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November 11, 2018

Our future with China


November 11, 2018

The title of the joint statement, ‘Strengthening China-Pakistan All Weather Strategic Cooperative Partnership; Building Closer China-Pakistan Community of Shared Future in the New Era’, issued in Beijing by both the governments on November 4, 2018 speaks volumes not only about the success of Prime Minister Imran Khan’s maiden visit to China, but also about the future pathways of China-Pakistan cooperation.

Many were expecting that the PM would return from China with a multi-billion cheque in his pocket for balance of payments support. There is no immediate mention of that in the joint statement. However, as I wrote last week, China would require agreement upon certain financial instruments and modalities before it makes payment to Pakistan.

China has been depositing its money in the State Bank of Pakistan to support our balance of payments in the past. It deposited $2 billion during the interim setup and half a billion US dollars in May 2018 to support Pakistan’s balance of payments. During the last five years, it has deposited around $8 billion dollars in the State Bank of Pakistan. These deposits were on top of CPEC loans; the State Bank pays an annual profit (interest) against such deposits (we will also pay three percent per annum profit to Saudi Arabia for their recent deposits). The SBP governor and the secretary of finance are in Beijing and, along with other things, might have been discussing a notional interest rate that we would be paying to China for its anticipated deposits.

China may also advance some money against CPEC’s second phase projects. Before committing any new money on CPEC, it needed to know PM Khan’s views on CPEC’s early harvest phase (EHP). While in opposition, PM Khan was a strong critic of lack of transparency and low value for money of the EHP. According to paragraph 9 of the Nov 4 joint statement, both sides reviewed the EHP and expressed satisfaction that rapid progress has been made in all areas especially in the energy sector – meaning PM Khan’s approval of the outcomes of the EHP. This has paved the way for a consensus on future trajectory and new areas of cooperation within CPEC, in line with the priorities of the PTI government. Thus, both sides have agreed to focus on socio-economic development, job creation, livelihoods, industrial development and agriculture in the second phase of CPEC. One expects that after realignment of CPEC’s second-phase focus, China will finance some of the projects in the above-mentioned areas, especially in industrial development and agriculture.

Pakistan had signed a Free Trade Agreement (FTA) with China, which led to an increase in bilateral trade but also a huge trade deficit for Pakistan. The two sides agreed to conclude the second phase of the FTA, which would have concrete measures to address this imbalance. The measures would include broadening market access for agricultural and ICT products from Pakistan, and simplifying customs, quarantine and phytosanitary procedures (paragraph 15 of the joint statement). We may not be able to capture one percent share in China’s $2 trillion imports in the near to midterm future, mainly due to our supply side constraints. However, a revision (and implementation) of the FTA between Pakistan and China along the measures agreed by both sides would certainly double Pakistan’s exports to China in the near future.

Expressing satisfaction at the operationalisation of the currency-swap agreement, both sides have agreed to further strengthen cooperative ties of financial and banking sectors (paragraph 17). The currency-swap arrangement for bilateral trade is expected to be increased to 20 billion yuan and PKR385 billion. Likewise, Chinese investors will be getting their profit in rupees and will be able to repatriate it in yuans. This arrangement would take off a pressure of around $2.75 billion from Pakistan’s dollar reserves. Pakistan will also be able to float yuan bonds in the international market, and thus reduce its dependency on dollars and euros.

Foreign Minister Shah Mehmood Qureishi has rightly pointed out that the success of the visit to China should not be assessed merely in “economic” terms. Apart from economic cooperation, the Chinese leadership has also conveyed its support to Pakistan’s commitment and efforts to counterterrorism, assured Pakistan of its support in implementing a counterterrorism strategy, and commended the tremendous sacrifices made by the Pakistani nation in the fight against terrorism.

In the backdrop of Pakistan’s placement on the FATF grey list, China has very explicitly recognised Pakistan’s efforts in actively strengthening financial regulations to combat terrorism financing and called on relevant parties to view Pakistan’s counterterrorism efforts in an objective and fair manner (paragraph 36 of the joint statement). Recognising that the UN sanctions regime and the work of the FATF may be used as a tool of foreign policy coercion, China and Pakistan have also underscored the need for all UN members to avoid politicisation of these instruments (paragraph 44).

Like Pakistan, China also shares borders with India and Afghanistan. That turns China an important player in South Asia. China and India have two separate border disputes (Aksai Chin and Arunachal Pradesh). However, China does have deep economic ties with India and bilateral trade amounting to $85 billion. China, while emphasising the importance of pursuit of dialogue to promote regional cooperation and lasting peace, has supported Pakistan’s efforts for improvement of Pakistan-India relations and for settlement of outstanding disputes between the two countries (Paragraph 39).

Both countries have also resolved to support an “Afghan-owned, Afghan-led” peace process, and supported Afghanistan to hold the second tripartite (China-Afghanistan-Pakistan) foreign ministers’ dialogue aimed at deepening trilateral cooperation for shared progress, development and security and for strengthening peace and stability in Afghanistan (paragraph 41).

While China has reaffirmed its support to Pakistan on many counts, including the issue of non- proliferation, Pakistan too has reaffirmed its support to China in safeguarding its sovereignty and security, and combating separatism, terrorism, and extremism including the East Turkistan Islamic Movement -ETIM (paragraph 36). It has also unequivocally supported the One-China policy and all efforts made by the Chinese government to realise national unification (paragraph 5).

Relations among states are based on their national interests. The joint statement released after PM Khan’s visit to China reflects a huge convergence of our respective national interest. The China-Pakistan all-weather strategic cooperative partnership is strong enough. However, “to build closer China-Pakistan community of [a] shared future in the new era” the Chinese cannot help us much. We can only turn a ‘lending’ China into an ‘investing’ and ‘importing’ China if we improve our ways, standards, cost, and ease of doing business. This is something that is beyond a 100-day agenda but which certainly needs to be achieved within five years if PM Khan really wants to explore the true potential of Pak-China friendship.

The writer heads the Sustainable Development Policy Institute. Twitter: @abidsuleri

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