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Pakistan and leadership transition in China

Since the 1990s, China's top leaders serve a maximum of two five-year terms. With the last batch of leaders having reached the end of their second term last year, there has been a transition to the 'fifth generation' of leaders since the Chinese Communist Party came to power in Peoples Republic of China in 1949. The party has selected government leaders that will rule China for the next ten years. The appointments include Xi Jinping as President, Li Keqiang as Premier, Li Yuanchao as Vice President, Wang Yi as Foreign Minister, and Ms Liu Yandong as vice premier ( only woman for top position in the government). Zhou Xiaochuan was retained as Governor of the People's Bank of China, another big position in China given the size and importance of economy in the country.

According to press reports, about 70 percent of China's top leadership positions were changed during the ruling Communist Party's Congress in November 2012. This is a very important event in history of new China for various reasons. 18th Communist party congress has formally selected the next General Secretary and other Members of China's top political body. The leadership seems to have been divided into the sons of powerful Communist leaders and members of outgoing President Hu's Communist Youth League. The new Chinese leadership has made it clear that they will renew the process of market-oriented economic reforms.

Despite inheritance of multiple problems, the leadership will be tested from enough zeal to deliver reforms to keep Asia's largest and world's number two economy on a sustainable growth path. This is on account of the fact that China is no longer outside the international (economic) system, and these days it is almost impossible to follow the doctrine of engaging China on(strategic) basis alone in view of its rise on global scene as the second largest economy with all encompassing trade links & relations around the world.

China's rise is undoubtedly a global phenomenon that has transformed its National Interest also. Philosophically speaking, the traditional Intervention & Transition theories have although come into play, albeit with structural changes in view of phantom economic development after reforms and opening up in more than last three decades. Economic reforms will remain at the top of the list of challenges for the new generation of leadership as the other problems including the social ones' are considerably derived from the performance of the economy in the emerging global and internal economic scenario.

Why does the change matter for the world?

Leadership change in China matters to the world as China itself matters to the world. It is market for 1.3 Billion people, is world's second largest economy, largest economy in rising Asia, the largest trader, the largest FOREX reserve holder, holds most Bonds of the developed world including USA, Japan and EU, is global production house, a nuclear power, member of the Security Council with a Veto, has its own unique economic system and policy making and implementation mechanism influencing the world, is emerging innovative economy with a given lead in bullet/high speed train, has developed clean energy technology and is taking aggressive steps for environmental protection.

Last year, China surpassed the US to become the world's biggest trading nation as per China's customs administration data suggesting country's trade in goods in 2012 at $3.87 trillion. Consequently, China's growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries presumably at cost of existing ones'.

China's policy and politics may not be very open and has been a global success story, with its rapid growth lifting hundreds of millions out of poverty and buoying the world economy, particularly after global economic and financial crisis, 2008. In past two decades, it has created a new middle class and tens of millions of rural migrants expect a better life although absolute poverty numbers have gone down.

China's economic expansion has been impacted favourably from the amount of investment it has been able to attract and its methods for attracting that funding. China is a key player in maintaining level of economic development and peace around the world. Its decisions regarding countries like Middle East, Iran and North Korea could affect the world. Tensions brewing in the South China Sea with China's potential missile capability, alleged cyber attacks, emerging innovative capability in various fields including energy etc give birth to certain issues for super powers including USA and regional emerging powers like India and East Asia and the country's future economic and military development.

Although China's new President seems to have worked hard to fortify support from party leaders by largely focusing on domestic issues yet he would also try to strengthen alliances and instill reforms that will move China in the right direction & to protect evolving national interest as future's super power.

Most of the top leaders of the Chinese Communist Party have been replaced during the 18th Party Congress and this leadership realignments will affect the most important bodies of the country - the ruling Politburo and its Standing Committee, the State Council (Cabinet) and the Party's Central Military Commission. Many social, economic and foreign policy challenges will be faced by new generation of Chinese leaders, importantly beating back growing discontent over good governance, environmental issues, and growing income inequality. After all of the positions have been filled, the question is as to how these problems will be resolved. The manner in which the new leadership might respond to domestic and international matters will essentially directly affect the world.

How does the transition work? Party leadership changes normally take place during major national congresses that since 1977 have convened regularly every five years (met irregularly during the first decades (1949-1976), when late Mao Zedong was the senior leader). The continuous process and practice of change of top leadership positions has contributed to stabilising the political succession process. The 18th Congress elected the members of the 18th Party Central Committee - the elite of party members from across the country. These people hold top party and government positions, often as leaders of China's provinces and special regions, central party organisations, government Ministries and Commissions, banks and financial organisations, the People's Liberation Army, the People's Armed Police, and dominant central state-owned enterprises that hugely affect the economic management of the country.

The Congress also decides on the composition of the Central Committee's Politburo (currently 25 people) and in turn the Politburo's Standing Committee, the core of very top leaders (currently the nine most powerful men in China). Delegations and delegates from all the provinces attended the 18th National Party Congress, which was held in Beijing in November 2012. The process for selecting candidates involves grassroots party branches recommending delegates, higher-level party committees deciding on the list of nominees and then core local party leaders making the final decisions. Number of candidates is increasing progressively than the number of seats for obvious reasons.

Main features of power shift/transition;

-China's first and second generation Communist Party leaders, such as Mao Zedong and Deng Xiaoping, ruled as single paramount leaders of the country. But over the past two decades, Chinese leaders have tried to considerably institutionalise governance with an emphasis on collective leadership. This is the first transition that has not been shaped by the founders of the (new) People's Republic of China; out-gone President Hu Jintao was picked up by late Deng Xiaoping that was in a way the first relatively straightforward succession in the country's history.

---- The process of election is highly secretive and influenced by for selection to important 25-member Politburo and its apex body, the seven-member Politburo Standing Committee. It is customary in China to reveal little about preferences or favoured policies, thus leaders will hardly move too quickly to change the given direction or set out a new ideological orientation of the country. The Shang Hai Group, the Youth League and a third group - the princelings or privileged children of revolutionary leader's influences are most conspicuous.

---- Xi Jinping has taken over as the President of China with Li Keqiang as Premier, for the next 10 years. The president holds degrees from Tsinghua University in chemical engineering and in law, has held senior party and government positions in Fujian and Zhejiang provinces, and was hitherto Party Secretary of Shanghai. Importantly, Xi is one of the 'princelings' with reported ties with ex-President Jiang Zemin. Although Xi favours market-led development, is supporter of retaining China's major state-owned enterprises (SOEs') and believes in strong political controls.

---- The processes leadership change although demonstrate the patterns of formal politics of Deng Xiaoping's political reforms of the 1980s ((Jiang Zemin era in 90s and furthered by Hu Jintao in the 2000s), a step for institutionalisation of Chinese leadership politics. However, for the Central Committee election, number of candidates exceeded the available seats gradually over time. Despite reported strong ties of selected members of Polit Bureau to influential past Presidents, analysts believe that outgoing President Hu Jintao's Communist Youth League faction may increase influence over the longer term so will Key princelings. These are important developments.

---- The leadership talks of "Chinese Dream," that contemplates of regaining historical status as a civilised country and signifies position with regard peaceful Sino-Japanese coexistence with reference to populist nationalism ( and most sensitive domestic issue) and use of ancient Chinese history as one of important justification for one party rule.

---- The new Prime Minister Li Keqiang vowed to cut government perks and allocate adequate funds to social welfare programs, pledged a ban on new government building construction and curbs on official banquets and travel allowances ostensibly for establishing a broad populist appeal.

---- On diplomatic front, foreign policy scholars rate change of the State Councillor Dai Bingguo, who has been replaced by Foreign Minister Yang Jiechi, as very important as it is a position that oversees the country's foreign-policy, part of a major shake-up of its diplomatic leadership. Timing is critical in view of rising military tensions with Japan and some Asian neighbours over disputed territories and economic relation management, uncertainty over the direction of ties with the US, regional economic integration and developments in military.

---- On another critical issue of Taiwan, the 18th Party Congress laid out a "steady on course" approach to cross-Strait relations, continuing present economic, cultural, and educational exchanges and efforts for political trust for future political and security dialogues, including a peace accord. The innovative mechanism of expanding trade through a non-state institutional actor without losing basic claim over Taiwan is unique to China.

---- The change marked a large-scale turnover of senior military personnel in the People's Liberation Army, including eight out of the ten uniformed members of Central Military Commission, a strategic institution. In China, routine diplomacy is dominated by economic diplomacy for ensuring any negative influence on economic development. Therefore, such changes are important in term of domestic and international fields.

---- Russia and China, both permanent members of the UN Security Council, have worked together in global affairs over recent years, most notably by co-ordinating the stance on last year's revolt in Libya and the ongoing civil war in Syria. The new generation of Chinese leaders may continue partnership with Moscow and may even seek closer ties in case there is any geopolitical stand-off with the United States in the Asia-Pacific in the wake of up-coming regional integration mechanism.

---- China has gone a long way from a centrally planned communist ruled country to a market oriented economy in three decades. Reforms have reached a critical stage, primarily due to clear vision & sense of direction of the leadership.

From 1978 to 2009, while the average world growth rate was 2.7 per cent, China's was 9.5 per cent (From 2010-2012 growth rate came down to recent 7.5%). This record growth has commonly been attributed to factors such as market-oriented reforms, enterprise ownership changes, and the adoption of an export- and FDI-led development strategy. It was supported by enabling environment created on basis of specific features of the country & effective implementation framework, not fully available elsewhere.

China is thus much wealthier and powerful country in the world than when Mr Hu Jintao took power a decade ago. Yet analysts say his legacy is one of maintenance: keeping GDP growth high and preserving party consensus. Even if this argument is accepted, it is equally imperative for the country to address the structural imbalances and removal of distortions in the economy created by such development, particularly in finance, regional economic development, natural resources and still government owned services sector so as to complete the transition to a well-functioning market economy par expectations of a modern liberal-capitalist society. New leaders appear to be reformists but all depends upon the areas they focus or attack and the speed at which they take up the current issues in the light of "Chinese characteristic"/traditions.

Administrative movements speak of interest in economic reforms; supported by structure of the new Politburo Standing Committee appears to support their aspirations. M/s Xi and Li have committed to specific reform measures, and the obstacles to reform are formidable but process is likely to lead to the creation of a formal reform program by late 2013.

---- Reforms/opening up and rapid economic development have created certain distortions that contribute to the rising income, regional, sectoral and human disparities and other imbalances in the economy on account of given incentives in the system for the rich, better endowed and ideally located regions & state patronage to the public sector( State Owned Enterprises) in various ways.

The resultant concentration of income and financial resources in the corporate sector and rich people is an important consequence of the dual-track reform process in China. This has caused another distortion as a way to provide continuous support to non-viable firms in the priority industries, otherwise hardly feasible. A solution is overdue on this count.

The present scenario China's economic transformation has virtually astounded the whole world as it became the world's second biggest economy in 2010 from fifth place in 2002, has surpassed Germany as the largest exporter, is largest trading nation and is tipped to cross US to become the largest economy by 2020. In economic and strategic terms, the present position of China is as follows;

a. Since many decades, the US has been the world's unchallenged leader on global economic issues and successfully carved for itself and for other countries the kind of economic policies that suited USA. This resulted in soft power that was used against many countries including China. Now situation has been turned topsy-turvy (although United States still has a remarkable advantage, American technologies being comparatively highly valued).

b. China is considered the world's safest and largest investment economy, its huge market potential; rich labour resources with strong work ethics, comparative advantage in labour cost despite recent escalations in wages in some parts of the country, adequate infrastructure, sound corporate governance and stable government and its consistent economic policy. The country has just surpassed USA as world's number-1 importer of oil that increases its geo-economic influence over the oil producers in terms of influencing the global and regional diplomacy.

The presence of such a big market, coupled with increase in consumption power of the population brought about by rising income levels, urbanisation & creation of large number of rich people will create greater prospects for almost every kind of industry. All these factors had in the past and will further attract the inflow of FDI into China. Therefore extensive production of goods and services can further push and sustain the economic growth even faster in the future.

c. The inevitable slowdown in exports to high-income countries after global economic and financial crisis 2008, Chinese trade surplus is falling. Therefore it appears prudent and pragmatic on part of the leadership in China to consider appropriate ways and means that could rebalance the Chinese economy towards domestic demand. The shift towards domestic demand, decline in fixed investment within China (growth 20.4% y-o-y, or 5.2 percent lower than 2011) and tilt towards domestic consumption (retail sales volume was up 14.4% over a year ago). Domestic demand for goods and services will keep on increasing due to rapid economic growth that is giving rise to new generation of rich people.

d. Still, the country is dependent on foreign trade. While China is the biggest energy user, has the world's biggest new car market and the largest foreign currency reserves, a significant portion of China's trade involves importing raw materials and parts to be assembled into finished products and re-exported. Although there was a sharp downturn in 2012 and early 2013 against the backdrop of the European Debt crisis and vulnerable world economic recovery, still total imports and exports grew by a mere 8.0% y-o-y, as compared to a growth rate of 25.8 % in H1, 2011. It is still the largest exporter though the net export downturn was a major factor that dragged down the Chinese economy.

Consequently, the economy is poised to grow at its slowest annual pace in 13 years this year @ around 7%. Social harmony in China is adversely affected if growth is less than 8% as such growth cannot generate requisite employment opportunities. Leadership has to focus on partly reducing a reliance on the export sector, government investment, regional, income and sectoral inequalities and increasing consumption at home.

e. In multilateral economic context, financial sector reforms, currency management, and trade protectionism that affects the global economy and trade disputes, particularly with USA & EU and their resolution mechanism are the major issues among many. China being the 2nd largest economy, largest exporter, maintaining the world highest forex reserves, having savings of more than 5 trillion, holding more than a trillion Dollar American treasuries and hundreds of billions of other countries debts makes the others to expect China to behave as a responsible economic power in the global economic arena.

f. Tensions have emerged on strategic front also. As China gets more powerful and the US position is relatively compromised, it has inevitably led to serious strategic competition between China and US China relations due to persistence of trade disputes, China-Japan South China Sea dispute and the country's future economic and military power & development are equally important factors influencing its own policy as well as its relations with other countries in bilateral and multilateral contexts. In these circumstances, there has emerged a need for the world to encourage China to play a more proactive role in the regional economic and security architecture, while promoting bilateral co-operation based on common interests. It has already started appearing in the fora like BRICS, G-20 and ASEAN.

g. Economic dynamism is responsible for China's changing status in the regional spectrum too. Asia-Pacific power distribution and influence of new actors in other areas is also fast changing, creating more opportunities for countries in general than threats. It is evident from galloping economic co-operation between China and ASEAN on institutional front and between China and major economies of the region such as India on bilateral basis.

Therefore, future economic management, policy and bilateralism need to be China-oriented for others in order to respond to this change and more constructive in respect of China for a sustainable strategic and economic fix. All the same, a nation's strength is more of a relative thing that must take into consideration the status of other countries with which it competes or may be affected indirectly.

h. On domestic front, China has made all-out efforts to sprint to the front and by many accounts has made a solid mark in growth and the creation of a middle class and building national assets. But it will have a very, very hard time maintaining its pace and meeting the growing expectations of its population especially with regard to fatal income and infrastructure disparities. We can't suddenly see a strong aggressive move towards new reforms as the Chinese administration under (Premier) Wen Jiabao and (President) Hu Jintao has been cautious and incremental with regards to opening up the economy. New leaders can hardly remain oblivious of such realities.

i. In the global context of a proud nation, the existing scenario has been explained by new President in response to a question during a recent visit to Russia;

The 'Chinese dream' is my people's vision of a mighty national rebirth. The latter should include prosperity and might. After a century of suffering external aggression and domestic tribulations, the Chinese people also value peace. They need peace to develop their country and improve their lives. China's neighbours should see China's might as a boon rather than a threat. China offers them unlimited trade and investment. Accordingly, it does not take part in the international arms race."

Experts, however, point out that "China has boosted its annual defence spending by 11% to almost $115bln. They also call attention to the fact that China is locked in territorial disputes with Japan, Vietnam and the Philippines."

j. Seen with this reference, a strategic immediate shift in direction does not seem to be on cards. The Prime Minister is reported to be desirous of giving due priority to rural areas, to remove regional imbalances and following an innovative social policy through improving rural conditions, developing poor interior regions, reforming the problematic health system and dealing with high house prices and education cost. Overall, the direction of economic and social policies is not yet clear and may take a year or two before actual trends would emerge, albeit without significant top-down liberalisation or reform jeopardising minimum growth rate and national cohesion. The 11th five year plan too envisages increased investment in western and central provinces and the policy is likely to be in line with five years development plan as one understands the Chinese system.

CONTRIBUTORY FACTORS FOR THE WORLD Notwithstanding the above, Chinese contributing to today's world is huge as is evident from the following;

-Chinese growth even at the present rate may contribute to the multi-polar growth in more than one ways in addition to its own GDP growth and trade expansion. Growing trade with most countries of Africa, Asia and Latin America without any structural dent in trade with conventional partners bears ample testimony to this fact.

---- China's growth has and will create shared opportunities likely to be created, for both high-income countries as well as the developing countries. For high-income countries, China's growth will expand markets for their capital goods and intermediate goods exports required to meet its rapid development requirements. Developing countries who are major producers of agricultural and natural resource commodities including industrial raw materials can avail huge benefits from increasing Chinese consumption and production growth. Future development will continue to support transaction in various commodities and thus help such exporters of developing world by providing corresponding opportunities.

---- Increasing outwards investment by Chinese Government in recent years, ostensibly to diversify the economic risks and to meet its development requirement and attempted diversification of the real economy has enabled the Chinese firms to provide funds for natural resource and infrastructure investment in emerging markets and low-income countries. This is already happening in Asia, Africa and Latin America, and it is likely to continue into the future as well. In particular, there is a growing role of Chinese finance in the developing regions and quite recently in developed world too on account of Europe and Americas most constrained access to capital and finance after financial crisis, more particularly after the European debt crisis. In its capacity as global largest forex reserve holder, Chinese investment in Bonds and Securities of most of the developed countries including USA, Japan and EU region means a lot to such countries in many ways.

---- Country's outward foreign direct investment (FDI) will reach US $150 billion by 2015, representing an annual increase of 17% for each year in its 12th five-year plan (2011-2015). The country's overseas projects and businesses volume will reach US $180 billion and US $120 billion, respectively, in 2015. An expected 1 million Chinese will be working abroad by the end of the 12th five-year plan, according to the statements of MOFCOM, China.

In the mutual collaboration context, efforts are on to optimise outward FDI and promote industry modernisation through leading processing manufacturers to explore international markets; increased co-operation in agriculture; supporting policies of the government for the Chinese companies investing in overseas R&D and enlarging the scope of Services sector for experience sharing for opening up in due course.

Ongoing projects include co-operation on investments in Africa and Latin America and infrastructure investments abroad for manufacturing companies and further co-operative investment in Europe and the United States to cultivate the much needed skills in research in strategic industries, branding and marketing abroad as well as within the country for efficiency gains. The government will also encourage Chinese companies to seek opportunities with companies in Taiwan, Hong Kong and Australia to develop their global markets.

THE GREAT EXPECTATION FROM PR CHINA Big things are expected of China as it selects a new generation leadership. The world may be expecting for immediate response to strategic and economic issues and to the reforms process in China. This is obvious but one has to appreciate that Chinese as a country and a nation believe in incremental and phased approach to the transformation process. It has successfully been applied in economy, more so in industrialisation, tax reforms and regional economic development. Moreover, significant reforms have, despite being slow, maintained rapid economic growth and created enough jobs for a population of 1.3 billion to keep the unrest constantly at bay.

Besides, most leadership changes in the world require reasonable time to bringing about reforms in given sectors without losing the vitality and exercise of proper control on the economy, over the citizens and for building effective team capable of making substantial difference. In China, however, "There is an established pattern that new standing committees coming in pushes through some early reforms". Removal of most obvious distortions like a few aforementioned, especially financial sector handicaps, allowing the development of small and medium enterprises, removal of various kinds of disparities and major imbalances from the economy etc must take precedence on other initiatives.

Initially the world has witnessed the new leadership's soft approach to reforms, especially in view of hands full with a host of strategic issues such as a territorial spat with Japan and pressure for yet another fiscal stimulus (in the wake of controversy arising out of previous one in terms of spread of money in the market on its account) to shore up the economy for domestic social stability and powerful developments abroad by avoiding the hard landing. Still, recent reports state that China's leaders have desired that national policy think tanks should formulate ambitious economic reform plans that may cut the power of state-owned firms that enjoy huge privileges such as preferential access to bank loans and government contracts.

However, the approach to reform must focus on three critical factors for determining a successful program, ie careful design, credibility and responsiveness to changing economic conditions. It is essentially challenging. But one needs to understand that China is definitely in an era in which administrative and substantive expertise in specific policy areas is increasingly important for promotion into the top levels of the party and for strategic economic management positions in the centre and at provincial/economic levels.

FUTURE OUTLOOK The present foreign policy of China is catching up with its new status; it is investing in new industries and markets in Asia for trade, food, energy and other resources. Its trade is booming with Africa, Asia and ASEAN countries that may further tone up its diplomatic muscles. Its economy is not bracing for a hard landing despite repeated expression of doubts by western experts. This is on account of novel management of monetary and fiscal policies that showed off in response to crisis and avoidance of much trumpeted re.al estate bubble. There is no apparent outburst of economic issues between China & USA such as the yuan-dollar exchange rate and trade disputes, at least in the near future notwithstanding the strategic rivalries. Influence in the energy sector has supplanted its international image and influence. Economic relations with Australia, Korea and Japan don't seek upheavals in the upcoming regional economic integration scenario

Tinkering in South China Sea, pampering of major Asian countries by USA leading to provocative actions and periodic demonstration of force amply describe contentious relations exerting tremendous pressure on Chinese leaders on diplomatic fronts. On institutional front, regional economic forums like East Asia Summit, Apec, ASEAN+3, Regional FTA enticing Japan & Korea, Trans-Pacific Partnership and other East Asian economic integration instruments are also played up as some of them confront/isolate China. Policy of an inclusive, open, co-operative and win-win regional economic structure, cherished by China, will be difficult to establish under any economic integration umbrella of TPP sort that is a major regional economic challenge in the era of growing regional economic co-operation movements.

Obviously, China has its own perspective of such regional arrangements for broader economic and strategic gains. USA will hardly conveniently tolerate such benefits for China. Maintaining rapid growth is vital to keeping discontent in check although Communist ideology has partly been diluted in Socialist-Capitalist economy with Chinese characteristics. Such efforts are likely to positively impact the world and reduce the tension in strategic areas, at least till complete revival of Americas and European economies.

China's outward FDI has continued to grow inspite of uncertain global investment emerging from the 2008 crises. Their latest Five Year Plan's commitment to promote the "going global" policy while the country's OFDI continues to go into tertiary and primary sectors, there are signs of gradual sectoral diversification. The Caribbean offshore tax havens are receiving large amounts of Chinese OFDI. Local authorities in China are increasingly vying for fostering investment abroad. In the absence of major adverse changes in domestic and external conditions, this trend is likely to continue to continue expanding and diversifying. Besides, these factors continue to draw China further into the global financial and trading architectures.

China's reputation as a responsible global economic leader has improved after the global economic and financial crisis on account of better management of the economy thereafter, both internally and in the international realms more so when other countries are believed to have performed poorly and were seriously troubled by crisis that exposed fundamental problems in their economic systems and in developing an appropriate response mechanism to face the crisis. It worked well in G-20 and BRIC also in a softer mode to built international image as an economic power worth reckoning that behaves responsibly across borders. It will help build the long desired element of democratisation of international economic structures through various aforesaid interventions and the efforts towards developing the alternate credit rating agencies, internationalisation of RMB Yuan and restructuring on international financial institutions by increasing Chinese contributions toward their capital etc. Hence, there is a strong force in the Chinese claim to rise to prominence peacefully without challenging the existing order, albeit by successfully bridging the crevasse in between meticulously. After all, it has to deal with a historic transition where a developing country like China is for the first time becoming one of the great engines of global growth that hugely impacts the current international geopolitical landscapes

The major Constraints include the effort to keep in step with the US and the EU in trade and investment and geo-strategic/economic matters, managing trade within the region to reduce the ongoing investment and trade disputes with US and EU countries, trying a forceful economic nationalism without distorting economic policies for a more assertive role in the region and without real provocation of major powers. Strengthening of strategic and economic relations with Russia and India, keeping a close eye on Japan and slowly expanding its interests in Pakistan that is likely to continue to be an important factor in China's South Asia policy. The new Party leadership has already made it clear that there will be no dilution of its territorial sovereignty claims vis-à-vis Japan in the East China Sea, some ASEAN countries in the South China Sea and India across the Himalayan border. It will have to follow more realistic approaches in contemporary trends of international relations especially those with aforementioned countries.

THE CASE FOR PAKISTAN Above mentioned strategic regional challenges make Pakistan an important consideration in China's South Asia policy and in the foreseeable future China's interest in Pakistan will continue unabated. The new leadership has also demonstrated a positive mood towards Pakistan that is an important thing for China towards any effort made for dilution of its recent territorial sovereignty claims vis-à-vis others as aforementioned. This will in a way ensure to maintain peace and tranquility across the Sino-Indian border without making any unilateral concessions as may be demanded by India.

Today's China certainly needs access to enormous resources of developing countries like Pakistan. Convergence of our national economic objectives with China's foreign policy goals is very important considering the huge prospects of partnership with a friendly country like China that generally does not impose any political agenda on Pakistan as is done by certain other countries (on the pattern of cold war superpower mentality that characterises neglect and changing attention elsewhere). Pakistan has at least one country in China that keeps us in their permanent ledger of its state craft.

Efforts for increased co-operation in energy sector, in strategic areas like Gwadar port as per recent move of GOP to assign operations to a Chinese company, further development of infrastructure including construction of a refinery and possibly a shipyard also to cater for the requirements of fuel and ships maintenance at the mouth of strait of Hormz would be important steps towards consolidation of economic relations par the strategic relationship between the two neighbouring countries. It will enhance Chinas presence in the area and ultimately can lead to development of an oft stated energy corridor by China & Pakistan in collaboration with Iran to save the cost of importation of oil, which is a major consideration for China being the largest oil importing country of the world (surpassed USA this year). These factors have to be envisioned and factored in the future relationship with China but obstacles need to be removed

In these visibly positive developments about China & dominant regional partnership trends on account of successful regional economic integration in Asia and other regions resulting in exponential increase in investment and trade, there is a tremendous scope for the countries like Pakistan to avail the opportunities arising out of rapid Chinese transformation and growth and expanding regional trade trends. Without any prejudice to already existing strategic relationship, there is huge potential for cementing the economic co-operation also that will in turn further improve the strategic co-operation.

THE STRUCTURE OF TRADE There is high demand for Chinese goods in Pakistani market. Their experience of growth in trade is positive due to convenient trade flows and openness measures. Trade and investment policies are liberal since 80s' and generally WTO compliant. The pattern has merchandise bias but with high volume of manufactured items.

China has become one of the top five import sources of Pakistan. Major imports from China are machinery, chemicals, garments and other textile products, stationery, construction materials like tiles, sanitary wares and crockery, etc. Machinery and electrical appliances are the major parts of overall exports. Bilateral trade has crossed around dollar 12 billion in 2012-13. The balance, however, continues to be in favour of China due to lesser exports by Pakistan. Efforts are under way for correction of this situation.

Trends of trade are very positive as volume of bilateral trade has increased exponentially during the last eight years. Pakistan enjoys huge export potential to China due to advantages in agriculture, mineral, chemical, textile and leather products. Besides, Pakistan has comparative advantage in oil seeds, fruits, base metals, plastic goods and perfumery etc. China has static advantage over Pakistan in machinery, transport equipments, chemical products, precious instruments, stone and plastic articles, home appliances, pearls, precious/semi-precious stones etc. Man-made filaments, space crafts and aircrafts provide dynamic comparative advantage to China.

Under the Five years programme launched in 2006 and renewed in 2012 for strengthening of economic relations, the existing trade is to be enhanced to 15(b) US $ by 2012 but this target could not be fully achieved. Besides, different projects have been identified in the programme for co-operation and investment in various economic fields but progress has not been substantial. Permanent and enduring factors that may prove effective and successful in the demand and supply dynamics need to be re-enforced through mutually beneficial co-operation. Some restrictions on free movement of certain goods and services and existence of non-tariff barriers are occasionally reported and are often discussed for removal to further enhance the volume of trade and significant increase in investment. Both countries can benefit greatly from further expansion in economic and trade relations under this 5-year programme. Contribution of private sector needs to be enhanced.

Pakistan has geographic proximity with China, enjoys the most friendly relations, both have dependant economies as per their given economic structures, bilateral investment and trade have expanded over time. Pakistan's natural resources can help meet Chinese development requirements as several bilateral institutional mechanisms exist in various areas such Bilateral Investment Treaty, 5-Year Program for Economic Co-operation, Bilateral Tax Treaty, Customs Co-operation framework, Currency SWAP, numerous Agreements/MOUs' and other instruments that can further the present economic relations. If the prevailing economic diplomacy is transformed into a real robust marketing mechanism with the help of a more professional approach in management of bilateral economic relations and if Chinese authorities are convinced to adopt more accommodative policy particularly towards direct B-2-B co-operation between the enterprises of two countries with active financial support, things can considerably improve for comprehensive partnership. Private sector credit is a stimulating block

Engagement of the Chinese private sector is possible on a long-term basis for sustainable economic relations & revamping of the processing technologies with mutual co-operation in potential sectors. In fact, a modern industrial system can be built through mutual co-operation for minerals exploitation like copper, gold, marble/onyx & chrome, processing of agriculture products, exploitation of oil and gas, construction of LNG/LPG terminals and ships, coal, energy, petro-chemicals, building materials, food processing, seafood, leather products, value addition in cotton yarn and textile fabrics and other industrial minerals and precious stones in Pakistan; above all in exploring the potential of component and parts manufacturing for Chinese industries and encourage of value addition in Pakistan on collaborative basis.

Besides, relocation of industries through restructuring in the wake of re-organisation of Chinese corporate sector, improvement of institutional frameworks for better communication and co-ordination between the government agencies for increased trade & investment activities can certainly help achieve the broader objectives of strong economic framework par the strategic relationship between Pakistan and China. Over more than last three decades, China has successfully joined regional and global supply chains and production networks, and is now completing the second phase in which there is scope for much broader collaboration with Pakistan due to outstanding relationship and in view of growing tension with countries like Vietnam, Lao, Cambodia and some other Asian countries (where Chinese FDI virtually turned around their economies). Timely management is vital.

Various challenges are certainly impeding the speedy growth of investment and trade as per the potential. They can effectively be turned into opportunities through comprehensive medium and long-term collaborative joint efforts. The measures that may facilitate the achievement of desirable goals include timely implementation of the agreements, creation of enabling environment, person-to-person contacts to provide confidence and encourage the potential investors, operationalization of Transit Trade Agreement, regular exchange of information to enable the stakeholders to realise the ground realities, co-operation in business laws and procedures between the businessmen of the two countries and a dispute resolution mechanism to avoid any trade disputes and misgivings, improvement of security environment, engaging the Chinese private sector on long-term basis for sustainable economic relations, revamping the processing technologies with mutual co-operation in potential sectors like agriculture storage seafood and leather products, value addition in cotton yarn and fabric, chrome and copper ores and other industrial minerals and precious stones, relocation of industries through restructuring, improvement of institutional frameworks for better communication and co-ordination between the government agencies and involvement of representative trade and industry bodies, which is essential for better understanding of business houses.

China and Pakistan are close and friendly neighbours. Pakistan has treated China as its most important economic partners. Rapid economic development in China and consequent inter-regional activity has caused increased demand for raw materials, exchange of parts, components, intermediate products and development of cross-country production networks/processes.

Such outward linkages are beneficial for resource-rich Pakistan in the Chinese context. It can be supplanted by policy of diversification of risk through investment in Pakistan. It will increase trade and spur investment through deepening of all-round co-operation for mutual prosperity.

The economy of Pakistan is deeply linked to the Chinese economy. Pakistan highly appreciates the assistance that China had provided for infrastructure development/other projects. The development must be carefully synchronised and we must share information to facilitate and assure the investors of the good returns and results.

They need to very actively and forcefully promote and facilitate economic co-operation with high zeal and spirit. The measures undertaken include the aggressive economic diplomacy. Many companies have signed agreements and MOUs worth millions of dollars to cooperate and undertake joint ventures in various sectors, such as infrastructure, mass transit, communication network, finances, chemical, fertiliser, automobile energy, and agro-based industries.

Needless to mention, recent visit of the Chinese Premier to India was relatively important. Their media has highlighted trade and economic relations between India and China in the media. Chinese Premier Li Keqiang met CEOs from India and China during a business summit. The Times of India has reported that five of 73 Chinese corporations on the list of the Fortune 500 in oil, banking, telecom, mining and aviation sectors have come with the premier to India seeking business, while the majority of the companies which have come are engaged in manufacturing, power, telecom and mining. Besides some 20 top industrialists from China and India attended a CEO forum in Delhi and purpose was "to propel bilateral trade to 100 billion US dollars within two years from the present 67 billion". Both the Chinese and Indian governments have expressed the will to attain the target during talks. A series of memorandums of understanding on pharmaceuticals, buffalo meat and fisheries apart from an agreement on feed and feed ingredients to narrow trade.

A few agreements are likely to be signed during the current visit of the Chinese Prime Minister. Prospects of further consolidation of economic relations are bright as the two sides have a lot of potential for further developments in a number of fields. Moreover, as active supporters of regional economic integration, both countries can help establish an open and integrated regional market also through regional economic fora. The pattern of ongoing economic and strategic co-operation between India and China certainly serves as a good reference for Pakistan also in terms of conceiving the projects /co-operation in the right areas and their timely implementation with the ultimate end of exponential increase in trade and investment.

Induction of new Chinese leadership provides a refreshing opportunity and new leaders would probably be eager (and reported so) to extend the requisite support to Pakistan for this purpose in view of special nature of bilateral relations. It depends on the attitude of all concerned here in Pakistan. There is an urgent need to adopt an Out-of-Box approach for consolidating bilateral economic relations with Peoples Republic of China for rapid economic development. An early action is the need of the hour and otherwise, it will be a chronicle of wasted times.

(The writer is a former Member FBR and worked as Economic Minister in Embassy of Pakistan, Beijing, China)

Copyright Business Recorder, 2013



 



 
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Annual2012/13
Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
MonthlyFebruary
Trade Balance $-1.433 bln
Exports $2.167 bln
Imports $3.600 bln
WeeklyApril 14, 2014
Reserves $9.713 bln