Local firms trying to survive onslaught of Chinese goods

islamabad — In a dusty factory in northern Karachi, the nation’s oldest tile manufacturer had been struggling to jump on board one of the world’s fastest-growing construction booms.

Fighting to compete with cheap imports from neighbouring China, Shabbir Tiles & Ceramics Ltd., a unit of the House of Habib family business operating since 1841, had suffered four years of losses. It’s is now on course to post an annual profit next financial year after Pakistan placed an anti-dumping duty on Chinese tiles in October. That follows similar moves from the regulator on steel products.

“We have got an industry which has been affected by a lot of Chinese imports,” Chief Executive Officer Syed Masood Abbas Jaffery said in an interview. Now “the overall construction industry is in a growth phase and so is the tile industry”.

The move to protect local industries comes as concerns mount in Pakistan that China, which is financing $55 billion of infrastructure projects across South Asia’s second-largest economy, was destroying domestic manufacturing by flooding the market with cheap goods.

Pakistani industrialists fear China’s ever-growing influence will put them out of business. Before the duty was imposed, tile imports from China had more than doubled in the past five years and now make up roughly 50 per cent of the industry, according to Shabbir’s Chief Financial Officer Waquas Ahmed. With government support, the tile maker now forecasts it will boost operations to near 90 per cent capacity for the year starting July.

Pakistan’s National Tariff Commission has been fielding an increased number of anti-dumping complaints, with Chinese companies featuring “fairly significantly”, Chairman Qasim Niaz said in an interview in Islamabad.

“China has been dumpers,” said Towfiq Chinoy, an adviser at Karachi-based International Steels Ltd, who believes the anti-dumping tax is “significant” for the local industry. “They have sort of put us in handcuffs for three-to-four years.”

While Chinese businesses are keen to take advantage of opportunities in Pakistan on the back of the trade corridor, Pakistan’s raising of barriers is unlikely to displease too many in Beijing.

“China could suck it up in the short-run,” said Uzair Younus, a South Asia analyst at Washingtonbased consultancy Albright Stonebridge Group LLC. “After all, Pakistan’s economy taking a hit hurts Chinese investments and weakens Pakistan’s ability to repay Chinese loans — it’s a catch-22.”

Pakistan’s economy is growing at the fastest pace in a decade, but cracks are appearing with current account and trade deficits widening. In an attempt to reverse a deteriorating external position, the government in October imposed additional import taxes on more than 700 “luxury” goods including tiles and cars.

Still Pakistan is running an increasing trade deficit with China, which was the South Asian nation’s biggest contributor.

“Chinese goods will continue to flood the market, they can’t all be stopped,” Faisal Ahmed, CEO at Artistic Denim Mills Ltd., said in an interview. — Bloomberg

Anti-dumping duty helps protect local units