Economics and politics are closely linked, the sooner a nation recognizes this reality, the better placed it is for growth and development. For a nation-state to succeed, the basic human needs and necessities of its people must be met, first and foremost. The People’s Republic of China has accomplished this enormous task. With that done, China has embarked on a journey of economic development. After being a closed communist state for more than three decades, in the late 1970s it launched several economic reforms that led to the country’s opening up to trade, commerce and foreign investment. The rest is history. And for countries like Pakistan, there is so much to learn from China’s economic miracle.
The People’s Republic of China gained full independence on October 1, 1949. Pakistan was one of the first countries to extend recognition to communist China. Pakistan itself, as a fledgling state, was then struggling to free itself from the headwinds of the Cold War that had begun immediately after World War II. In the first phase, Pakistan’s foreign policy and alliances were guided by its own security considerations; these security initiatives led him to join the SEATO and CENTO organizations. This was done to Moscow’s chagrin. Meanwhile, Beijing has taken a softer stance toward the association.
During the Bandung conference in 1955, Zhou Enlai maintained cordial relations with the Pakistani delegation, led by Prime Minister Mohammad Ali of Bogra. Since then, the friendship between the two states has steadily grown stronger.
In early 1971, Pakistan facilitated Henry Kissinger’s surreptitious visit to China which paved the way for detente and the establishment of diplomatic relations between China and the United States. As a sign of appreciation, Prime Minister Zhou Enlai is said to have pointed out to Henry Kissinger that a used bridge (i.e. in Pakistan) does not mean that it has become insignificant. Moreover, China, against the grain of international opinion, maintained a very sympathetic attitude towards Pakistan during the 1971 conflict with India, over the secession of East Pakistan (now Bangladesh) .
With the opening of the Chinese economy in 1978, the country did not have time to look back. It has prodigiously developed its economy and in less than 40 years, it presents above all, a tremendous success. For more than four decades, China has followed a consistent economic policy of encouraging free enterprise and investment in the country. The policy has been compared to their historically supportive Confucian culture which encourages frugality, hard work, and a heightened sense of respect for efficiency and productivity.
As a result of these initiatives, China today boasts foreign exchange reserves exceeding $3.25 trillion and a trade volume/value of $4.6 trillion. The institution of entrepreneurial behavior along the eastern seaboard has resulted in the creation of new industries, many of which are creating an exportable surplus, giving China a favorable trade balance of $535.01 billion.
Within Asia, home to more than two-thirds of the world’s population, China stands out, with a dominant role in regional peace, politics and economy. It is likely to become even more dynamic in the years to come as China continues to make itself competitive through continuous economic and legal reforms. China is and will remain the engine of growth in the region.
The China-Pakistan Economic Corridor (CPEC) was not born overnight. He has been on the drawing board of Chinese political and economic ambitions for more than four decades. For the first time in the early 1990s, China held its first-ever China-Africa Summit in Beijing, where participants, in addition to policy makers, representatives of think tanks, all China’s ambassadors to the African continent were gift. They decided to engage Africa on a sound basis.
The China-Pakistan Economic Corridor was; however, launched much later in 2015, where it also became part of the grand One Belt, One Road (OBOR) project and plan. So, almost 30 years later, CPEC and OBOR are an integral part of the coordinated effort.
China’s vital interest in securing oil supplies is also satisfied with the availability of the deep water port of Gwadar. Both the cost of sourcing goods from eastern coastal areas and the time of shipping are greatly reduced. This is the main advantage of China. China already has significant commercial interests in the Middle East and Africa. Otherwise too, Chinese companies are heavily engaged in the construction of roads, bridges, railways and other infrastructure projects in sub-Saharan Africa and West Africa.
As a nation, we have touted CPEC as a catalyst for economic development. Liberally, the CPEC is called a “game changer” for Pakistan. It is indeed possible. But for such benefits to be derived, it is necessary to focus our attention on developing our own goals for what benefit we are aiming to achieve. In the absence of clarity, the deal would only change for China. Along the route there is potential to develop and house industries that will yield an exportable surplus, which can be shipped through the corridor. The element of ensuring adequate technology transfer is critical. Pakistan must learn from China’s economic miracle, especially the use of Special Economic Zones (SEZs) along the route. Technological convergence and advanced production techniques with the evolution of human capital will give impetus to innovation and productivity.
Since the decade of the 1980s, all the newly industrialized countries in Northeast and Southeast Asia have proven beyond any doubt that exports are the engine of growth for any economy to move from a developing economy to a developed economy. Examples include South Korea, Taiwan, Thailand, Hong Kong, Malaysia, and the People’s Republic of China. The available literature points remarkably to the role of SEZs in productivity and export-led growth.
Moreover, SEZs provide employment opportunities that fuel growth through urbanization, skills upgrading, technological transformation, FDI and educational achievements (Shenzhen, a SEZ bordering Hong Kong is a classic case success of SEZs in economic development).
Pakistan can leverage China’s significant success in special economic zone operations. Initially, in the period of 1980-1985, China established four special economic zones, namely Shenzhen, Shantou, Xiamen, Zhuhai, and later opened 13 coastal cities. Over time, these economic zones have experienced steady growth, achieved great successes, and accumulated vast experience from their pioneering and exploration work. From this rich experience, Pakistan has much to learn and should replicate China’s strategy for its special economic zones along the way.
The SEZs on the corridor should be planned to develop readily available resources that will be used to support industrial production, which will be exportable to potential markets in the Middle East, Central Asian republics and Africa. Policies should be designed to retain the profitable transport element which is supported by the availability of cheap labor and other inputs to attract new domestic and international capital and investment. SEZs provide multidimensional benefits to the economy. Pakistan needs to take a model from China’s SEZ economic modeling and simply replicate it, with minor tweaks and tweaks to suit local and current circumstances. The nine planned special economic zones are to be marketed globally, with a particular focus on investors from the Middle East.
Pakistan, in the context of taking full advantage of CPEC, must build on its strengths; like financing those goods and services that will help it achieve higher export growth. This exercise will lead to the identification of the national industry. Once these sectors are fully identified, it must present international investors with sound infrastructure and the necessary tax holidays and breaks.
Pakistan, with Chinese participation, needs to invest heavily in research and development (R&D) efforts to bring new products to exportable status. Pakistan unfortunately has a weak R&D culture; its necessary impetus must remain a priority.
Along the way, the government, through the necessary legislative framework, should encourage the construction of warehouses, cold storage plants, gas stations and, most importantly, the most sophisticated management system for the containerized cargo handling. We can ask for help from China and Hong Kong, or even Singapore. The focus on rural economic growth resulting from CPEC cannot be overemphasized. Several micro-projects, on the periphery of large industries, must emerge to create a positive social, cultural and economic impact.
CPEC can certainly be the harbinger of great economic success for Pakistan. He has all the potential to really be a game-changer. The Chinese are apparently extremely clear about what they want from CPEC; it is unfortunately Pakistan which seems ill-prepared to take full advantage of the corridor; where his land will be used for the economic growth of the neighbors and not for the landowner, if there is a failure to agree. Prime Minister Imran Khan must overcome the rhetoric of “iron brothers” and “higher than the Himalayas” during this visit and negotiate for more investment and capital transfer. Economic relations must be parallel to political friendship.
CPEC is a promising avenue for Pakistan, China and the region. It will play an important role in linking countries for trade, commerce and industry. This will inevitably and eventually lead to a better understanding between nation states and will most likely usher in a better era of peace and pleasant coexistence. For Pakistan, the CPEC is an opportunity that must be seized.
(The author is a senior banker and freelance columnist. The opinions he expresses are his own and do not reflect the policy of the newspaper)