CHINA-PAKISTAN RELATIONS: WHO REALLY BENEFITS?

MAHVISH JADOON
Aug 13 - 19, 2007

The recent spate of attacks targeting Chinese in Pakistan has been a source of deep concern for both countries. Last Monday Pakistani and Chinese officials signed an agreement in an attempt to safeguard Chinese nationals from attacks in Pakistan. Under the agreement a joint task force comprising of senior Pakistani Interior and Foreign Ministry officials and Chinese diplomats in Pakistan will be set up which will meet once a month to review the security situation. Incidents such as the killing of 3 Chinese nationals working in Peshawar on July 8, an attempted suicide attack on a group of Chinese engineers in Balochistan on July 19, and the kidnapping of Chinese owners of a massage parlour in Islamabad by Lal Masjid students have all contributed to the sense of insecurity felt by China as well as Pakistan.

These incidents have taken place at a time when Pakistan is desperate to attract more investment from China. To this effect Pakistan has recently signed a Free Trade Agreement and a Cooperation Agreement with China, along with the establishment of a Pak-China Joint Investment Company. Prime Minister Shaukat Aziz while talking to President of Metallurgical Construction Corporation (MCC), a Chinese state-owned company investing in consumer products in Pakistan, said that Pakistan has emerged as a destination for foreign investors due "investor-friendly" and "growth oriented" policies of the present government. If the Government's policies have been such a success of late then why may Mr. Aziz explain, have most of the investors from China been state-owned companies or the Chinese government itself? The rate of private investment from China has actually declined after 2003-04, the FDI figures only improve when investment from Hong Kong is added to that of China (Table 1).

TABLE 1

FOREIGN DIRECT INVESTMENT FROM CHINA AND HONG KONG

YEARS

FDI FROM CHINA

FDI FROM HONG KONG

FDI FROM CHINA + HONG KONG

TOTAL FDI INTO PAKISTAN

2001-02

0.26

2.77

3.03

484.7

2002-03

2.98

5.63

8.61

798.0

2003-04

14.3

6.3

20.6

949.4

2004-05

0.44

32.35

32.8

1,524

2005-06

1.7

24.03

25.7

3,521

( US $ Million )

Source: Government of Pakistan Board Investment

 


TABLE 2

CHINA'S TOTAL TRADE VOLUME WITH PAKISTAN AND OTHER COUNTRIES

YEAR

1997

1998

1999

2000

2001

2002

2003

2004

2005

Pakistan

1.07

0.915

0.971

1.09

1.30

1.80

2.43

3.1

4.26

 

(20.21)

(18.74)

(17.21)

(18.88)

(19.93)

(19.47)

(23.38)

(27.90)

(34.98)

India

1.83

1.92

1.98

2.77

3.60

4.94

7.6

13.6

18.73

ASEAN

25.06

23.66

27.20

38.55

41.80

54.76

78.2

105.9

120

Japan

60.81

58.02

66.16

83.20

87.88

101.97

130

167.9

200

USA

49.03

54.99

61.49

83.30

80.61

97.31

126

169.4

211.63

( US $ Billion )

The figures in brackets refer to the Total External Trade Volume of Pakistan in billion dollars.
Sources: United Nations Economic and Social Commission for Asia and the Pacific, Statistical Yearbook for Asia and Pacific (1989, 1993, 2003), Bangkok.
International Monetary Fund, Direction of Trade Statistics Yearbook 2001, Washington.
Economic Survey of Pakistan 2005-06.
(As compiled in Institute of Peace and Conflict Studies, Special Report 30, September 2006: China Pakistan Economic Relations)

The trade volume between China and Pakistan over the past has actually been minimal in contrast with regular statements issued by government officials. China's trade volume with Pakistan is a fraction of its trade with other countries/regions such as ASEAN, Japan, and even India (Table 2). The trade between China and Pakistan does not benefit Pakistan's economy directly as it gives rise to a major trade deficit. In the year 2004-05 exports to China only amounted to $911 million whereas imports were around $1.9 billion. A brief on China by the Pakistan Board of Investment says: "Trade Balance between the two countries is greatly in favour of China mainly due to import of Machinery, Iron & steel, Tyre & tubes, Chemical products." Exports have mainly consisted of raw cotton since 1992, even though China itself is a major exporter of cotton. Mainly because there has been no diversification in Pakistan's exports that total exports to China have hovered between $670 million and $910 million between 2000-01 and 2005-06; whereas imports from China have grown from $215.49 million to $1,024.93 million in the same period.

China's relationship with Pakistan is thus no doubt more of a military-strategic relationship rather than an economic one. Pakistan is important to China for many reasons; it is China's strongest link to the Islamic world. A link that the 2nd largest importer of oil in the world needs. The deep sea port and naval base in Gwadar will not only secure the oil supply of China-60% of which comes from the Middle East through the Strait of Hormuz- but will also help China strategically. "It is said to be the western-most pearl in China's "string of pearls" strategy (this is a strategy that envisages building strategic relations with several countries along sea lanes from the Middle East to the South China Sea to protect China's energy interests and other security objectives), the other "pearls" being naval facilities in Bangladesh, Myanmar, Thailand, Cambodia and the South China Sea," reports the Asia Times. China agreed to fund the construction of the port in March 2002, after the US landed in Afghanistan in 2001 even though Pakistan had identified Gwadar as a port site since the 1960's. The port will also enable China to monitor US and Indian movement on the Arabian Sea.

Pakistan's defence industry has been a major recipient of China's aid package, aid which is not conditional on advances made on "terrorism" as it is with the US. Pakistan is jointly manufacturing JF-17 aircraft with China, Air Chief Marshal Tanvir M. Ahmed said talks are underway with China in connection with the acquisition of AWACS and a high-tech aircraft FC-20, reports the Associated Press. China is also supplying Pakistan with nuclear technology and assistance. "The Pakistani nuclear program is largely the result of Sino-Pakistani relations," says Jing Huang, senior fellow in Asia studies at the Brookings Institution. There have also been reports of the sale of small arms, and short and long range ballistic missiles.

The present regime and the ones to follow will continue to desire stronger relations with China as the popularity of US fades more and more in the world. Sentiments expressed recently in National Assembly sessions by the Opposition reflect such thoughts. Parliamentary Secretary for Defence Tanveer Hussain said: "we should improve our relations with Iran, China and Russia as the United States will not give us anything except threats," though the Foreign Office issued a statement the next day distancing itself from his views. For the moment Pakistan seems to be doing a balancing act between the US and China, supporting the US War on Terror even though it has brought it to the current law and order crisis. If the situation in Afghanistan and Iraq is to serve as an example, then the stability of countries on the other side of the world are not very important for the US. Whereas an unstable Pakistan will cause instability in Muslim-majority regions of China, and increase feelings of separatism there. A stable Pakistan would also benefit China by ensuring the safety of its energy routes and defence positions.