It may be blasphemy to say that all is not well in the relations between two Iron Friends – Pakistan and China, especially when Prime Minister Nawaz Sharif has returned from a highly publicised visit to Beijing. The visit was marked by the signing of 20 agreements and memoranda of understandings that would translate into heavy investments into diverse fields nuclear and energy sectors including. The outcome in a way was compensation to the Pakistani leadership which was miffed by President Xi Jinping’s decision to skip Islamabad during his recent South Asian sojourn that took him to Male, Colombo and New Delhi.
That the Sharif government is looking to Beijing for increased trade and investment besides a bail out from energy crunch. China has come forward to set up three major power projects which could together generate some 2500 MW. The industrial park proposed at Faisalabad, the Thar coal project and the deep water port in Gwadar sea port besides the economic corridor from Gwadar to Xinxiang through the Karakorum highway should prove a big boon for Pakistan which is hit by slow down in FDI and aid inflows besides remittances by the diaspora. Well, this is conventional wisdom. Reality check shows the trade ties with China are not benefitting Pakistan but no one is willing to speak up because Beijing has become the undisputed diplomatic god father, whom Pakistan cannot afford to annoy.
Like the western capitalist, the Bamboo capitalist is concerned about his profits. This is the lesson African nations have learnt the hard way. Now it is the turn of Pakistan. Trade balance deteriorated further following signing of preferential trade agreement with China. The Free Trade Agreement only aggravated the trade imbalance since Pakistan already had trade deficit. That the Commerce Ministry bureaucracy considers the trade negotiations held with China as ineffective, ill-planned, as Dawn reported, is beside the point.
Pakistan-China volume of trade was around US $4.1 billion in the year 2006-07. That was before the FTA was inked. Now it has jumped by 124 percent. In the fiscal year 2012-13, the two-way trade reached $9.2bn but it is characterised by one-way movement since Pakistan has very little to bring to the Chinese basket other than a few raw materials.
Pakistan’s exports to China were $0.6bn in the year 2006-07, while imports stood at $3.5bn, with a bilateral trade deficit of $2.9bn. Currently Pakistan’s exports to China reached $2.6bn, while imports jumped to all time high of $6.6bn, reflecting a trade deficit of $4bn. Pakistan’s experience of FTAs with Malaysia and Indonesia is no different but it does not hurt Pakistan as much as the Chinese deals do.
Pakistan – Malaysia FTA, signed in November 2007, came into force from January 1, 2008, where as the FTA with Indonesia became operational in September, 2013. Trade volumes with both countries are low. For instance, exports to Malaysia today stand at around $237 million while imports are worth $2.10 bn. So much so at $ 1.8 bn the trade deficit does not send alarm bells in the way trade deficit with China does. The trade deficit with Indonesia is put at $ 1.09 bn with imports estimated to be around $1.296bn and exports placed at $196.421m.
The fact of the matter is that Chinese investments are not coming to Pakistan on Pakistan terms. Take for instance, the Gadani power project. The Sharif government considers this coal fired plant as a must to ease energy crunch. When commissioned it will generate 6600 MW. But the Iron Friend rejected the proposal outright. Gadani is not viable, impracticable.
Frankly, the decision does not come as a surprise because Beijing has been very selective in exercising it investment options. Already it has pulled out of the Pakistan-Iran pipeline project, after generating much hype. The Industrial and Commercial Bank of China offered to head a consortium of lenders and firm up plans to fund the $1.6 billion Pakistani portion of the cross-border pipeline designed to deliver more than 750 million cubic feet of natural gas per day from Iran’s South Pars field. Pakistan has failed to find replacement funding and the project is dead for all purposes.
All this brings up front the flip-side of Pak-China economic relations. It is that Beijing’s concerned over Pakistan’s stability politically and militarily. It is also worried over Pakistan’s tryst with Islamic militancy and the emergence of a Taliban emirate in the North Waziristan, which has become the life-line for Uyghur militants. China’s interest in limited in so far turnaround of Pakistani scrip is concerned. For Pakistani political leaders, China card offers a means to rattle Washington; that is why they have been systematically playing up the ties with China. The hype over Nawaz Sharif’s latest visit to Beijing is falls into this pattern; no more no less.
A couple of facts will be in order. Notwithstanding Pakistani claims, the Chinese investment flows are not very high. The Heritage Foundation’s China Global shows only $1.2 billion investment and other contracts through 2010. Bulk of this in-flow was on account of China’s acquisition of a local cellular telephone company and investments in Pakistan’s telecommunications system. The Economic Corridor project is still on paper. It is yet to take off, and appears to face several hurdles.
When compared to the investments the Chinese have made in Africa, and nearer home in Indonesia, the Yuans that have come into Pakistani market are not that very high. What is high, however, are the low cost poor quality products of daily use like torch lights, clothes, blades, bangles, face creams, car tyres and tubes, besides cheap medicines which are sold across the shelf.
– By Malladi Rama Rao
