Saquib H. Shirazi

In the midst of the justifiable excitement surrounding China-Pakistan Economic Corridor (CPEC), it is pertinent to assess what the Pakistan-China friendship means to the different stakeholders in the country. For the Ayub era generation, the significance of the Pakistan-China relationship is probably perceived as a critical and enduring political-strategic partnership mainly based on a national security narrative. For them the economic potential of the 65-year-old Pakistan-China partnership is yet to blossom. In their opinion, apart from the notable exceptions of the Karakoram Highway and the nuclear power cooperation, China has yet to become an important economic partner in the development of the county. Whether for trade, investment or technology, the bias remains towards the West and Japan. And thus far, unlike the West, China is far from a serious destination for Pakistan’s exports.

If the same question is posed to our generation, then the answer is again one of limited economic impact. The lack of engagement between the two country’s private sectors can be best illustrated by a dialogue one had as part of a NUST delegation to China. Needless to say, the visit was very well arranged and an eye opener on how diligently the Chinese government and business engage on long term, cross border initiatives. Most of the Pakistani private sector did not have much insight into the close coordination of the Chinese government-business entities at the time. Encouraged by the Chinese Government, the frankness with which each side spoke of the mutual opportunities and limitations was the real learning. A Chinese power firm executive, when privately inquiring about the purpose of our visit, was quite candid in his response on the possibility of Pakistan’s private sector business potential with China. One recalls the executive conveying, “Gentlemen, China already has sufficient business partners in Pakistan and frankly, we don’t think we need you lot yet”.

On inquiring who the partners were, the reply was quite revealing - “Our partners are the armed forces, the central government and the provincial governments. You see, China only needs government partnerships to get its business done in Pakistan. The private sector is not a priority at this time”.

In one’s opinion, as recently as six years ago, private sector relations between China and Pakistan did not exist. Only unorganized sector trading and two notable investors - Haier and China Mobile - had emerged till then. Working with the Pakistani private sector was still deemed a challenge. The perception was that the market and the entities were either too small or weak. A preference hence was for trading and government related projects only. Even financial availability was limited. The banking cooperation has only recently started to emerge. It is for these reasons that our generation has tended to disregard China as a serious partner for any private sector initiative, until perhaps recently.

Meanwhile, for the common man, China is basically seen as the all weather and reliable anti-India friend. His general perception is that Pakistan needs China and China has always been available to Pakistan. Importantly, and unlike the relationship with the West, the engagement is not perceived as one of ‘master-servant’ or ‘only when needed’. For him, opening of Pakistan’s market to Chinese investment is perceived as a win-win for both.

CPEC has, no doubt, arrived. And it is probably the right time for both countries to reap the benefits of the enduring friendship. The promise of USD 45 billion is uniquely ambitious and makes CPEC stand out as a potentially defining moment for the country’s economy. If even one fourth of the USD 45 billion is realized it will be more than any other country, barring the USA, has done for Pakistan’s economy.

However, today, even with all the complexities in the relationship, the US still remains the dominant economic and defence engagement partner for Pakistan. For Pakistani private sector, the US is still the biggest importer of our goods, especially textiles. Access to the US market, despite the tariffs, is still far in excess of what China has afforded us. As a result, there is in fact a trade surplus of USD 2 billion in Pakistan’s favour. In contrast, periodic yarn exports have been the only meaningful Pakistani exports to China in the last decade. True success of the CPEC will be realized when China not only commits to these infrastructure projects, but also opens its own market to our exportable goods. This will reduce reliance on our traditional export markets and capital will be created for our economic development.

The US and the West have historically used (and often compensated) for their adventures in the region. However, with both defence and economic sovereignty becoming an important issue for our people, the strategic relationship with China will need to be upgraded. The CPEC is an important economic initiative, but given Pakistan’s turbulent neighborhood and economic volatility, there has always been a need for a backstop. In the past, Pakistan has had access to the World Bank, the IMF and country specific aid from the US/EU and Japan. However, with China’s growing geo-political influence, access to the newly minted Asian Infrastructure Investment Bank (AIIB) and China aid, grants will be crucial. Pakistan’s negligible exports, FDI, and a large saving and investment gap imply that the country will require such a commitment from China. With the world’s sixth largest population and a rising middle class, a calculated bet on Pakistan by China can prove to be strategically and economically prudent. Absence of such a commitment could well undermine the potential.

The China-Pakistan economic friendship has yet to be fully tested. While CPEC is rightly seen as a potential “game-changer”, there is still warranted cynicism and doubt. The “one belt, one road” mission certainly makes theoretical sense; however, the proof will be in its delivery. Even as the Chinese investment in CPEC projects starts, there is concern around excessive returns and a possible balance of payments impact due to projected FX outflows. Institutions like the State Bank and even the Finance Ministry have quietly started expressing concerns on too much Chinese labour and lack of local contents used in projects. The quiet feedback to counterparts in the Chinese government is to urge Chinese entities to not take more out then they are bringing in. The State Bank and the Federal Board of Revenue have even highlighted malpractices such as over invoicing and unprincipled dealings, as being endemic. Measures must be put in place to ensure that the economic relationship is mutually beneficial and sustainable. Examples of delays and poor execution of projects in African nations, which too have seen sizeable Chinese investment in-flows, are abound in the business circles as warning of potential threats.

It is important to note that while maintaining a relationship, the Chinese people think long-term. Opportunists keep only 2-3 year horizons in mind, but strategic partners, joint ventures and infrastructure planners think at least one generation ahead. The opportunists spoil good­will and image for the sake of short-term profit. Unfortunately, such miscreants currently dominate the business ties between the two countries. For example, the vast majority of the Chinese goods exported and dumped into Pakistan over the last decade represent cheap quality and under invoicing. The Pakistan Business Council has quoted figures of exports from China to Pakistan as USD11,019 million in 2013. However, during the same period, Pakistan recorded imports of only USD 6,626 million. A FTA must make sense and if it is not mutually beneficial it must be rectified.

However, the most alarming aspect is that nobody at the helm in either country is ready to touch and resolve these matters. The blame is equally shared by both the countries’ trading communities, who thrive on malpractices and discourage dialogue at the government level. China’s image, in the meanwhile, suffers. In Pakistan, its products generally equate to generic or poor quality. The irony is that in the meanwhile, back home, China has climbed the value chain and has itself become a producer of some of the world’s best brands like Apple, GE and Mercedes. There is thus the obvious need to check and control such malpractices, which tend to spoil markets, goodwill and employment opportunities for our populace.

Any true patriot would certainly ask whether China has done enough to also deserve such open access to Pakistan’s market. In turn, and to be fair, our Chinese friends also often question whether Pakistan deserves Chinese investment flows given the law and order and the red tape inefficiency at every turn. These are pertinent questions, which need to be addressed by both nations earnestly. We are in unchartered waters and trust needs to be created to deliver the promised win-win.

Currently, South Asia remains one of the least integrated regions of the world particularly due to the muddled India-Pakistan relations. As a result, the Bangladesh­ Pakistan and the Afghanistan-Pakistan relationship continuously ebbs and flows due to India’s interference and sensitivity. Unfortunately, there are no natural friends, only unholy alliance at best, in the South Asia region. Religions and suspicions divide us, making this an insignificant trading region for over 65 years now. For China, Pakistan can become the base country for another region encompassing countries from Pakistan, Iran, Iraq, Central Asia and as far as Turkey.

Historically, this region was home to the Old Persian Empire, the Arab Empire and the Ottoman Empire. And China traded with this vast region using the Silk route. What China is trying to establish with Pakistan thus makes sense. I have little doubt that eventually similar cultures and religion, like in Europe and EU, will become unifiers. The focus on this link is actually a reconnect to the old route that in turn, will be the pathway to an economic bloc that can rival Africa and India in a few decades. CPEC will be a driver of connectivity between South Asia and East Asia, while Gwadar can be the gateway for Central Asia. In time, one believes Afghanistan will also fall in line with this reality. The Western alignment of the CPEC from Chaman, and Eastern alignment with Peshawar from Jalalabad is but natural. The CPEC will provide the shortest and most cost effective route to the region for China.

As for the present, there are numerous opportunities for Pakistan in the current and future regional scenarios. The country lacks infrastructure and a road network. It sees improvement in these sectors through CPEC. Project finance and project investment is now flowing from China, with power projects a top priority. On the other hand, only 5 percent of Pakistan-China Free Trade Agreement (FTA) has been utilised by Pakistan. The FTA needs to be revisited so its benefits are optimised. There are only six countries in the world with a population of more than 200 million people. Given economic cycles, every country in the future will no doubt endure downturns and recessions. However, in my opinion, these six countries will undergo the smallest shocks and the quickest rebounds in economic activity. Overtime, with increased education and rising incomes, population dividends will indeed take effect. The larger consumption base of these economies will prove to be a blessing. Therefore, for Pakistan and China, the CPEC is very beneficial for both the countries. China’s 1.3 billion people will be linking up with Pakistan, a country with one of the fastest growing populations.

In years to come, Pakistan will become the fourth most populous country in the world. Estimates suggest Pakistan’s population will peak at 350 million by 2050. In preparation for that, we ourselves need to focus on becoming an educated, developed and a competitive economy, not a mere sidekick to another global power. That is what people expect from closer Pakistan-China strategic ties. Only when such decisive, nation-building actions are taken will the relationship prove to be “higher than the mountains, deeper than the oceans and sweeter than honey.”

(The writer is the CEO of Atlas Honda Ltd)