Looking northeast

Published April 23, 2021
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

OVER the past few months, an unexpected and welcome easing of tensions between Pakistan and India has occurred. A number of confidence-building measures (CBMs) have been taken by both sides and direct high-level talks have also taken place in the UAE. These developments appear to have been orchestrated by the new US administration. Prima facie there are multiple motivations at play, including ensuring orderly conditions for the US retreat from Afghanistan as well as providing policy space to India to make some cosmetic moves to ease its repression and human rights abuses in Indian-occupied Kashmir.

At the same time, perhaps coincidentally, Pakistan has signalled a major policy shift: a call to ‘bury the past’ and the rolling out of a geo-economics vision. As an aspiration, it represents the right approach and thinking. However, the new vision appears to be old wine in a new bottle, with an ambition of ‘regional connectivity’ at the heart of it. In past iterations, this was a US construct meant to mainly provide an overland route to India into Afghanistan and Central Asia via Pakistan. As a corollary, it was also intended to open up trade between the two hostile neighbours.

Read: Pakistan’s new geo-economic push cannot work without stable ties with India

On its own, each of these moves and signals is welcome and much-needed. However, when they are collectively juxtaposed with geopolitical shifts underway, then a pattern appears to emerge which has foundational ramifications for Pakistan.

The US is embroiled in an escalating strategic competition with China, and now views the rise of China as a foremost threat to its global dominance. While US policymakers appear to have adopted a more aggressive and confrontational approach to China during the Trump administration, China had been identified as a possible ‘strategic competitor’ as early as 2002. The rise of China’s economy and its increasing global share had already raised red flags in Washington, D.C. However, the crossing by China in the last several years of several ‘red lines’ for US strategic planners upended the conventional thinking within the American security establishment on how to tackle China’s rise. These include the acquisition of high-end technological capability, a challenge to the international ‘rules-based’ order set up by the US to ensure its continued global hegemonic dominance, building of maritime power, and last but not least, the projection of soft power via the Belt and Road Initiative.

CPEC is the biggest geo-economics opportunity and can be leveraged regionally.

Into this milieu, enter the China-Pakistan Economic Corridor. The US has made every effort to wean Pakistan away from it. It has used public diplomacy to warn of the consequences, leaned on the Pakistani leadership privately, raised directly as well as via information operations the bogey of China’s ‘debt trap diplomacy’ (put to rest by The Atlantic, and brought the IMF into play. It has also activated ‘spoilers’ within the government and political actors to sabotage CPEC. Everything, other than meaningful inducements (besides sops such as support for the IMF programme).

Unfortunately, in Great Power rivalry there can be no fence-sitters or casual bystanders. While Pakistan should aim to de-hyphenate its relationship with China and the US, realistically it will be increasingly difficult to ‘balance’ its relations with both, especially if the expectation from the US is that Pakistan will tone down its strategic relationship with China in any way.

A quick review of who brings what to the table for Pakistan is illustrative. The US has had a transactional relationship with Pakistan for decades, subjecting its ‘ally’ to arms embargos and financial sanctions on multiple occasions since the 1980s. Under the Obama administration, the relationship broke down almost completely with the unprovoked killing of 24 Pakistan army soldiers at the Salala check post by US forces in Afghanistan in November 2011.

As the war in Afghanistan headed towards ignominious defeat for America, Pakistan was increasingly subjected to a campaign of demonisation, with successive US administrations scapegoating the country rather than take ownership of the outcome.

China, on the other hand, is a strategic ally of Pakistan since the very beginning. It has provided steadfast and unflinching diplomatic, financial, military and people-to-people support for Pakistan for virtually the entirety of the latter’s existence. It is now Pakistan’s main arms supplier at a time when the US has again blocked the transfer of weapons to the country (the latest episode involves the T-129 ATAK Turkish gunship helicopters), while deepening its own defence partnership with India.

By putting together and leading the $62 billion CPEC, China is now playing a potentially transformational role in Pakistan’s economy. Despite Pakistan’s inability to conceive a grand design for CPEC, the project offers an unprecedented opportunity to transform the country’s economy. The immense benefits will accrue, however, not by limiting CPEC to a transit corridor for two-way shipments to and from China using Gwadar, or by over-investment in power generation leading to expensive excess capacity, but by integrating Pakistani firms into the Chinese supply chain and relocating ‘sunset’ industries from the mainland to Pakistan. This should have been the clearly articulated central aim and purpose of CPEC for Pakistani planners from the start.

By focusing on this ‘mission’, constraints to growth (specifically to exports) would have been identified and seriously addressed — such as bottlenecks in logistics and physical infrastructure, the low skills level of the domestic labour force, impediments embedded in the country’s taxation regime etc. If such a coordinated, single-purpose exercise had been embarked upon several years ago, Pakistan would have been better positioned by now to achieve its objectives from phase two.

While at the moment we appear quite far from achieving the potential benefits inherent in an economic corridor such as CPEC, all is not lost. Improved strategising and better planning even at this late stage can retrieve the situation, albeit further out than desirable. Once Pakistan has aligned CPEC with its foundational objective of improving its external competitiveness and enhancing exports, it should then leverage it as a conduit for east-west regional connectivity. The first order of business, however, should remain delivering on the promise of CPEC.

The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, April 23rd, 2021

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