The Effects of China-Pakistan Economic Corridor on Foreign Policy of Pakistan

INTRODUCTION

There is a positive correlation exists between international trade and its effects on economic growth (Afonso, 2001 and Caleb et. al., 2014). International trade acts as a major factor of openness in trade relations. In recent decades, China has emerged as a potential regional trade giant of Asia. Chinese international trade has experienced rapid expansion together with its dramatic economic growth which has made the country target the world as its market. This research discusses the role of the China-Pakistan bilateral agreement of developing the China-Pakistan Economic Corridor (CPEC) on the foreign policy of Pakistan. The CPEC project will link Kashgar (China) with the warm waters of the Indian Sea at the place of Gwadar (Pakistan). The CPEC is part of China’s vision of the “One Belt One Road” (OBOR) initiative announced by President Xi Jinping of China in 2013. This initiative comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road which subsequently became a vital foreign policy for China in many aspects, mainly with the intention of promoting economic cooperation amongst countries along the “Belt” and “Road” routes. The Silk Road Economic Belt focuses on connecting China to Europe through Central Asia and Russia, the Persian Gulf through Central Asia and South East Asia, South Asia, and the Indian Ocean.

The paper reviews the conception as well as the evolution of China’s international trade regime and the policy that China has taken in favor of trade sectors and how it is related to Pakistan. In addition, China’s international trade performance is analyzed extensively. This research then evaluates the effects of international trade on Pakistan’s economic growth through examining improvement in productivity as an expected result of the CPEC and then linking this bilateral agreement with the foreign policy of Pakistan. Policy implications are drawn from the empirical results accordingly.

PROBLEM STATEMENT

China’s international trade has experienced rapid expansion together with its dramatic economic growth which has made the country target the world as its market. The stable political system, vast natural resources, and abundant skilled labor in China have made it a modern global factory. Discussions of the role that international trade plays in promoting economic growth and productivity, in particular, have been ongoing since several decades ago. A core finding from the comprehensive literature shows that internationally active countries tend to be more productive than countries that only produce for the domestic market. Due to liberalization and globalization, a country's economy has become much more closely associated with external factors such as openness. Thus, conducting a study on the effects of international trade on foreign policy is of great significance in this globalized era. It helps policymakers map out appropriate policies by determining the policy impacts and how to improve the trade relations to have a cordial foreign policy.

China’s integration into the global economy has largely contributed to its sustained economic growth. The recent CPEC agreement between the government of Pakistan and China is one of China’s penetration in the global economy. Both of the governments are adamant that CPEC will boost not only the international trade of China and Pakistan but will also improve diplomatic relations. As Small (2015) argues that China has been Pakistan’s diplomatic protector besides the chief arms supplier and its call for last resort when every other supposed friend has left it in the lurch. This research questions that whether the foreign policy of Pakistan will be compromised in the presence of investment / Foreign Direct Investment (FDI) of China or Pakistan will maintain its foreign policy independent of any G2G agreement.

RESEARCH METHODOLOGY

The study will be done in a constructivist paradigm. Interpretivist position shall be taken for this descriptive study. It will be purely a qualitative research. My data sources are mostly secondary by consulting various federal government departments related to CPEC planning, projects execution and management. Scholarly articles and well researched books will be consulted. Since, the study covers a recent phenomenon, so my data limits exists. With the help of these data sources, research questions shall be answered. Content analysis will be used to analyze data.

SCOPE AND SIGNIFICANCE OF STUDY

The scope of the current study is confined to the G2G agreement on CPEC and seeks specific answers to the questions of neutrality of Pakistan’s foreign policy towards China ensuring its fundamental determinants i.e. size/geography, economic development, security, and advancement in technology, national capacity, political parties/leadership, ideology, and national interest, the role of press/bureaucracy, social structure, public opinion, and diplomacy. It is dealt with as an intensive case study model, to understand the challenges and opportunities associated with this development.

The study will contribute to the existing body of knowledge and helping to improve the discourse prevalent on the issue. Moreover, certain technical issues are dealt with. Its relationship and impact on foreign policy are tried to be determined.

THE GEOGRAPHY OF CPEC ROUTES

The CPEC routes will pass through the strategic depth of Pakistan from north to south. Currently, three routes are identified (see Fig. 1) which culminate from Karakoram Highway (N35). The N35 is a common alignment from the China border to the Pakistani city of Hassanabdal in Punjab province. The CPEC will follow three route alignments throughout Pakistan to which the All Parties Conference agreed in May 2015.

Figure 1 CPEC Route Network in Pakistan
Source: National Highway Authority, Islamabad, 2016

ROUTE 1 (WESTERN ALIGNMENT)

The western alignment of CPEC will start from Brahma Bahtar (Punjab) to Dera Ismail Khan (KPK); DI Khan (KPK) to Zhob (Balochistan); Zhob to Quetta and finally linking Quetta to Gwadar via Kalat, Surab, Basima, Panjgur, Hoshab, and Turbat.

ROUTE 2 (CENTRAL ALIGNMENT)

The Central Alignment of the CPEC follows the same route as that of Western Alignment (from Burhan to DI Khan). It starts from DI Khan to Bhakar-Layyah-DG Khan; DG Khan to Shahdadkot. From Shahdadkot it connects with the Sukkur-Khuzdar section of Motorway (M8).

ROUTE 3 (EASTERN ALIGNMENT)

The Eastern Alignment, from Hassanabdal via Peshawar-Islamabad Motorway (M1) to Islamabad-Lahore Motorway (M2) then taking the route of Pindi Bhattian-Faislabad Motorway (M3); Faislabad-Multan Motorway (M4); Multan-Karachi Motorway (M9) till Sukker; and then finally linking Sukkur to Khuzdar-Gawadar Motorway (M8).

PAKISTAN’S FOREIGN POLICY AND CHINA

The 21st century has witnessed growth in various international diplomatic relations by exploiting trade relations. Global peace and economic prosperity thus require partnering countries to align their foreign policies as per the geo-economical and geo-strategic scenarios. State interests and national security are paramount parameters to sustain international trade relations between G2G, which are prime pillars of the foreign policy of any country. States thus define their interests and reshape their internal and foreign policies to secure international trade as it becomes a major source of revenue. The world also has seen the loss of momentum in the multilateral system (Bhagwati, 1991) and the movement toward bilateral agreements (Dornbusch, 1990) has sparked renewed debate over the relative merits of the two approaches to trade liberalization (Irwin, 1993). High-level talks and diplomatic consultations are the hallmarks of ever-growing cooperation among states in multi-faceted fields such as industrial ventures, infrastructure and development programs, defense, commerce, and the related area of the economy (Noor et. al, 2008).

Targeting the global market, China has successfully converted itself from an inward-oriented country that was protected by various trade policies to an outward-oriented one with an open market (Sun et. al., 2010). Thus China is trying to strengthen its role not only in the Asian region but in the entire world. China is further trying to shift its multilateral diplomacy to bilateral diplomacy. China’s “Good Neighbor Policy” is a new strategy of peaceful development to promote interdependently, rather than competitive, relationships with its neighboring countries and the world. In recent years, China’s bilateral ties with Pakistan have taken a new shape of diversification from the traditional focus on defense and military cooperation towards a greater economic and investment orientation. In harmony with this strategy, China has turned its nearest regions into a new regional trade hub. Regional connectivity is one of the most important aspects of Pakistan’s foreign policy which improves multilateral and bilateral relationships with the neighboring countries.

Pakistan has also been trying to cultivate friendly relations with its neighboring states. Maintaining a worthy and good relationship with China has been an integral part of Pakistan’s foreign policy objectives, as China is Pakistan’s strategic partner. Historically, China has helped Pakistan in maintaining a balance of power in the region. Pak-China ties have kept growing and have strengthened ever since 1951 when their friendship began. China has always been a key component of Pakistan’s foreign policy so much so that in 1970, Pakistan played a key role in arranging Nixon’s visit to Beijing.

With the support of China, Pakistan secured strategic importance not only in the region but the entire world. In recent years, both China and Pakistan have been making concerted efforts to revive the historic Silk Road which is one of the oldest known trade routes in the world and will provide a route for trade from Kashgar (China) to Gwadar (Pakistan). As aspired, the China-Pakistan Economic Corridor plan will help Pakistan to become one of the most strategically important countries in the region. It will also provide an opportunity for China to implement its Naval Strategy by building a naval base at Gwadar port.

PAKISTAN-CHINA TRADE RELATIONS: FOREIGN POLICY PERSPECTIVE

Historically seeing China-Pakistan relationship started in 1950 when Pakistan recognized China as the People’s Republic. A strategic alliance was also established in 1972 when China helped Pakistan in the construction of the Karakoram Highway. In 1963, Pakistan and China established bilateral trade and commercial links by signing their first bilateral long-term trade agreement (Ministry of Finance, 2014:126). Pakistan and China further signed the Bilateral Investment Treaty in 1989 which opened further access to the Pakistani market to Chinese investors and businessmen. China-Pakistan relationship has gradually improved both in terms of exports and imports.

While the United States outranks China in private investment as the latter focuses its investments on the public sector, Sino-Pakistani trade is currently 20% higher than US–Pakistani trade. It was only in the late 1990s that the total value of Sino-Pakistani two-way commerce began to shoot upward, expanding from less than $1 billion in 1998 to $2.4 billion in 2002, then to nearly $7 billion in 2007 (Hartpence, 2011) and current trade figure stands at US$ 8.7 billion which is four times higher than the 2002 figure. Recent, trade agreements ‘Free Trade Agreement (FTA) 2006’, Pakistan got an opportunity to secure market access for several products of immediate export interest. Pakistan and China further signed the FTA on Trade in Services in 2009 that to promote Chinese investment in the services sector in Pakistan (Ministry of Finance, 2013).

If carefully viewed, the Chinese model of investment in other parts of the world especially Africa, it would be evident that in essence, the Chinese investment brings economic growth objectives and foreign policy together guiding trade and investment decisions (Zafar, 2007). It is also expected that the CPEC as Chinese investment in Pakistan will bring multiplier effects of economic growth in the country. The vision for establishing an economic route between China and Pakistan was first revealed during the Musharraf era. However, it got matured in May 2013 when Chinese Premier Li Keqiang emphasized the construction of the CPEC. During his visit to Pakistan, the CPEC agreement was signed. A further sequence of bilateral agreements in the context of CPEC was signed between Chinese and Pakistani governments in the years, 2013 – 2014 which paved the efforts to implement the plan. The CPEC agreement pledges US$ 45.6 billion investment in Pakistan through Chinese banks and companies in energy and infrastructure projects along the corridor.

The CPEC agreement acts as a deepening strategic relationship between the two countries. Since the signing of the CPEC agreement, the relationship with China has improved not only in trade and economic sectors but also in foreign policy.  Though the Chinese US$ 46 billion investment seems lucrative for Pakistan it has also triggered concerns over the increased involvement of Chinese intervention in Pakistan’s internal matters especially security scenario.

WHAT CPEC IS MEANT FOR PAKISTAN’S ECONOMY?

OPPORTUNITIES FOR PAKISTAN

Since, 9/11, it is the largest foreign direct investment in Pakistan. The corridor will connect Gwadar Port in Balochistan (Pakistan) to Kashgar in north-western China. Chinese will be helping Pakistan to fully operationalize the Gwadar Port. However, the control of Gwadar Port was transferred to China’s state-owned China Overseas Ports Holding in February 2013. The CPEC project is expected to be completed by 2030. Till that period, Chinese companies will be investing in Pakistan from short-term, medium-term, and long-term projects. However, upon completion of CPEC, it will act as a major trade route between China, Middle East, and the Central Asian States.

Besides, investment in communication networks, China will be investing in the energy sector in Pakistan. A total of 24 mega projects in the power sector will be completed worth US$ 34 billion. A total of 7 projects worth US$ 800 are allocated for Gwadar Port. The road and rail network of Pakistan will also be improved under the CPEC agreement. This will transform the Chinese “One Belt, One Road” dream by creating a new Silk Road in the region. Implementation of the projects under the CPEC has been divided into three phases. The short-term projects are estimated to be completed by 2017; midterm-term by 2025, and long-term by 2030 (Ministry of Planning, Development, and Reform, 2016).

The CPEC proves to be an opportunity for Pakistan to spur its economy in the changing global scenarios. The Chinese investment will act as a catalyst to attract further foreign direct investment from other countries as well. The contribution of foreign trade of China to the economic growth of Pakistan seems positive. The OECD (2003) conducted a study on the impact that trade had on the average income per population that concluded that foreign trade results in an increase of average income per population. Thus, it is expected that the spillover effects of Pakistan’s improved relationship with China will result in an increased income of the people of Pakistan. The services sector in Pakistan will significantly improve. Since, international trade is one of the channels supporting technological spillovers among countries which results in a favorable impact on the productivity level (Saggi, 2000).  Thus, the technology transfer between the two countries can further be boosted under the CPEC.

CHALLENGES FOR PAKISTAN

CPEC where bringing opportunities for Pakistan also poses a few challenges as well which may have direct impacts on Pakistan’s foreign policy. These include external and internal. The internal challenges in the implementation of the CPEC agreement and maintaining the Pakistan-China diplomatic relationship include political parties’ acceptance and consensus, political unrest, security situation, and administrative issues. The external challenges for Pakistan’s foreign policy in the perspective of the China-Pakistan Economic Corridor (CPEC) include Pakistan’s newly achieved geostrategic position and strengthened relationships with China in the eyes of the enemies of Pakistan both within and outside. The recent investigations by Pakistani law enforcement agencies indicate that India, Israel, and the US are trying to sabotage the CPEC agreement and thus maligning Pakistan’s image on the foreign diplomatic fronts. The political unrest and security situation in Balochistan province is one example. However, the government has to do concrete steps to thwart the anti-CPEC forces.

IMPACT OF CPEC ON FOREIGN POLICY OF PAKISTAN

Pakistan regards China as an “all-weather friend”. To sustain good relations with China, Pakistan’s foreign policy is mainly dependent on the following aspects

  • Political support for Pakistan’s China policy;
  • The role of the military establishment;
  •  The future law and order scenario in Pakistan

With regard to the first variable, in principle, almost all the political parties in Pakistan are in agreement to maintain friendly relations with China. Pakistan’s military establishment also considers China a trusted strategic partner in defense cooperation. Thus, it is in the interest of Pakistan’s military to further the relations with China. Also, Pakistani and Chinese geostrategic concerns have historically remained largely converged around many common areas of strategic and bilateral interests. The relationship between the two countries mainly hinges on four shared areas of interest that include ‘economic cooperation, energy security concerns of both countries, shared internal security concerns, and largely converging geostrategic interests’ (Mezzera, 2011).

This concludes that the sustenance of Pakistan’s China policy is likely to continue for the future whether it is a political or non-political government. Thus the CPEC project has a secure future to which successive future governments shall respect the consistency in Pakistan’s foreign policy towards China. It further implies that policy on bilateral trade with China will remain continued.

The concerns over the future law and order scenario in Pakistan however pose serious threats to maintaining Pakistan’s China policy. This is mainly on account of the involvement of foreign actors in spoiling the Pakistan-China relationship such as the India factor or terrorists.

CONCLUSION

For the rest of the world, the foreign policy of Pakistan will be based on maintaining the integrity and national interests at the forefront. However, for China, Pakistan’s foreign policy will be slightly skewed and compromised in the presence of investment / Foreign Direct Investment (FDI) of China. Pakistan needs China to balance its relationship with the US and India. China in return needs regional geostrategic supremacy. Thus China would like to be the predominant influence in Pakistan’s foreign policy. The foreign policy agenda will be driven by China, although many areas of cooperation have been established at the behest of Pakistan. China will continue to exercise its discreet influence on Pakistan. Pakistan has to make many serious decisions to implement the CPEC agreement in its true spirit. This also implies that Pakistan has to provide extra security to the Chinese nationals working in Pakistan and to do more to tighten the security for Chinese installations in Pakistan. This further requires that Pakistan has to provide extra security measures along the CPEC routes. Pakistan also has to maintain a good neighbor policy to establish a friendly and peaceful environment for sustainable economic development.

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