The following was originally published by our friend Merlin Linehan of Frontier Market Strategy on 24 April 2015.
Despite all its power China has few true allies, plenty of nascent friendships and strong trading relations, but most countries still remain suspicious or western oriented. One nation is a major exception, Pakistan has been a close ally of China for many years, although US involvement with the country and neighbouring Afghanistan have clouded this friendship for over a decade, things are changing fast, the US is withdrawing from the region and China is re-emerging in a stronger position.
China’s approach is in stark contrast to the US, no aggressive bombing raids on home territory or dictating foreign policy, but instead the soothing sound of non-interference, respect for sovereignty and shed loads of infrastructure investment, a far more palatable meal than US aid, as Pakistan is a partner rather than receiver. US aid worth around US$ 7.5 billion over the last decade was partly squandered, the Chinese have learnt from this and now propose an infrastructure led program focusing on power, roads and rail, worth a hefty US$ 46 billion, classic Chinese economic diplomacy.
The program will be focused on the China Pakistan Economic Corridor (CPEC) which will run from Kashgar in China to the Southern Pakistani port of Gwadar. The corridor will see major improvements in transport which will give China a useful alternative route to the sea, reducing dependence on the Straits of Malacca. The corridor should also provide a catalyst for economic growth and hopefully jobs, both much needed in Pakistan.
The investment plan is heavily geared towards increasing energy output, developing power plants to double the nation’s electricity potential, a welcome move in a country facing regular power cuts. The program outlines a mixture of hydro, coal and solar plants to be built along the corridor, financed by China and much of the work carried out by Chinese firms.
The project is also part of the wider Silk Road Initiative of developing infrastructure capacity in China’s neighbouring states. This initiative will hopefully drive the development of China’s neighbours, provide opportunities for Chinese companies in construction and draw these bordering nations further into China’s political orbit.
The corridor also a represents a major gamble for China – Pakistan is an unstable country thanks to separatism, militancy, poverty and corruption, while pressure will also be on Pakistani leaders who will want the corridor to work, the Chinese government will also face pressure that their plans run smoothly and their funds are not wasted through mismanagement and see a major ally face decline as a result.
Behind the positive talk of economic corridors and political friendship lie worries around unequal trade, Pakistan only exports a fraction of what China does in the other direction, (Pakistan’s exports to China were US$ 2.2 billion with imports of US$ 6.6 billion). There is little Chinese demand for Pakistan’s traditional exports of textiles while Chinese consumer and manufactured goods are very much in demand in Pakistan. The creation and expansion of an economic corridor could see this trade gap widen further.
The two countries have strong military ties – as the recent sale of six new Chinese submarines as a counter to India’s naval power in the region attests. The two nations also work together on combating Islamic militancy which plagues the region and represents a growing problem in China’s western region.
With Pakistan borrowing heavily from China, relying on its state owned firms to provide much of the heavy lifting to develop the economic corridor, as well as requiring Chinese military technology to help close the military gap with India, it all begs the question how reliant is Islamabad on Beijing? The quick answer is very much so; US-Pakistan relations have soured a long time ago and it faces a still hostile India and to a lesser extent Iran on each side, putting it in a precarious geo-political position, so Islamabad now needs Beijing’s support as never before.
However, China is also reliant on Pakistan, as a military counterweight to India, a major component of its Silk Road initiative and as a political ally, so the two nations lie in a interesting symbiotic embrace, how the new corridor will effect this relationship will be a fascinating lesson in international politics.
