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The paper argues that economic development cannot be explained solely by levels of investment, policies, or by type of government. There is, instead, a growing consensus among scholars and policy makers that economic development is primarily a function of institutions that help societies to reap potential gains from interactions among independent actors/countries (Hoff & Stiglitz, 2001). Therefore, the conceptual frame work is built on the work of Dani Rodrik (2001) who argues that the success of trade is dependent on the internal conditions. He questions the centrality of trade and trade policy and emphasizes instead the critical role of domestic institutional innovations. The biggest dilemma of Pakistan is that it lacks institutional innovation and initiatives, due to which trade has not grown to the extent that it should have; it is merely $12 billion, far less than India. Nonetheless, historically China and Pakistan have had good relations with each other, necessitated by strategic compulsion than economic imperatives; strategic alliance is enforced by the common hostility towards India. In order to counter India, China needs Pakistan badly in order to have counterweight against Indian hegemonic designs in the region. For the same reasons, Pakistan needs China to counter Indian hegemony and aggression if India indulges in. However, in recent years emergences of China as an economic power house of the world and its quick economic successes have changed the strategic map of the region. Pakistan, along with strategic interests wants to benefit from China’s economic development. In this regard, Pakistani political leadership has been visiting Beijing to learn from Chinese experience and knowledge to overcome the energy crisis, develop infrastructure and secure Chinese investment, as Western countries are unwilling to invest in Pakistan keeping in view the political fluidity. In this regard, a number of MoUs have been signed under which number of Chinese companies have shown interest to invest in key sectors of Pakistan such as energy, infrastructure, and communication. Recently, the Prime Minister of Pakistan, Mian Muhammad Nawaz Sharif, inked 19 projects in which China will be investing $34 billion. Hence, Pakistan and China enjoy cozy relations that go beyond trade. Islamabad has handed over Gwadar port in Baluchistan to China and as a result, trade volume has increased to $12 billion. China has granted visa to 50,000 people from Pakistan in 2013, a 20% increase from last year. In order to further boost economic relations, Pakistan and China plan to build Pakistan-China Economic Corridor and Joint Cooperation Committee - hallmarks of a deepening Pak-China friendship which, based upon mutual cooperation and trust, will continue to enhance cooperation in energy, trade and economic development. The paper has adopted qualitative research methodology to draw the conclusion that if Pakistan wants to benefit from Chinese economic largess, then it has to focus more on building economic institutions with complete autonomy.