The Long-Term Plan (LTP) for China-Pakistan Economic Corridor 2017-2030 (CPEC) unveiled recently is in essence and for all practical purposes a ‘conceptual framework ‘, as Federal Minister Ahsan Iqbal himself puts it. The official document says it will provide ‘guidance’ for implementation of new CPEC projects.
The so-called LTP is a tall order embracing almost all facets of economic and social life. Without evolving any strategy, priorities, and sequence of projects required for balanced economic development, the document sets timelines for short-term projects to be ‘considered’ up to 2020, medium term projects up to 2025, and long- term projects up to 2030.
It states that “the two countries are highly complementary to each other in investment and financing, making financial integration much easier.” Pakistan’s burgeoning trade deficit with China cannot be significantly reduced on a durable basis by ‘financial integration’ as it carries the risk of financialisation of the Pakistan economy.
The LTP also banks on China to give full play to its advantage in investment and finance in accordance with the principle of joint investment, joint construction and sharing of profits. But so far much of the domestic industry and businesses including local technology and engineering firms, etc. feel left out; protesting of being denied direct participation in an enterprise labelled as a ‘game changer.’
Though a comprehensive transportation corridor and industrial cooperation will be LTP’s ‘main axis’, the construction timetable will be set on “readiness of each project.” The priority needed for projects to push up exports or import substitution is lost in the narrative of the CPEC vision.
In his book ‘Dilemmas of Domination’, Walden Bello says “speculative finance has replaced industrial and manufacturing activity as the primary source of profit. This is profoundly destabilising.”
The strategic partnership with China has to be consolidated by special measures to rebalance Pakistan’s economy, to realise the LTP’s vision of shared ‘indivisible common destiny’
He was referring to the prevailing Anglo-Saxon model of the global financial market, though its adverse impact is somewhat softened by access provided by developed countries to their markets for exports of simple manufactures from developing states.
China has no such mechanism in place so far to balance bilateral trade, spurred by its export-oriented investments, particularly in hard currency-starved countries like its strategic partner Pakistan.
In its first phase, as expected, CPEC helped to speed up development, improve supply side of the economy and sustain growth trajectory owing to early harvest projects. The volume of bilateral trade has risen at a rapid pace of 18.8 per cent per annum for the past five years.
However, there has been an enormous surge in Pakistan’s imports, while its exports simultaneously recorded a decline. The overall trend is unlikely to be reversed any time soon.
According to a State Bank of Pakistan (SBP) study, a substantial amount of imports have been diverted towards China after the 2007 FTA was signed. Pakistan’s top imports are largely from China except for oil.
The positive side is that modern technology and cheaper raw materials have helped cut costs of local industrial production. The main import items from China include electrical equipment, high technology machinery, iron and steel, organic chemicals, and man-made filament. More than half of the electrical equipment and machinery comes from China.
Some of these and others areas have been listed in the LTP for attracting investment.
The tariff concessions under FTA have provided Chinese goods with an equal opportunity to compete with local producers, hurting a strong segment of the local industry which needs to be protected. These include: chemicals, ceramics, footwear, leather goods, sports goods, fan industry, plastic, and tyres.
China has emerged as the leading exporter of capital goods, intermediate industrial goods/raw materials and consumer items to Pakistan. It would not be much of a problem for the Chinese to produce the items for which they have established a good market here, with further impetus being provided by the potential unleashed by CPEC’s second phase. There is a strong need to prioritise and incentivise the pioneering import-substituting as well as export-oriented industries.
The strategic partnership with China has to be consolidated by special measures to rebalance Pakistan’s economy on a priority basis — with particular reference to its external-sector woes — in order to realise the LTP’s vision of shared ‘indivisible common destiny’. Conventional approach will not deliver.
Published in Dawn, The Business and Finance Weekly, January 22nd,2018
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