Pakistani Prime Minister Imran Khan has just concluded his five day visit to China which saw him hold meetings with top Chinese officials including President Xi Jinping in Beijing before flying to Shanghai where Xi, Imran and other world leaders opened the first China International Import Expo (CIIE). While Imran’s visit was one characterised by mutual optimism in respect of intensifying the all-weather friendship between China and Pakistan, now that Imran is back in Islamabad, it becomes crucial to assess the specific achievements and/or shortcomings of his historic visit.
Loan or no loan?
Many expected Pakistan’s Prime Minister to depart from China with a guarantee for a loan that will help Islamabad to plug the substantial current account deficit left by the previous government. In October, Imran secured a $3 billion loan and a further $3 billion deferred payment agreement with Saudi Arabia after meeting with de-facto Saudi leader Crown Prince Mohammad bin Salman as well as the Saudi King.
Many expected Iman to leave China with a similar agreement although this has not happened. Predictably, Indian media and Pakistani media hostile to the PTI government have classed this as a failure. Yet, no single element of a visit that covered a wide variety of issues can be analysed in a vacuum and as such, it is simplistic to class the substantial visit as a failure simply because China did not offer a Saudi style loan to Pakistan.
China is well aware that in spite of previous IMF loans and loans from partner nations, previous Pakistani governments have not made proper use of such cash injections. The proof of the failure of previous Pakistani governments in this respect lies in the fact that Pakistan is back to square one in terms of requiring further injections of hard cash due to prolonged irresponsible fiscal policies and woefully inadequate tax collecting on the part of previous governments.
Beyond this, black propagandists from throughout the world (including in some quarters of Pakistani mainstream media) have accused China of offering unrealistic loan agreements to partner nations while failing to accept that like in any mature partnership, responsibility is required from both sides. This has naturally made China think twice before offering loans that could potentially garner bad publicity should the party accepting the loan find itself unable to fulfil the terms of the agreement.
By no means is this to say that China thinks that the PTI government is a carbon copy of previous Pakistani governments, but it does imply that in any situation where large loans are offered, China will examine the geopolitical due diligence underlying such agreements before offering any publicly aired concrete proposals.
Beyond this, China’s method of elevating its own people as well as working with partner nations has always been based on a sustainable growth model that prioritises joint infrastructural development, joint job creating initiatives and mutual trading pacts that allow a financially poorer partner to trade its way into solvency rather than borrow its way into temporary rather than sustainable solvency. To put it another way, while some partner nations give an indebted party a fish, China would rather give a world-class fishing poll so that a partner can learn how to fish for its own proverbial meals over the medium and long term future.
The overall tone of the meeting as well as the agreements which were made indicate that this was China’s goal and in this sense the goal has been achieved on a win-win basis.
Trade in national currencies
Of the fifteen memoranda of understanding (MOUs) signed between China and Pakistan, by far the most far reaching is the agreement to conduct bilateral trade in a combination of Chinese Renminbi and Pakistani Rupees. This effectively ends the domination of the US Dollar in trade between Pakistan and its most vital partner.
This itself will function as a kind of a loan as it will relieve pressure on Pakistan in terms of requiring Dollar reserves in order to buy much needed goods from China while it will also allow Pakistan to simultaneously build up reserves of the increasingly important Renminbi over the long term.
As the rate-hike heavy policies of the US Federal Reserves combined with the Trump trade wars that have put pressure on currencies in emerging markets are combining to make Dollar based repayments all the more difficult for developing economies, by switching to a bilateral currency agreement in trade with China, Imran Khan’s government has helped to shield Pakistan from the increasingly tumultuous reality that is implicit in respect of dealing in Dollars when one is an emerging market economy.
China to bolster Imran Khan’s housing drive
One of Imran Khan’s flagship domestic policies is the Naya Pakistan Housing Project. The new government seeks to build modern homes for millions of Pakistanis throughout the nation as part of the drive to reignite the spirit of the Islamic welfare state that national father Muhammad Ali Jinnah envisaged.
China looks set to contribute expertise to the Naya Pakistan Housing Project which will be an invaluable asset in terms of expediting the project as China has a proven track record of rapidly building modern housing infrastructure. By learning form China, Pakistan can see the creation of new local communities that themselves can help to become modern dynamic economic centres for future residents.
CPEC Special Economic Zones
During the early days of the 1978 Deng Xiaoping reforms, China created a series of Special Economic Zones (SEZs) in strategically located areas. These SEZs served as a model for China’s future economic drive for openness as the SEZs allowed for the inflow for foreign capital, technology and services which created jobs in the short term and allowed China to then develop its domestic industrial base that continues to lead the world.
During bilateral meetings between Chinese and Pakistani officials, it was agreed that China will help Pakistan to create its own SEZs along the China-Pakistan Economic Corridor (CPEC). This can help to transform Pakistan’s long term economic development on a model that helped China to achieve immense success over the last 40 years.
As CPEC carries goods and now people across a highly diverse terrain, strategically placed SMZs can help Pakistan to internationalise CPEC and in so doing, Pakistan can be transformed into a hub of world trade and innovation exchange that will have positive long term economic effects, the likes of which were previously thought impossible.
During his keynote speech before the CIIE, Imran Khan affirmed Pakistan’s commitment to free trade and economic openness. As he quoted Xi Jinping regarding China’s perpetual state of modern economic openness, Imran gave an indication that Pakistan’s own markets will open up to more foreign investment and goods at a time when both can help to revitalise the economy.
As Pakistan is strategically located and as such has been referred to as the “zipper of Asia”, by embracing free trade, Pakistan can geopolitically position itself at the centre of major trading crossroads linking the Pacific to the Afro-Mediterranean region via important maritime belts as well as linking south Asia to central Asia and northern Eurasia via new trading roads.
Free trade can help Pakistan to become a regional economic leader in terms of goods, services and logistics. Such a development will have far reaching positive implications for the domestic economy.
The key takeaways from Imran’s visit to China include a mutual agreement to trade in national currencies rather than the US currency, an agreement to open Pakistan up to new trade and foreign direct investment, the creation of Special Economic Zones along CPEC and agreements to work jointly on infrastructural development including on Imran’s flagship Naya Pakistan Housing Project.
Of course, China will be in close communication with its Pakistani partners regarding the latter’s discussions with the IMF regarding a loan to plug the current account deficit. While China did not offer a loan upfront, it remains a likely possibility that if the IMF proposed terms of a would-be loan agreement threaten China’s long term connectivity projects in Pakistan, Beijing may ultimately offer a short term fish in to its all-weather friend in addition to the fishing poll that China has already given to Naya Pakistan.