Is the Pak-Cheen dosti really that zindabad?
This investment is a welcome sign but it’s strategically far more important to China than it is to Pakistan.
‘Pak-Cheen Dosti Zindabad!’ is a household anthem, isn’t it? A sea-pack, sorry, China Pakistan Economic Corridor (CPEC) appears to be Pakistan’s Achilles heel. Under this partnership, Pakistan is to receive a $51 billion investment over the course of three to eight years in the form of power projects, roads and railway upgrades, transmission lines, infrastructure, hospitals, technology and much more. Undoubtedly, such an investment is a welcome sign for Pakistan but the deal is strategically far more important to China than it is to Pakistan.
We were on the brink of dragging the over-burdening economy with no imminent increase in exports, tax revenues, technological revolution, let alone our despicable state of health and education sector with millions of people entering the employment (or rather unemployment) pool every year.
International Monetary Fund (IMF), ABD, and World Bank are “lending” money to us to bridge over the burgeoning trade and fiscal deficits – a short-term treatment to a permanent disease. If it weren’t for the sharp decline in oil prices and the emerging market crises in Brazil, Russia, Turkey, Thailand, Saudi Arabia, South Africa and Nigeria, Pakistan would not have been championed among the “Next 11” economies by the same Jim O Neil who coined the Brazil, Russia, India and China (BRIC) association. Thus dawns the sudden realisation of a visionary global leader, Mr Xi Jinping.
There were subtle shifts in global politics as cracks started to emerge within the traditional bonding between the oil-producing nations and the (then) top oil consuming nation, United States (US). Uncle Sam is bidding a covert farewell after mastering revolutionary technology to extract shale oil/gas for self-sufficiency and exporting purposes. Consequently, a nuclear deal with Iran and the overriding of Barack Obama’s veto would enable US citizens to legally sue Saudi Arabia for the 9/11 attacks. This had prompted the Saudis to threaten the US dollar by selling assets worth $750 billion. Falling oil prices not only reduced the US’s reliance on oil-producing Muslim countries, but also roughened up the financial health of another foe, Russia, while patching up with a smaller fish, Venezuela – which holds the largest oil reserves in the world.
Moreover, the US strengthened its alignment with the political allies economically as well, by projecting two new trade treaties – Trans Pacific Partnership (TPP) including US, Japan, Canada, Mexico, Malaysia, Vietnam, and Singapore among the notables, and the Europe-centric Transatlantic Trade and Investment Partnership (TTIP).
However, when one tie breaks, another is made. Putin was quick to not wait around for a calamity to strike and, in May 2014, forged an economic contract worth $400 billion with China for gas supplies. Soon after, the global powers of the world shifted their focus and investment from the Middle East towards the South China Sea, as it holds a passage that navigates one-fifth of the global trade of goods (including oil) and connects the Pacific Ocean with the Indian Ocean.
Amidst all the global hustle and bustle, China decided to opt for Plan B – a nuclear armed, economically weakened, regionally cornered, and tremendously populous Pakistan which has been an all-weather friend and ally. When China experiences a rainy day, Pakistan is the umbrella it banks on. Most of the CPEC related projects are investments that give China phenomenal returns. The energy projects carry one of the highest dollar-paying returns from a sovereign country to its investors, as the current tariff offered on solar or coal is one of the highest in the world, showing eagerness and profitability for the Chinese government.
Similarly, the loans on highways, railways, and port constructions have caveats that require the loaned amount to be invested back into China through the engineering, procurement and construction (EPC) contract and the duty-free machinery import, along with no income tax or sales tax. In the past, we took loans from global agencies which only cared about their gains. However, now we are loaning money from the Chinese government that is willing to bet on Pakistan’s prospering future despite global pressures from other countries to isolate it. Hence, this has turned out to be a win-win situation for Pakistan and China. As one famous Urdu verse goes,
“Jab tak Pakistan bika na tha toh koi poochta na tha,
Tum (China) ne mujhey khareed key anmol (emerging market) kar dia.”
(Until Pakistan was sold, nobody would ask about it,
You (China) bought me and turned me into an emerging market.)
Winning trust through CPEC will provide access to “The Gwadar Port” which is complementing the traditional Silk Route and Mr Xi Xinpings pet project of One-Belt One-Road (OBOR). Economically, this shortens the transportation time for cut-throat Chinese manufacturers to their western buyers from 10 to nine days. The Chinese government will establish industries in their under-developed western provinces and invest to upgrade Pakistan’s railways to reduce lead times and stall the declining pace of China’s slowing GDP growth.
Far more important, or equally important, is the ability to secure oil supplies as almost 50% of the oil is imported through the Middle East and a less discussed project is a dedicated oil pipeline undertaken by Frontier Works Organisation (FWO) from Gwadar to Kashgar to be protected by military establishments from any terrorist attacks.
With the looming threat of change in world politics and the possibility of a war, the energy security through Gwadar would be of paramount importance should the Strait of Malacca or South China Sea gets blocked by arch enemies. A 10,000 kms distance for oil transportation through the politically unstable Pacific Rim and Strait of Malacca would be reduced to 2,500kms for China with a better, secure and more controllable geography.
According to a study by Photius statistics, in 2050, the world’s four most populous nations would be India, China, US and Pakistan. If the US is counting on India to counter China’s threat to its throne, then China has to count on Pakistan. Pakistan is just not China’s backyard; it very much is China’s back-up plan as well.