Pakistan as China’s Next Manufacturing Base
A test of the proposition that Pakistan can serve as a viable China+1 manufacturing base. The brief weighs domestic market scale, labour availability and Chinese technology transfer against industrial energy cost, export logistics, regulatory predictability and security, and finds the case holds for import substituting manufacture aimed at Pakistani customers but not for export oriented production. The conclusion is sector specific rather than country level.
Summary
Can Pakistan become a commercially viable China+1 manufacturing base for Chinese companies? This brief argues that the answer turns on where the finished product is sold. Pakistan combines a domestic market of more than 250 million people with one of the most expensive industrial energy environments in Asia. For a manufacturer supplying Pakistani customers, market scale is the governing variable; for one shipping abroad, the cost of power and of moving goods usually decides the outcome before anything else is considered.
Scoring Pakistan across twelve weighted dimensions, the brief rates it 54 out of 100, SELECTIVE. The thesis is qualified rather than rejected: the country supports defined sector positions in import substituting manufacture for its own market, and does not support general manufacturing relocation.
Key findings
- Pakistan is a market to serve rather than a platform to export from. Merchandise exports fell 5.9% to USD 30.13 billion in FY2026 while imports rose to USD 69.6 billion, the widest trade deficit in four years.
- Energy, not labour, is the binding constraint. Industrial tariffs fell 26% between March 2024 and January 2026, yet industrial electricity at roughly 13.5 to 15.7 US cents per kWh is still about double China’s rate of 7.7 cents.
- Chinese capital already leads. China supplied USD 862 million, or 52.7%, of Pakistan’s USD 1.637 billion in net FDI in FY2026.
- Zone supply has grown faster than zone readiness. Approved zones have risen from 7 to 44, while the flagship zones continue to report power, approval and security problems. Of the zones assessed, Allama Iqbal Industrial City is the most investable today, with Dhabeji second on port proximity.
- Security is a location variable rather than a general discount, with incidents concentrated in Balochistan and around corridor infrastructure.
- The strongest sectors are the ones Pakistan already imports from China at scale. EV components and battery packs score 76, solar modules and inverters 74, and two and three wheeler components 72. Export oriented textiles score 47, and steel and mineral processing sit in the thirties.
Investment view
The brief concludes that Pakistan warrants targeted investment by Chinese manufacturers in import substituting products of moderate energy intensity sold to domestic customers, principally EV components, solar assembly, small vehicle parts, agricultural machinery and food processing, sited in Punjab or Sindh. It does not currently warrant investment in export oriented or energy intensive manufacturing, and no incentive package presently on offer changes that conclusion. Its Investment Friction Index stands at 64, elevated, with energy and security both rated high.
One policy change would improve the investment case more than any other: a durable industrial electricity tariff at regionally competitive levels, held across several years rather than announced for one. The brief also sets out the indicators that would move Pakistan from selective to strong, including a sustained industrial tariff at or below 9 US cents per kWh, two consecutive years of export growth and net FDI above 1% of GDP.
Inside the brief
- The Investment Question
- ARS Pakistan China+1 Investment Scorecard
- Why China+1, and Which of Its Objectives Can Pakistan Satisfy?
- Advantages, Constraints and the Distance Between Them
- Where Can Pakistan Win?
- The Chinese Advantage, and What It Does Not Cover
- Why Pakistan Instead of Vietnam or Indonesia?
- Industrial Infrastructure and SEZ Readiness
- What Could Stop the Thesis Working?
- Policy Incentive Reality Check
- Three Investor Archetypes
- ARS Investment Signal
- What Would Move Pakistan from Selective to Strong?
- ARS Conclusion
- Methodology, Sources and Data Integrity
About the author
How to cite
Khan, R. (2026). Pakistan as China’s Next Manufacturing Base. Ardent Research Solutions. https://arspakistan.pk/policy-briefs/pakistan-china-manufacturing.html
Related research
This summary is drawn from the full publication, which should be read for the sources, qualifications and method behind each finding. It reflects the views of the author and not necessarily those of ARS or its affiliates. This brief is research and analysis, not investment, legal or tax advice.