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November 3, 2018

Chinese lessons


November 3, 2018

After a ‘successful’ visit of Saudi Arabia, PM Khan lands in China. The success of the Saudi visit could be assessed in dollar terms, which the Saudis deposited in the State Bank of Pakistan to ease out our balance of payments. However, the success of the China visit would be assessed against slightly different benchmarks.

Before discussing those benchmarks, we should keep in mind that in an era of interdependency, bilateral relations between states are based on how they can benefit from each other. In the case of Pak-Saudi bilateral relations, the strategic importance of Pakistan for Saudi Arabia is evident. What do the Chinese need Pakistan for?

Besides the quickest connectivity that Pakistan offers between China’s north-western province of Xinjiang and a sea port (Gwadar), Pakistan can help China come out from a ‘Tacitus trap’, which seems to negatively affect China’s Belt and Road Initiative (BRI). A Tacitus trap is a situation where a government loses its credibility and is accused of doing something wrong or telling a lie even if it were doing good or telling the truth.

One the domestic front, the Chinese government has very successfully come out of this trap through an aggressive anticorruption drive (around 450 vice minister-level officials were punished in the last five years over corruption charges). However, on the external front, the Chinese government seems to be caught in this trap when different Asian and African countries express their concerns that BRI investments in infrastructure risk trapping them in unsustainable debt.

Malaysia has suspended $26 billion Chinese funded projects; Myanmar has scaled down the Chinese funded Bay of Bengal port project from $7.3 billion to $1.3 billion; Tajikistan has ceded control of some 1,158 square kilometres of disputed territory in exchange of writing off Chinese debt; and there is a controversy over control of the Kenneth Kaunda International Airport at Zambia and the Hambantota port Sri Lanka. –PM Khan is very confidently reposing trust in CPEC and talking of expanding its scope. In fact, CPEC’s success is in China’s own interest if it really wants to sell the idea of the BRI to other countries. That is where Pakistan can support China in addition to Xinjiang’s connectivity to the oceans.

So, what should the premier expect from his China’s tour in return of reposing trust and telling the rest of the world that CPEC – a crown jewel of the BRI – will not lead to an unsustainable debt trap? The PM should ask to shift the focus of CPEC from infrastructure development to technology transfer, enhanced investment, and market access.

Unlike the Saudis, the Chinese cannot write a blank cheque for the government of Pakistan. They are willing to support but that would require some economic arrangements. One such can be financing for some of the projects, such as agriculture, included in CPEC’s ‘Long Term Plan’ (LTP). It should be noted that, unlike CPEC’s ‘Early Harvest Plan’, which had a price tag, the LTP is not financed and subject to negotiations between the governments.

For agriculture, mere financing will not be enough; it will require technology transfer too. A combination of both will not only help our agricultural sector to cope against the impacts of climate change, but will also lead to improved yield, which in turn will help in overcoming malnutrition in Pakistan. Technology transfer in the housing sector will help with the PM’s ambitious low-cost housing plan. The technology transfer industry can also lead to job creation in Pakistan.

Here it is pertinent to mention that, while Pakistan’s economy has graduated from agro-based to (unstructured) service-based, bypassing manufacturing and industrialisation, human resource is still not skilled or educated enough to be absorbed in the services sector. This anomaly has led to unemployment and income inequality. Recalibrating CPEC towards industrialisation through technology transfer and investment in this sector will revive manufacturing in Pakistan. This would in turn absorb our semiskilled and semiliterate human resource, helping in overcoming unemployment.

The third thing that PM Khan must negotiate with China is enhanced market access for Pakistani products. China is importing equivalent to $2 trillion per annum. Pakistan’s share in these imports is merely $1.74 billion. The finance minister is quite right when he says that even one percent share for Pakistan in China’s total imports would mean a $18-19 billion increase in our exports. However, for this to happen we need to renegotiate the Pakistan-China Free Trade Agreement, asking for at least the level of preferences that China is offering to Asean countries under the Asean free trade agreement.

With CPEC-supported industrialisation and agricultural development, we should be able to produce some of the products that China imports. Producing what China imports, and through improved market access to China, we should be able to improve our trade imbalance against it; it stood to a glaring amount of $9.7 billion in the last fiscal year. The modalities of these may be discussed by a revamped joint working group that the planning minister has hinted upon.

China has done wonders in poverty alleviation. Apart from learning from China’s anticorruption and antipoverty strategies, PM Khan must learn from China’s economic diplomacy too. China has 14 neighbours on land and another eight opposite to its maritime boundary. It has huge disputes with India but after 1962 not a single bullet has been fired between India and China and not a single soldier has died. Afghanistan is China’s neighbour too but is not affecting China’s stability. So much so that China has investment, trade, and transportation ties with Taipei China or Taiwan, a country that China does not recognise.

My benchmarks for determining the success of PM Imran Khan’s visit to China is whether he can get it acknowledged that Pakistan is helping China out in breaking the Tacitus Trap around the BRI. We also await the policy lessons that he brings home from China’s successful antipoverty, anticorruption, and economic diplomacy models.

The writer heads the SustainableDevelopment Policy Institute.

Twitter: @abidsuleri

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