Lecture 14 Wednesday 13th March 2019

RECAP

- Pakistan has played a pivotal role in the historical recognition of PCR in the United Nations,
particularly the
- Wide-ranging cooperation with China, a multitude of
- Nuclear power for civilian purposes and nuclear know-how for military purposes
- Pakistan was part of SEATO: a military pact that existed for the sole purpose of containing
Communism in China
- Aviation agreement
- Demarcation of the border at Gilgit Baltistan
- Trade agreement signed with China, relationship was given a rapid push

CPEC – China-Pakistan Economic Corridor -> a 3000 km long corridor that connects Pakistan
port city of Gwadar (Baluchistan) with Kashgar. Comprises of roads, railways, possibly oil and gas
pipeline, SEZs (special economic zones), industrial and energy projects.

It is an investment of over 60 billion dollars over a 15-year period; 2015-2030.

Part of the Belt and Road Initiative (BRI) -> key foreign policy project of Xi Jinping (President of
China). BRI comprises of six corridors:

1. China to Moscow
2. Moscow to Europe
3. CARs to Iran to Turkey
4. Maritime route to Africa – developing port cities along the way
5. CPEC
6. China to India (hasn’t taken off yet because India is unwilling to participate in this
completely)

CPEC was articulated in 2014 by Li Keqiang when he visited Pakistan in 2013 and promoted the
idea CPEC. In September 2014, Xi Jinping had to come to Pakistan but could not due to IK
dharna. Ultimately, the visit took place in April 2015.

Rationale for China’s economic interests in Pakistan

1) Pakistan- China understanding,

- Summit level understanding between the leadership of the two countries
- Higher Education Exchange
- Cooperation between the think-tanks of the two countries

2013, Chinese PM broached the idea of CPEC. He came to Pakistan and suggested this idea,
which was to be formally launched in September 2014. But, at the time PTI Dharna was taking
place in Islamabad. The visit of China was postponed (which was planned years ahead, not just a
few months).
Lecture 14 Wednesday 13th March 2019

Chinese President came back in April 2015, he addressed the joint session of Parliament (Senate
and NA) - READ HIS SPEECH – where he discussed the Pak China’s historic relationship and how
it would further prosper through

2) Wants to intricately connect itself with Europe so that this area (Eurasia) becomes a
counterforce to United States’ hegemony in the Atlantic trade; one of such US dominated
trade route – Straits of Malaka

Silk Road Initiative aka China’s Belt and Road Initiative

 Announced in 2013 by President Jinping 2013

 Six corridors to be established within Asia and one that connects China to Europe.
Trillion-dollar project
 Historically, a lot of wealth of the region resided in China, Mughal India, Abbasids in Iran
and the Ottomans
 Ibn-e-Battuta and other famous Muslim travelers, and wrote a fabulous travelogue on He
wrote that wherever there is high-taxation
 Marco-Polo from Italy. Italy was undergoing renaissance (Europe was trying to recover
from a dark period of persecution, bigotry). He brought Italian goods into Asia,
particularly China reciprocated. These travelers used the ancient silk routes.
3) China has foreign exchange reserves exceeding 3 trillion dollars. So, it has bought low
yielding US treasury bonds - > 1.5 million dollars-worth. Why not invest in countries where
return would certainly be higher. Economic incentive.
Once you are investing this money in infrastructure and using cement, steel etc that is
manufactured in China – your own industries run smoothly, and all the surplus is exported.
Helps Chinese manufacturing industry a great deal. Railway line from KHI to PWR –
locomotives imported from China.
Loans taken from Chinese banks with lower interest rates.

Why is China trying to revive the Silk Roads?

1) China’s production surplus. They are producing more than what their 1.3 billion people can
consume. They cannot afford to have a great chunk of their population be unemployed. The
people will be unhappy, (people become angry – a jump), areas that are economically
depressed have higher rates of crimes and China wanted to avoid that at all cost.
China produces the most goods in the entire world, it has a lot of surplus. They want to
promote their exports.
This is a tremendous opportunity for Pakistan, they could also utilize this route.

China is extremely competitive. Their products have infiltrated the international market due to
its competitive price. The Chinese state is constantly intervening to help the exporter in the
country. China is using unfair means to promote their products (Inmates making dollar
joggers/trainers – minimum to zero pay). China has huge barriers to entry for foreign goods.
Lecture 14 Wednesday 13th March 2019

China, India and Pakistan can never compete with the former colonial powers in terms of the
quality and sophistication of their product.

Under the WTO, the global powers have agreed to not isolate the economies of developing
countries (who thrive on charging high percentages of import duties on luxury goods –
American Harley Davidsons’ in India).

2) China wants to replace United States as the greater exporter in Europe. The US trade with
Europe being replaced with Europe trade with the Pacific, shift from Atlantic to Pacific.
3) Chinese companies have come to the mainstream.
Alibaba competing with Amazon. Huawei has allegedly stolen Canadian technology, and
broken Iran Sanctions agreement. The established sees a threat from a rising power (China) –
Thucydides Trap: using all types of tactics to curtail the rise of china.
 Already have imposed high tariffs on Chinese imports into United States (worth half a
trillion dollars) and is planning on imposing further tariffs.
 Effort of the western countries to curtail the rise of China. Europe can be
4) Political factor. Chinese philosophy – where there is prosperity, there will be peace. The
Chinese state want to have a peaceful environment around China. In case of hostilities within
Pakistan, or Pakistan-India aggression (China will cooperate, but not for very long).
Fundamentally, the environment can only be peaceful as long as there is trade and economic
activity. If economic development is brought to these critical areas – Central Asian Republics
(CARs) and Pakistan which connect with Xinjiang – then the Uighurs will be happy. Perhaps
this will decrease support for ETIM which has bases in Afghanistan, Pakistan and CARs.
Doesn’t China’s imposition of development on Xinjang, lead to destruction of
historical/cultural aspects and civilization in the Uighur majority province – cause of
backlash?
5) Strates of Malaka – islands whose occupation is important for China. Southern side of
Chinese border. There are American military and naval bases, strong American presence due
to Singapore-America Bond. China doesn’t want all of its trade going through this narrow
route, strongly influenced by the US (Malaka dilemma).
6) China has to protect its trade, they need integration of military component in their trade
routes.
Port of Gwadar is being used for commercial purposes. Chinese are making a base in Jabooti
and Aden.

Rationale for Pakistan’s interests with China

 Counter Indian hegemony in the region.

 Pakistan becomes strategically more important for China. China would ensure peace
and stability in Pakistan.
 Economic development. Pakistan has a sluggish economy.
CPEC is a 40-billion-dollar project of development of roads, powerplants, Gwadar. No load-
shedding, you need electricity to become a state that produces stuff.
Lecture 14 Wednesday 13th March 2019

 22000 megawatt
 Western countries think that China is partly stupid to walk into a debt trap. China has a 3
trillion-dollar foreign reserve. Pakistan has 12 billion (8 of the state bank, the rest from
private banks)
 Because of terrorism and other policies, nobody is prepared to invest in Pakistan.
 At least they are getting returns from this money. Usually, they were put into American
Treasury Bonds that directly support the American economy.
 Diversifying sources of energy – coal, solar & wind
 Hospitals – social responsibility projects
 Security implications – Security threats to CPEC
 India believes that it is being built in a region which is disputed (GB in Jammu and
Kashmir)
 India is supporting terrorism in Pakistan – as claimed by the military and the
governments
 Baluchistan is another weakness – India is providing safe havens to separatists +
militants e.g. Yadhav in Baluchistan?
 Afghanistan – after Zarb e Azb, many people fled to Afghanistan – which is now the
base for anti-pak factions to plan their missions

 Financial arrangements
 Under 10% of CPEC is based on grants and concessional loans
 Loans from private parties under CPEC (could be higher than these), Transparency not
very good.
 Concessions Pakistan has given to China
 China brings its own labor – Pakistan labor partially benefits
 Duty on imports of cement etc? Pakistan industry not benefitting
 Pakistani companies outbid by Chinese – they can make products cheaper (competitive)

Political implications

 China wants Pakistan to ensure safety and security of CPEC

 1996 Chinese President’s address to Pakistan: “issues of national security must be put
at the backburner and matters concerning socio-economic development should be
pursued. Once economically strong, you can go back to pursuing securitization”
 Chinese pressures on Pakistan likely to increase. For now, Chinese interested in
domestic politics is low.
 China might allow India to use CPEC but extract huge tariffs from them. This might achieve
India dependence on CPEC.
Lecture 14 Wednesday 13th March 2019

Economic implications

 China is benefitting from low labor cost in Pakistan

 About 2% raise in GDP
 4 billion dollar return to China in loans – per annum
 Huge opportunity for Pak; standard of living will improve, and economically backwards areas
are being brought to the mainstream