Chinese investment rattles exporters

Domestic textile exporters and industry analysts have described the arrival of a $150 million Chinese garment manufacturing project in Punjab as both a wake-up call and an opportunity, coming just days after the Trump administration cut US tariffs on Pakistani goods to 19%, the lowest in South Asia.

"This is the reality of modern trade," said Shahid Khan, General Manager of a large garment unit in Faisalabad. "If a Chinese company can bring in cutting-edge machinery, secure US buyers, and deliver on time, they will dominate. The only way for us to counter this is to either match their efficiency or partner with them through joint ventures."

While the investment promises jobs, export revenue, and technology transfer, it also raises strategic questions. Much of the capital and eventual profits will flow back to China, given the ownership structure. Domestic textile exporters privately admit they see this as both a threat and a wake-up call.

Some industry leaders, however, warn against viewing the Chinese arrival purely as a threat. "We need to move away from the old habit of finding excuses," said Imran Yousaf, a home textiles exporter. "Yes, a big Chinese player can take market share, but they can also be a partner. If Bangladesh can grow exports with higher tariffs, why can't we with the lowest tariff in the region?"

Economists believe the Chinese move is driven not just by Pakistan's low labour cost, but also by the need to bypass higher US tariffs on China-made goods. "Producing in Pakistan now makes perfect sense for Chinese manufacturers," said Farah Iqbal, a Lahore-based trade economist. "They get a lower tariff rate into the US market, local government incentives, and proximity to cotton-producing regions. For Pakistan, it's an investment inflow, but the challenge is ensuring that local companies also grow and do not get sidelined."

For domestic producers, the tariff change still represents a unique opportunity, if they can act fast. Pakistan's 19% rate undercuts India's 25%, and is slightly better than Bangladesh, Sri Lanka, and Vietnam, all at 20%. Last fiscal year, Pakistan exported over $6 billion worth of goods to the US, dominated by textiles. Analysts project shipments could reach $7 billion in FY26 if the sector leverages its cost advantage.

But operational hurdles remain. Energy costs for Pakistani mills are among the highest in the region, and cotton shortages are acute. According to the United States Department of Agriculture's Foreign Agricultural Service, Pakistan's cotton production in 2025/26 is forecast at just 5.5 million bales, far less than the 15 million bales needed by the textile industry. This forces mills to rely on expensive imports.

"If the government reduces duties on imported cotton and polyester fibre, we could operate at full capacity," said Waheed Abbas, a spinning mill owner. "Otherwise, Chinese units in SEZs with better incentives will be the only ones expanding exports to the US."

Investment analysts point out that the Chinese company's backing from provincial authorities, combined with its in-house access to global buyers, could see it meeting its production and export targets on schedule. "Local firms often face delays in getting permissions or financing," said Mohsin Ali, an investment adviser. "This group's entry shows how quickly things can move when capital, buyers, and government facilitation come together."

Just days after the tariff cut, Challenge Fashion Pvt Ltd announced it will build one of the most advanced garment manufacturing facilities in the country. The project, to be set up in a proposed Special Economic Zone in Punjab, will cover 100 acres and is expected to begin operations within 12 months. It will employ around 25,000 workers, produce up to 8 million garments per month, and supply leading American apparel brands directly from Pakistan.

Provincial officials have confirmed the company will enjoy export-based concessions under the SEZ framework. "We are facilitating this investment with infrastructure, security, and fast-track approvals," said a senior Punjab government representative. "It is part of our strategy to attract large-scale export-oriented industries, especially in light of Pakistan's improved tariff position in the US market."

Such partnerships could align with the broader motives of the China-Pakistan Economic Corridor (CPEC), the multibillion-dollar infrastructure project aimed at integrating Pakistan more deeply into regional trade routes. Joint ventures could allow Pakistani firms to gain access to foreign technology, investment, and global distribution networks without losing local ownership completely.

Industry pundits said that the next 18 months will be decisive for Pakistan's textile sector. With the US tariff at 19%, the industry holds a clear cost advantage over regional competitors. Converting this into higher exports will require immediate policy action including lowering energy costs, ensuring steady raw material supplies, speeding up tax refunds, and improving port logistics. The recent entry of a Chinese textile group with a $150 million investment in Punjab signals that international players are already eyeing Pakistan as a competitive base for exports to the US and EU. If local manufacturers receive the same level of policy support, they too can seize this moment to expand market share and strengthen Pakistan's position in the global textile supply chain, they added.