Afghanistan and China: Post-Collapse Trade and the Country’s Economy

By: Hossain Sakhizada

China is the world’s second-largest economic power and shares a border with Afghanistan. Therefore, it is one of Afghanistan’s major trading partners. For many years, a large volume of trade items has been exchanged between the two countries. Despite the changes after the collapse of the Islamic Republic of Afghanistan on August 15, 2021, unlike the rest of its economic partners, China continues to maintain its commercial and economic relations with the Taliban government. Though the primary pillar of the Taliban’s government is the humanitarian aid of international communities and the wages of Afghan nationals living abroad (sent in cash), China’s maintained and expanded commercial and economic relations with post-republic Afghanistan have affected the Macro and microeconomics of the country. The obtained data from the statistical yearbooks of 1399-1400, World Bank reports, and other international organizations regarding Afghanistan’s economy shows that Afghanistan’s trade relations with China have been maintained and even increased with Afghanistan. Since a large percentage of economic cooperation between China and the Taliban took place in 1401 and the official figures of the trade values have not yet been published, and the yearbooks of 1399-1400 only show the exports and imports activities of the two countries in one and a half years of the Islamic Republic and one and a half years of the Taliban rule. Yet, there are minor reports that tell the increase in the rate and developed commercial relations between these countries, which has had positive and negative effects on Afghanistan’s economy, for which we will examine some examples of those effects.

Trade Deficit

Wide access to all production factors (labor, capital, land, and entrepreneurial ability) in China has made this country the largest exporter of consumer goods. On the contrary, the requirements of rapid economic growth and increased exports of finished goods have made this country one of the largest importers of raw materials. Afghanistan, however, remains one of the world’s largest importers of consumer goods due to its excessive increase of political challenges and its half a century durability, and the incomplete existence of production factors. The examination of the trade between Afghanistan and China shows that the deficit in Afghanistan’s trade balance has grown, and there is no news of China’s economic investments in Afghanistan’s mines.

Afghan Goods Losing Comparative Advantage to Chinese Goods

If the goods are produced by a weak country and purchased by the people in powerful countries, then the fragile country has a comparative advantage. Thus, due to the trade relations between the two countries, the weak nation should start producing a product that creates more value, and the opposite refrain from making it despite having a higher hand in producing the same product. There is a comparative advantage in this method of production. In this case, although the value of Afghan goods exported to China in recent years is much smaller than goods imported from China, according to recent agricultural developments and industrial production, some Afghan goods have advantages over Chinese goods. Examples of such goods are pine nuts and Afghan saffron, the two essential goods that, despite its ability to produce, China showed interest in buying from Afghanistan and still does. Therefore, the increase and export of these goods to China create a comparative advantage for Afghanistan.

The Stagnation of Industries and Domestic Production

Based on the experience that African countries have gained from economic relations with China, the entry of cheap Chinese goods into the markets of these countries has destroyed their domestic production. The same applies to Afghanistan, which is unilaterally dependent on China. After the severe economic crisis that took place after the collapse of the political system in Afghanistan, Afghan households are trying hard to reduce their expenses. Therefore, those, who were trying to culture the use of domestic products, are now using cheap Chinese products. This has had a negative impact on recently established enterprises in Afghanistan, which have gone bankrupt and stopped operating. Many people report their inability to compete with Chinese products in the Afghan markets.

Afghanistan‘s current economic relations with China are more inappropriate compared to the republic era, and it has become more harmful than ever before. It can be seen that due to the decrease in domestic production in Afghanistan, the country‘s trade deficit with China has increased, and it has lost the relative advantage it had gained.

Manufacturing enterprises in Afghanistan have failed or are on the verge of being eliminated due to the increase of Chinese goods through Pakistan and the economic crisis. It is worth mentioning that the positive effects of Afghanistan‘s trade with China are much more than its unfavorable effects on the Afghan economy. These effects and results were caused by the business between Afghanistan and China over the years and remain. However, in light of our topic, the trade between Afghanistan and China has caused the alreadymentioned effects on the Afghan economy.