations:

Today, India represents a country in the ‘rising phase’ of Dalio’s Big Cycle: strong GDP growth (6.5%), robust foreign reserves ($676bn), booming merchandise exports ($437 bn) and expanding geopolitical relevance. Vietnam, too, is capitalizing on the China+1 strategy, with export growth, FDI inflows, and a competitive manufacturing base.

Eventually, nations reach a ‘tipping point’ where sustained prosperity leads to complacency, rising debt, and reduced competitiveness. A relevant example is the US, which, despite being the world’s leading power, shows signs of institutional dysfunction, political polarization, and declining competitiveness, with average annual GDP projected to fall to 1.9% in 2025 from 2.5% last year. Similarly, China, after decades of rapid expansion, now grapples with structural challenges – tariffs, market crisis, demographic decline, and excessive state control.

Finally, a country enters the ‘declining phase,’ where strengths like innovation, productivity, and leadership erode, and structural weaknesses – high debt, unrest, and capital flight – begin to dominate. Libya, once Africa’s wealthiest nation with over $100 billion in reserves, collapsed due to its authoritarian and archaic regime, civil unrest, and weakened institutions. Similarly, Sri Lanka faced a severe economic and political crisis after years of mounting debt, fiscal mismanagement, and fragile institutions.

Pakistan’s Halfway to Prosperity:

Unlike classical cases, Pakistan’s Big Cycle was truncated, with early gains stunted before reaching their full peak. Post-independence, Pakistan showed signs of growth with industrialization, strong GDP growth, infrastructure development, and export-led growth in textiles and rice. International institutions saw potential in its economy, but this rise was short-lived, largely confined to select regions, deepening political and regional inequalities.

The decline began prematurely amid political disorder, tensions with India, and the 1971 partition. Nationalization reversed gains, and reliance on aid replaced reforms. Successive regimes prioritized short-term stability over institution-building. The lack of adherence to any constitutional arrangement further accelerated the economic decay.

Since then, Pakistan’s early growth plateaued, constrained by poor governance, regional conflict, and external dependence – manifesting in persistent twin deficits, escalating public debt, loss-making SOEs, institutional decay and stagnant productivity.

What does this decline look like today? 2025 numbers provide a glimpse.

Pakistan on the Wrong Side of the Economic Curve:

The total debt and liabilities now stand at 83% of GDP, placing Pakistan 27^th globally. Such levels are typically seen in either dynamic economies (US, UK) or collapsed ones (Sri Lanka, Sudan). To maintain its debt stability, Pakistan needs GDP growth exceeding the interest rate on its debt. However, projections suggest growth will barely reach 2% by FY25.

The SBP’s net reserves of $11.25 billion remain insufficient to cover even two months of imports, as imports are projected to reach $57.7 billion in FY25, or 15.5% of GDP. With unsustainable reserves, Pakistan has become the largest IMF beneficiary, having entered into 25 loan arrangements. Weak financial inflows strain the already fragile revenue system, further pressuring external accounts. The current account balance relies heavily on remittances – an unsustainable crutch. Though celebrated annually, remittances reflect the export of talent and intellect. There is ample evidence showing that an increase in remittances does not necessarily drive economic growth (more on this in an upcoming article). Meanwhile, exports, the basis for sustainable growth, now account for just 8.4% of GDP in 2024, down from 10.5% in 2000.

As a result, incentives for creating sustainable wealth are diminishing. Irrational tax policies, such as EFS, unjustified tax rates, and a narrow tax base, have eroded business confidence. Tax collection, revised downward by the IMF, continues to lag, eventually shifting the burden to already-taxed segments. Inflation has eased, primarily due to base effects and falling food prices, rather than an improvement in purchasing power. Household expenditures now consume 89% of the average monthly household income. Eroding purchasing power and difficult business conditions have slowed demand and business activity, contributing to economic stagnation, as reflected in negative industrial output in 8 of the last 10 quarters.

This is the decline Pakistan is facing. According to Dalio, debt doesn’t just grow – it compounds, triggering ripple effects across communities. Consumption falls, inflation rises, trust in institutions wanes, and confidence in the currency erodes. Investors pull back, and citizens lose faith in the system.

Acemoglu and Robinson sum it up in Why Nations Fail: “Nations fail because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate.” (A must-read for serious students of Pakistan’s economics.)

A Dalio-Inspired Path to Growth:

In today’s shifting global order, increasingly shaped by the U.S., Pakistan has the opportunity to emerge as a strategic gainer – if it remains neutral and focuses on the strategic steps outlined by Dalio: strong governance, innovation, education, efficient resource allocation, competitiveness, and robust markets.

To begin with, Pakistan must focus on the basics: fiscal consolidation. Despite high tax rates on individuals and businesses, the country has one of the lowest tax-to-GDP ratios. The focus must shift from high rates to a broader base and from indirect to direct taxes. In 2024, the FBR collected 51.2% of revenue from indirect taxes (ST, FED, CD) compared to 48.4% from direct taxes. With the informal economy estimated at 30–35% of GDP, formalization and better compliance are essential to increase direct tax collection. A World Bank study reveals that untaxed sectors, like agriculture, contribute only 10% of their tax revenue potential. Bringing these sectors into the net is crucial for fiscal discipline.

Another fiscal pressure point is the financial burden of SOEs. As of FY24, their aggregate losses amounted to 6% of GDP (Rs.5.7 trillion), which is higher than the FBR’s direct tax revenue (Rs.4.5 trillion). Despite privatization being on the agenda since 1991, the government continues to provide budgetary support (Rs196 billion in FY25) to keep them running. Reforming or divesting loss-making SOEs is crucial to ease fiscal burden.

Dalio also stresses diversification of investment to hedge risk. For Pakistan, this means shifting from speculative real estate to export-oriented sectors – an outcome that hinges on restoring business confidence. High taxes, rising input costs, and low confidence push capital into unproductive sectors. Ahmed Jamal Pirzada recently noted that registered companies in Pakistan are increasingly investing in real estate. A stable business climate is the first step toward reversing this trend.

Dalio’s thesis further underscores that major economic powers rise through productivity and innovation. Pakistan must boost both. From 2000 to 2020, its labor productivity grew just 1.5%, far behind India (5.7%), Bangladesh (3.9%), and China (8.5%). With only 0.55% of budget allocated for education versus 7.42% on PSDP, rebalancing is vital. Investing in skills education can enhance productivity, improve job outcomes, and reduce brain drain.

Geopolitically, Pakistan must pursue a balanced approach. While it maintains strategic ties with both China and the U.S., retaliatory tariffs could damage relations with the U.S., while offering preferential tariffs to the U.S. might strain ties with China. Therefore, it is essential to uphold strategic neutrality, safeguard sovereignty, and pursue targeted reforms for post-war recovery.

Dalio’s roadmap – centered on debt control, fiscal discipline, and neutrality – offers Pakistan a path to resilience. However, to achieve this, the country must first reboot its economic mindset and policymaking framework. By adopting institutional reforms and positioning itself as a neutral gainer in the emerging global order, Pakistan has the potential to transform today’s crisis into a long-term advantage – much like the neutral nations of the post-WWII era.

While the current decline in global energy prices would benefit most manufacturing economies, it poses a serious challenge for Pakistan’s export industry.

Over the past few weeks, Brent crude has dropped from ~$75 to ~$65 per barrel, expected to decline even further. As global energy prices fall, regional competitors are gaining access to gas at much lower rates—between $5–7/MMBtu. In contrast, gas for captive power generation in Pakistan is Rs. 4,291/MMBtu ($15.38), including the misplaced levy of Rs. 791/MMBtu. This puts Pakistan’s exporters at a severe disadvantage.

Countries like Bangladesh, where—per an ADB survey—80% of the industry runs on gas-based captive power, will benefit greatly from cheaper gas prices. Similarly, industries in India, China, Bangladesh and Vietnam are paying just 5–9 cents/kWh for electricity, while Pakistani industrial consumers face 11–13 cents/kWh from the grid.

For an energy-intensive and low-margin sector like textiles, this energy cost differential makes it extremely difficult to compete internationally.

China’s recent imposition of a 34% tariff on US LNG, effectively pricing American cargoes out of the Chinese market—will significantly alter global LNG trade flows. With landed costs rising to $9.75–$12.50 per MMBtu—compared to Qatar’s $7–$9 and even cheaper Russian pipeline gas—US LNG becomes commercially unviable for Chinese buyers. As a result, cargoes are being rerouted to Europe, where the sudden supply influx has already triggered a 7.5% drop in TTF prices.

This shift tightens the US–EU LNG arbitrage window, strains regasification infrastructure, and underscores how geopolitical tariffs can rapidly reshape market dynamics. The move also reinforces China’s long-term strategy to diversify supply through stable, lower-cost alternatives like Qatar and Russia, while minimizing exposure to volatile spot markets.

A sustained decline in Brent crude prices towards $50 per barrel could create significant headwinds for the U.S. liquefied natural gas (LNG) industry, which operates on a pricing structure based on Henry Hub gas prices plus liquefaction and shipping costs. This model becomes less competitive when oil-indexed LNG—especially from low-cost producers like Qatar—becomes more attractive in a low-Brent environment.

The global LNG market is poised for significant structural change by 2030, with approximately 170 MTPA of new liquefaction capacity expected to come online, led by the U.S. and Qatar, with additional volumes from Russia and Canada. Concurrently, over 65 MTPA of long-term contracts are set to expire, and 200–250 MTPA of LNG—more than half of today’s global trade—will need to be re-marketed or re-contracted by 2030.

Given these factors, LNG prices are expected to further decline in coming months and sustain at low levels.

Meanwhile, Pakistan’s LNG market is dominated by state-owned enterprises which hold long-term Sale and Purchase Agreements (SPAs) under take-or-pay terms. These entities also control import terminals and pipeline infrastructure, creating high entry barriers for private sector participation.

Pakistan currently imports 7.5 million tonnes per annum (MTPA), or approximately 1,000 MMCFD, through long-term LNG contracts. SNGPL is the primary off-taker for PSO’s contracts, while K-Electric has taken over PLL’s ENI contract. The main contracts are:

Table 1. Pakistan Long-Term RLNG Contracts

Contract	% of Brent	End Date	Million mt/year
PSO-QG	13.37	Jan-31	3.75
PSO-QP	10.2	Dec-32	3
PLL-ENI	12.14	Nov-23	0.75

The RLNG sector faces persistent challenges due to poor demand forecasting, lack of downstream take-or-pay commitments, and an absence of a competitive gas market. These structural gaps have led to growing mismatches between supply and demand. Currently, SNGPL is dealing with surplus RLNG volumes equivalent to 18 unutilized LNG cargoes annually—projected to exceed 40 cargoes as gas demand for captive power generation, the largest off-taker of RLNG after the power sector, is being destroyed through prohibitive pricing to increase utilization of the national grid.

LNG was envisaged to replace high-speed diesel (HSD) and furnace oil (FO) in power generation (FGE 2015), with government-owned RLNG power plants as the primary off-takers. Over time, however, the power sector has significantly reduced its reliance on RLNG, opting instead for cheaper alternatives such as coal, nuclear, hydro, and solar. Moreover, RLNG demand is inherently volatile—affected by seasonal variations, transmission constraints, plant availability, and shifting merit order priorities.

The four major RLNG-based power plants—Bhikki, Balloki, Haveli Bahadur Shah, and Trimmu—initially operated under 66% take-or-pay clauses in their Power Purchase Agreements (PPA) and Gas Sale Agreements (GSA). These terms guaranteed a minimum payment to SNGPL, ensuring revenue even if full gas volumes were not used. In 2021, the Economic Coordination Committee (ECC) waived the 66% requirement, allowing monthly dispatch flexibility (0–100% capacity) based on demand. This was partially reinstated in 2023, with a minimum 33% take-or-pay threshold introduced for financial assurance. However, these revisions were never formally integrated into the contracts, leading to ongoing billing disputes between plant operators and SNGPL.

These RLNG power plants remain underutilized due to high generation costs—around Rs. 26 per kWh—with current offtake down to 286 MMCFD, well below contracted volumes. As a result, SNGPL is left managing stranded RLNG volumes, while incurring rising financial liabilities. To absorb surplus gas, RLNG is diverted to low-revenue domestic consumers at a subsidy of approximately $12.19/MMBtu. This is a key driver of the gas sector’s circular debt, which now exceeds Rs. 2.7 trillion (IMF, 2024).

Compounding the issue is the ongoing decline in indigenous gas production, with major fields like Sui and Qadirpur reduced by a combined 200 MMCFD. To accommodate surplus RLNG under take-or-pay constraints, indigenous gas production is being curtailed—disrupting merit order dispatch and increasing electricity costs via fuel cost adjustments (FCA). The structural oversupply of RLNG is projected to persist well beyond 2024.

In this context, phasing out captive power plant consumption through prohibitive pricing, including the ill-conceived and mis-calculated grid transition levy, will exacerbate the imbalance. Captive users currently account for roughly 20% of RLNG offtake within the Sui network. Removing this demand will intensify surplus volumes, trigger take-or-pay penalties, increase unaccounted-for gas (UFG), and create operational bottlenecks. These penalties are passed on to end-consumers under existing policies, further inflating gas tariffs and undermining affordability.

The financial burden is not limited to SNGPL. As surplus grows, storage constraints and high pipeline pressure (line-pack) create a risk of forced indigenous gas curtailment. This threatens the financial viability of local Exploration and Production (E&P) companies and risks stranding recoverable reserves.

If elimination of gas-fired captive power generation proceeds as planned, the RLNG surplus could exceed 40 LNG cargoes annually—creating a structural oversupply that jeopardizes the entire gas value chain (Figure 1). In such a scenario, the financial sustainability of state-owned entities in the petroleum division may come under serious threat.

Figure 1. Projected RLNG Surplus in SNGPL Network from Crowding Out of Captive

This is already reflected in the Sui companies’ demand to raise consumer gas prices. In their revenue requirements for FY26, SNGPL has proposed increasing the prescribed price of natural gas from approximately Rs. 1,750/MMBtu to Rs. 2,485/MMBtu, citing the RLNG diversion cost of over Rs. 300 billion as a key driver. Similarly, SSGC has requested a steep hike to Rs. 4,137/MMBtu.

These losses are occurring while domestic gas demand is being deliberately curtailed—particularly from industrial and captive power consumers—creating further inefficiencies. At the same time, policy decisions have also curtailed 200-400 MMCFD of low-cost indigenous gas priced at less than $4/MMBtu, undermining local exploration and production (E&P) activity and deepening reliance on expensive imported LNG.

The ridiculousness of the situation can be gauged by that we are importing LNG at $10-12/MMBtu, while curtailing domestic production that costs less than $4/MMBtu in an extremely tight balance of payments situation.

In the years ahead, the global LNG market is expected to loosen due to upcoming liquefaction capacity expansions in the U.S. and Qatar. By then, Pakistan will be obligated to take delivery of previously deferred long-term cargoes—likely at prices well above prevailing market rates. Currently, the government is selling those same cargoes below market value, locking in a loss both now and in the future. This approach reflects poor sequencing and undermines energy affordability and fiscal stability.

Pakistan’s long-term LNG contracts offer pricing stability and volume security, protecting buyers and sellers from market volatility. However, clauses like “Net Proceeds” in Qatar Gas (QG) and Qatar Petroleum (QP) contracts allow the seller to resell cargoes and retain any excess earnings if the buyer does not take delivery. While contractually permissible, this mechanism heavily favours the seller in oversupply scenarios. There is a strong case for Pakistan State Oil (PSO) to review and renegotiate such clauses in future SPAs to ensure a more equitable allocation of gains and risks.

Figure 2. Pakistan LNG Contracts vs. International Spot Market

Moreover, this has enabled foreign companies to capture arbitrage profits of over $300 million—approximately $100 million from 5 Qatar cargoes and $200+ million from 11 ENI cargoes. This was driven by high TTF prices in a tight global spot market, as Europe competes with Asia this year (Figure 2). For instance, selling cheap ENI cargoes in a tight global LNG market results in about $19 million arbitrage, TTF went $17+ per MMBtu in February 2025.

It is concerning that Pakistan deferred 5 cargoes in a tight global LNG market when next year’s spot LNG prices are expected to be cheaper than long-term contracts, as the US and Qatari liquefaction waves hit the market. This year’s term contracts were already much cheaper, before the brewing U.S.-China trade was further weighed down on energy markets.

At a Brent crude price of $60 per barrel, LNG import prices under existing SPAs are approximately $6.12/MMBtu (Qatar Petroleum, 10.2% slope), $8.02/MMBtu (Qatar Gas, 13.37% slope), and $7.28/MMBtu (ENI, 12.14% slope).

At a time when global Brent and LNG prices are in decline—and Pakistan remains locked into long-term LNG contracts—the government is compounding policy errors by pricing gas-fired captive power generation out of the market and undermining industrial competitiveness.

It is one of many self-inflicted wounds. Instead of leveraging long-term LNG contracts Pakistan is wasting them. At $60 Brent, delivered LNG under current SPAs is priced between $6 and $8/MMBtu. These volumes should be directed to industries to enable self-generation of competitive power, not offloaded at a loss or used to subsidize low-efficiency consumption. The decision to penalize industrial captive use during a window of favourable global pricing reflects a serious misalignment between procurement strategy and downstream policy.

The government must urgently revisit its gas pricing framework. RLNG should be supplied to industrial captive cogeneration consumers at its full actual cost—excluding the burden of cross-subsidies to other sectors, extraneous surcharges like the grid transition levy, and inflated UFG assumptions. Doing so would restore a rational basis for industrial input pricing, improve power system efficiency, and reduce fiscal stress on the gas chain.

Longer term, Pakistan must accelerate liberalization of the LNG and downstream gas markets. This includes immediate implementation of transparent Third Party Access (TPA) protocols that allow private buyers and sellers to engage in B2B arrangements and utilize pipeline capacity and regasification terminals on a non-discriminatory basis. Continued reliance on opaque G2G deals through Pakistan LNG Limited (PLL)—such as recent engagements with SOCAR—only entrenches inefficiencies and exposes the system to non-market risks, including rent-seeking behaviour.

A liberalized market structure, grounded in competitive procurement and infrastructure access, will drive investment, improve price discovery, and provide a foundation for supply security through diversified sourcing.

By Shahid Sattar | Sarah Javaid
Pakistan’s export sector is undergoing a seismic shift, one that will affect its competitive edge for years to come. The U.S. has imposed ‘reciprocal tariffs’ globally, including a 29% duty on Pakistan, as part of its protectionist policy.

The misaligned trade diplomacy – relying on the U.S. as its largest market for value-added exports while maintaining an intertwined supply chain with China – underscores how the 29% tariff is merely the first step toward a deeper economic pit that Pakistan risks falling into.

Structural inefficiencies – worsened by regressive taxation and ill-conceived energy policies – have already eroded Pakistan’s export competitiveness. This year marked a turning point when over 50% of Pakistan’s textile import bill was dominated by cotton and cotton yarn – a trend never seen before. Once a leading producer, Pakistan is now increasingly reliant on imports, with cotton yarn imports expected to surge nearly 200% and the cotton import bill projected to rise by over 50% this financial year. Together, these are projected to cost the economy a staggering $2.8 billion, with the combined total for cotton imports and textile intermediates reaching $4.4 billion.

While Pakistan sources the bulk of its raw cotton from the U.S. and Brazil, over 60% of its cotton yarn imports – cheaper than domestic yarn – now come from China, raising concerns over potential dumping and associated compliance risks.

As we officially enter the global trade war, beyond tariffs, another non-tariff threat looms: the potential for a U.S. ban on Pakistani exports.

In 2019, the U.S. banned Chinese cotton from Xinjiang over forced labor concerns, extending restrictions to any product containing Xinjiang cotton, regardless of origin.

However, through strategies such as China Plus One, transshipment, and third-country exports, China has sustained its presence and deepened its hold on the global textile supply chain. In 2024, China exported $3 billion worth of cotton intermediates to eight South Asian countries, including Pakistan, accounting for 30% of its $10.8 billion global exports in this segment.

While Pakistan didn’t directly benefit from China Plus One, it has become a key market for cheap Chinese textile intermediates, including knitted and woven fabrics, filament yarn, and cotton yarn.

Despite U.S. policies and growing supply chain scrutiny, Pakistan remains one of the largest importers of Chinese cotton yarn. And this is where the fire begins.

Pakistan’s Trade Dilemma – Cheaper Imports from China and Compliance Risks:

With a sharp decline in local cotton production, Pakistan has increasingly turned to cotton imports from the U.S. and Brazil, which now account for over 60% of total imports. In fact, Pakistan is the second-largest importer of U.S. cotton.

Simultaneously, the country has become the top importer of cotton yarn from China. This shift has strained the local spinning industry and at the same time introduced compliance risks, particularly due to the potential inclusion of Xinjiang cotton in Pakistan’s textile supply chain, especially in the absence of a traceability mechanism.

Since Xinjiang produces 87% of China’s cotton, China has redirected its (non-tradable) cotton toward textile manufacturing in response to U.S. bans. Additionally, it has implemented a tariff-rate quota system on cotton imports, ensuring that textile manufacturers primarily rely on Xinjiang cotton.

As the U.S. strengthens oversight of textile supply chains, any trace of Chinese cotton in Pakistani textile exports could result in bans in the US market for apparel.

The key question remains: What is driving Pakistan’s growing reliance on imported cotton yarn?

Price Disparities and the Absence of a Competitive Edge for Local Yarn:

The Chinese textile and apparel industry benefits from extensive subsidies. Under the Make in China initiative, the government has introduced over 900 subsidies to support local manufacturing.

In contrast, Pakistan’s textile sector faces mounting challenges, particularly following the reversal of regionally competitive tariffs and the withdrawal of zero-rating on local supplies under the EFS scheme. Power tariffs have hit record highs of 12–14 cents per kWh (the highest in the region), and the price of gas for captive power plants has surged to Rs. 3,500/MMBtu, with an additional levy of Rs. 791/MMBtu. Beyond energy costs, the rising prices of other textile inputs have further undermined the competitiveness of yarn production in Pakistan, making it increasingly difficult to compete with cheaper, duty-free Chinese imports.

China’s pricing advantage in textile intermediates is evident in its export rates. For most traded cotton yarn tariff lines, the prices offered to Pakistan are not only lower than those offered to Vietnam and Bangladesh (Table 2a), but also well below Pakistan’s domestic yarn prices (Table 2b). This cost edge enables China to maintain its competitiveness in the Pakistani market, while leaving Pakistani yarn manufacturers struggling to compete in a market distorted by cost disadvantages.

China’s Strategic Emphasis on Maintaining Low Production Costs:

The cost and pricing edge is no accident. China controls over 50% of global spinning capacity and 45% of fabric manufacturing, and in response to increasing global trade restrictions, it is doubling down on its domestic textile sector. Plans are underway to expand spinning capacity in Xinjiang and raise the cotton-to-textile conversion rate from 40% in 2024 to 45% by 2028. Generous subsidies for transporting cotton from Xinjiang to central and eastern provinces further reduce production costs and incentivize yarn manufacturers.

With this level of government support and massive economies of scale, China is able to export yarn and other intermediates at competitive prices – often lower than the prevailing prices in importing countries.

Here the challenge for Pakistan is threefold: protecting its local industry from potential dumping, managing compliance risks tied to increased dependence on Chinese imports, and securing preferential access to key export markets, particularly the U.S. and EU, where Pakistan’s value-added textiles are primarily destined.

The Current State of Cotton Yarn Imports in Pakistan:

China’s competitive edge in yarn is also visible in Pakistan’s import patterns. The most traded cotton yarn import tariff lines in Pakistan account for 100% of imports from China, which were initially subject to an 11% MFN duty (Table 3a). However, under the 5th Schedule of Pakistan Customs, these duties were reduced to 5%, and the China-Pakistan Free Trade Agreement further lowered them to 4.2%.

Moreover, exporters can access duty-free yarn imports under the EFS scheme. The combination of low export prices and 0% duty has made Chinese yarn highly competitive in the domestic market – crowding out local production.

In contrast, peer economies such as India and Bangladesh have adopted a more defensive policy posture, protecting their local industries through higher duties on Chinese yarn as reflected in their respective customs schedules (Table 3b).

A Global Snapshot:

Under WTO rules, countries can impose anti-subsidy or countervailing duties to protect domestic industries from unfair price advantages created by subsidies from trading partners.

Recently, several countries have initiated anti-dumping investigations and imposed duties in response to unfair trade practices by China.

For example, the European Commission recently imposed anti-dumping duties (26.3% to 56.1%) on Chinese glass fiber yarn imports to protect 1,200 EU jobs and restore market competition. The investigation found that Chinese imports were harming local industry.

In December 2024, India launched investigations into the alleged dumping of nylon filament yarn and trimethyl dihydroquinoline (TDQ) from China, with potential recommendations for duties.

In September 2024, Turkey initiated an anti-circumvention investigation into synthetic staple fiber woven fabrics from Malaysia, suspecting that these imports were bypassing existing anti-dumping measures on China, as the share of Malaysian imports rose sharply in 2023 and 2024.

In June 2025, Malaysia announced provisional anti-dumping duties (6.33% to 37.44%) on polyethylene terephthalate (PET) imports from China and Indonesia.

Egypt also extended anti-dumping duties on Chinese synthetic fiber blankets, maintaining tariffs of 55% to 74% until August 2025 to prevent a surge of dumped products in its market.

Urgent Call for Government Intervention to Ensure Fair Trade:

Given the global trend of rising anti-dumping measures, Pakistan faces a similar threat to its domestic industry. With heightened trade restrictions on China from the U.S., such as increased tariffs and escalating non-tariff barriers, there is a growing risk of more dumping of cheaper textile intermediates, and local manufacturers risk being priced out of their own market.

The National Tariff Commission (NTC) has previously acted decisively – even imposing anti-dumping duties on relatively low-impact products like lead pencils from China. Today, the stakes are much higher, involving Pakistan’s largest export sector, millions of livelihoods, and billions in export revenue. With the margin for error narrowing, Pakistan must take urgent and well-calibrated action to safeguard its textile industry from unfair competition.

The ‘Big Cycle’ of Pakistan’s Economy – I

Stranded gas, strangled industry

Yarn Imports: The Silent Threat to Pakistan’s Textile Exports

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