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Musharraf in China: Economic benefits of an “all weather friendship”

Dr. Raviprasad Narayanan was Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi.
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  • April 22, 2008

    Pakistan President Pervez Musharraf’s recent visit to China from April 10-16 revealed the depth and confidence that highlight Pakistan-China relations. The much repeated refrain of an “all-weather friendship” between the two countries is now transforming itself from the erstwhile “purely defensive and strategic” in nature to one of deep economic engagement.

    Apart from being the keynote speaker at the Boao Forum for Asia, the Pakistan President had a weighty itinerary that included meeting Chinese President Hu Jintao, Premier Wen Jiabao, the National People’s Congress (NPC) Standing Committee Chairman Wu Bangguo and the China People’s Political Consultative Committee (CPPCC) Chairman, Jia Qinglin. The final stretch of his visit saw an interaction with the provincial leadership of Xinjiang province in Urumqi.

    With the defence component in the relationship remaining very strong - China handing over the first of the four frigates it is building for the Pakistan Navy and reiterating its support for closer defence cooperation - it is the sheer magnitude of economic projects between the two countries that needs closer attention in India.

    While the rest of the world in its obsession with the ongoing “global war on terror” has labelled Pakistan as a “potential failed state” and ignored its sound economic performance in the last decade, Chinese policy makers have identified and sensed an opportunity to develop economic linkages with a country that in their opinion is a “win-win” one. For starters, with bilateral trade crossing over USD 6 billion, there is a new sense of optimism in enhancing this figure to USD 15 billion within the next five years. According to an article by Fazal ur-Rehman of the Institute of Strategic Studies Islamabad (ISSI), under the ‘Early Harvest Programme’ operational since January 1, 2006, China does not levy any tariff on 767 products from Pakistan. The two countries are also moving towards setting up a Free Trade Area. To facilitate economic projects initiated by the two sides, the Pakistan-China Investment Company Limited (PCICL) was set up earlier this year with a paid-up capital of USD 200 million.

    Significantly, Chinese investments in Pakistan have shown a rapid acceleration with their focus on energy, infrastructure, transportation and telecommunications. On the energy front, the Neelum-Jhelum hydel project, the Muzaffargarh power project, and three potential sites for hydel power in Pakistan Occupied Kashmir (POK) at Harigel, Jagran II and Jhing are the focus of Chinese investments. The 781 kilometre White Oil Pipeline from Karachi to Mahmood Kot commissioned by the Pak-Arab Refinery (PARCO) was to receive equipment and material from the China Petroleum Engineering Construction Corporation in a multi-million dollar deal. When completed, this pipeline will be able to transport 12 million tons of refined petroleum products annually. There is also a proposal to extend the pipeline from Mahmood Kot in Punjab province to Peshawar – a length of around 460 kilometres. Once the pipeline project – from Port Qasim to Peshawar – is completed, Pakistan will have the necessary infrastructure to transport petroleum products to Xinjiang region of China. It is worth noting that irrespective of the eventual fate of the Iran-Pakistan-India (IPI) pipeline project, the pipeline networks in Pakistan are oriented towards China.

    On the infrastructure front, Chinese state owned entities have been asked to expand and upgrade the Karakoram Highway for access by “all types of traffic.” The Gwadar deep sea port (Phase One and Two) and the Makran coastal highway are two high profile projects completed with Chinese assistance. In the realm of transportation, Pakistan has sought China’s assistance to develop a railway link between Gwadar and Karachi along the Makran coastal highway and to establish a rail link between Peshawar in the North West Frontier Province (NWFP) to the Xinjiang region in China. This railway line, it is hoped, will benefit trade and commerce in that region and provide an “energy corridor” to transport oil and gas from Gwadar to China. Under an existing agreement between the two countries, the Dong Fang Electric Corporation and the China National Machinery Import and Export Corporation are providing locomotives and passenger coaches to Pakistan railways.

    In telecommunications, the China Mobile Communication Corporation (CMCC) – the world’s largest mobile services operator – has already invested more than USD 700 million in acquiring PakTel and intends to invest another USD 800 million in “revitalising” and transforming one of the world’s fastest growing mobile telephony markets. The CMCC’s investment in Pakistan is over and above a separate investment made by Zhong Xing Telecommunication Equipment Company (ZTE) to manufacture and install digitally switched lines in Pakistan.

    The mineral and mining sectors in Pakistan are also beneficiaries of Chinese largesse. Thar coal, Saindak copper and gold mines, and the Duddar zinc and lead mine projects are being developed with Chinese assistance and financing. The Metallurgical Construction Corporation of China holds a ten year lease on the Saindak copper and gold mines which expires in 2011.

    The sub-regional aspect to Pakistan-China economic engagement is the emerging emphasis upon fostering and developing closer Pakistan-Xinjiang economic dynamism. In an address to the China Xinjiang-Pakistan Economic Forum in Urumqi, the Pakistan President called for “closer cooperation in trade, commerce and investment” and highlighted Xinjiang’s geographical proximity to Pakistan. It is expected that Pakistan’s Ministry of Commerce will promote trade and economic cooperation with the Foreign Trade and Economic Cooperation Bureau of Xinjiang.

    Although Pakistan has an adverse trade deficit with China and a limited base of products to export to China, the sheer scale and range of Chinese investments reveal its economic and strategic importance to Beijing. With more than 60 Chinese companies located in Pakistan and investments exceeding more than USD 5 billion and growing exponentially, the Pakistan-China economic relationship is a dynamic vector that cannot be ignored.