Since his recent China visit, Prime Minister Nawaz Sharif has repeatedly emphasised that an economic corridor from Gwadar to Kashgar could enormously benefit Pakistan.

Kashgar has never hit the news so much locally, since Iqbal dreamt about Muslims uniting from the Nile to Kashgar to protect Mecca. But, Iqbal’s ‘Nile-to-Kashgar’ political dream remained unfulfilled. Skeptics are asking whether the PM’s ‘Gwadar-to-Kashgar’ economic dream will fail similarly, despite encompassing a geographically less ambitious integration agenda.

Weary Pakistanis have repeatedly heard fanciful stories about economic bliss just lurking around the corner, including during Ayub’s decade of development, Bhutto’s economic socialism, Sharif’s 1990s economic liberalisation, Benazir’s $40 billion MOU-signing spree in 1993-96, and Musharraf’s economic miracle-turned-mirage. Thus, Pakistanis must sift rhetoric from the reality of integrating with China carefully.

China is the world’s latest growth pole. Growth poles are large, fast-growing economies that can benefit or harm other countries through multiple transmission mechanisms. So, Japan facilitated development among ‘Asian Tigers,’ but undermined America’s manufacturing sector. Thus, one must analyse each mechanism to see whether Pakistan can profit from piggybacking on China’s rise.

Firstly, growth poles often import labour. This mechanism is unpromising because of China’s enormous population and strong controls on legal and illegal in-migration. Chinese wages are rising. Estimates show that China’s labour pool may shrink after 2025 due to its one-child policy. However, it may still eschew importing labour due to political concerns. Even if it allows in-migration, millions of ethnic Chinese in Southeast Asia will have a linguistic edge.

Secondly, growth poles affect others through trade. To date, China has boosted low value-added mineral exports from Latin America and Africa, and high-tech and intermediate goods exports from western countries and Asian Tigers.

However, it has undermined the manufacturing exports of other developing countries (including Pakistan) in low and medium-end sectors like textiles, by producing goods more cheaply and reliably. China’s low labour costs, its efficient infrastructure, superior management and governmental support fuel its edge. While labour costs may increase, these other factors will still ensure China’s manufacturing prowess.

However, there are always medium-end sectors where even manufacturing behemoths may be non-competitive due to idiosyncratic reasons. Other developing countries can aim to export such goods to China. But this requires significant research and marketing efforts by the private sector and governments, which are weak in Pakistan’s case. Without such efforts, Pakistan will remain confined to its current limited exports to China of mining and cotton products, with low profits and employment potential.

Pakistan could become a conduit for China’s two-way trade westwards. However, without adding value to the passing goods, it can only earn limited transport-related revenues.

While Pakistan represents a short cut for trade for China’s western regions, this advantage is reduced by its narrow border link with China, which passes through disaster and conflict-prone mountainous territory, where providing world-class freeways is difficult. Poor fiscal, security and energy situations limit even this low-potential role.

Foreign direct investment (FDI) represents another mechanism. In becoming the largest third-world FDI recipient, China has diverted FDI from other developing countries. Recently, it has expanded its outward FDI. Some of it has gone to buying high-end companies in developed countries. Within other developing countries like Pakistan, it has mainly provided FDI to support its minerals imports, for example in dirty, dangerous and low-wage mines and related infrastructure (like ports and roads) and services. It has invested little in manufacturing sectors in other developing countries.

Chinese FDI in Pakistan, also focused largely on raw materials and minerals acquisition, has rarely exceeded one per cent of Pakistan’s annual FDI inflow. As with trade, Pakistan must undertake serious efforts to attract Chinese FDI in manufacturing to ensure high returns and job creation.

Financial flows represent the fourth mechanism, and include portfolio investment and aid. China is the largest global portfolio investor in sovereign paper. China temporarily parks small portions of its vast foreign reserves with Pakistan’s State Bank to help resolve balance of payment problems. But obviously, this helps in avoiding negatives, rather than facilitating positives.

China’s foreign aid is more opaque than western aid, and is largely tied to its economic goals of extracting minerals globally. Moreover, China does not provide budgetary support to struggling governments. Thus, its aid is almost synonymous with its FDI discussed above, and faces similar constraints in flowing to Pakistan.

Other mechanisms are non-economic, but have an indirect economic impact. Politically, China’s growing influence in global governance can help. Thus, China will likely veto economic sanctions moves against Pakistan in the UN. But again, this helps in avoiding negatives rather than facilitating positives. Politically, integration with China could reduce pressures on Pakistan to remain democratic. Environmentally and socially, huge trade through Pakistan’s mountainous north could hurt its fragile environment and exotic communities.

Thus, economic integration with China entails few low-hanging fruits and free lunches based on friendship alone. It requires serious work to appeal to China’s economic calculus. Ironically, economic integration with India may be more beneficial, since India is economically closer to Pakistan, though here too there is much rhetoric and little serious analysis of the likely impact on specific Pakistani industries.

To enhance economic integration with China, the government, the private sector and the civil society should jointly help fund a China study or economic study centre to undertake serious analysis on Pakistan-China economic integration.

Such analysis should identify China’s labour market, trade and FDI trajectories; Chinese industries becoming uncompetitive soon (which could be attractive for Pakistan); and the tasks that entrepreneurs and the government must perform to attract them. Moreover, its recommendations must be taken seriously. Otherwise, Nawaz Sharif’s dream will wither like Iqbal’s dream.

The writer is a political economist at the University of California, Berkeley. murtazaniaz@yahoo.com