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Pakistan-China: 70 years of friendship

Geo-strategic challenges & economic security[i]

Dr. Ikramul Haq

Pakistan became the first Muslim state and third non-communist country to recognise the People’s Republic of China by sending a high-level delegation to China on January 4, 1950. Finally, both the countries established formal diplomatic relations on May 21, 1951. On completing 70 years long extraordinary relations, it is time for peoples of both the countries to celebrate and further consolidate ties and cooperation in all areas in view of emergence of new geo-political and geo-economic challenges and threats to the security of the entire region.

The time-tested friendship spanning over half a century between the two countries is adorable. In fact, it is unprecedented in our region that has been the epicenter of Great Game and its extension, New Great Game. For nearly a century (1830 to 1930), the two most powerful nations on earth, Victorian Britain and Tsarist Russia, fought a secret war in the lonely passes and deserts of Central Asia. Those engaged in this shadowy struggle called it ‘The Great Game‘, a phrase immortalized by Kipling”[1]. In recent times, the term of ‘New Great Game’ (elaborated by Pakistan’s permanent ambassador in United Nations, New York, Munir Akram in an op-ed in 2016 and much before that (2008) by Dr. Sachithanandam Sathananthan[2] in a paper, The Great Game Continues). In the prevailing circumstances, both China and Pakistan need to prepare for rapidly changing realities in the world, in general, and in our region, in particular.

Since independence in 1947, Pakistan has been struggling to become a self-reliant economy that can end its dependence on foreign lenders and donors and come out of debt trap. The challenges of Pakistan on the economic front are numerous, but the most challenging one is massive, unsustainable fiscal deficit of over 8% of GDP, coupled with monstrous debt of 88% of GDP. The recent revival[3] of suspended programme with International Monetary Fund (IMF), with the most stringent condition[4] imposed ever, is bound to retard already dismal growth in Pakistan due to heavy taxation (federal tax target agreed by the PTI Government is Rs. 4.9 trillion for fiscal year 2021-22) when due to third and deadly wave of Covid-19 growth rate will not be more than 3% even in the next fiscal year and this year hardly 1.5% when target of Federal Board of Revenue is Rs, 4717 billion. For this alarming state of affairs, the blame lies completely on the coalition governments of Pakistan Tehreek-i-Insaf (PTI) in centre and in three provinces by failing to undertake fundamental and institutional reforms to improve governance in all areas and deliver what it promised to the voters in elections held in July 25, 2018 after assuming power on August 18, 2018. 

The perpetuation of elitist economy resulting in ever-growing gulf between the rich and poor, income and wealth inequalities, fiscal deficit, oppressive tax system, sluggish economic growth, lack of investment to generate growth, dearth of skilled labour, stagnant exports, rising imports and poor infrastructure—just to mention the major ones[5]—remain the stumbling block in reaping the fruits of China-Pakistan Economic Corridor (CPEC[6]) that since its inception on April 20, 2015 is claimed by successive governments and military quarters a ‘game changer’ turning Pakistan into one of the largest economy in the coming years. This dream remains unfulfilled after 6 years and country is trapped in a deadly debt trap[7].

On the other hand, China with its pro-people economic system and excellent management of all areas of governance is now the second largest economy of the world. For the ruling party in Pakistan with its allies, the point to ponder is why Pakistan has failed to learn from a neighbour that got independence in 1949, two years later than us. Prime Minister, Imran Khan, after his first visit to China in October 2019 announced to follow the successful policies of our best friend in uprooting corruption and alleviating poverty.    

The much-needed foreign investment and development of infrastructure is coming from China—this is a reality and not an illusion as many skeptics portray. We lack capacity to make best use of it. Execution of all projects related to CPEC and those yet to be conceived, after requisite infrastructure is complete, can bring prosperity for Pakistan—making it one of the largest economies of the world.

The challenge of removing inefficiencies from our legislative, judicial and administrative structures that are change-resistant is formidable, but not impossible. There is realisation with fast growing need that we should move towards modern and efficient delivery systems if CPEC has really to become a game changer for us.

CPEC, a multi-faceted project, can pull public and private sector onto a fast track development mode proving a blessing for Pakistanis, who are otherwise suffering on account of lethargy and indifferent attitudes and not ready for modern knowledge-based economy and technological advances as practically demonstrated by Chine.

The following areas need to be focused while making CPEC as real flagstaff project of Chin’s vision of Belt and Road Initiative (BRI[8]).

1. Agriculture and Food Security.

2. Energy Security (here energy means all forms, like electricity, gas, oil, nuclear, etc.).

3. Industrial & Trade Security.

4. Strategic Economic Security.

The key to success for CPEC and BRI is evolving regional developments around Pakistan and China. China has already done it by taking over Chabahar project of Iran, kicking out[9] India and making huge investment[10] in Afghanistan. China has been improving relations with Russia. Both have recently sent a clear message[11] to President Joe Biden of the United States (USA):  “Don’t judge us or try to change us. Those days are over”. Yes, the days are over as noted in a paper: “China’s President Xi has bade farewell to his predecessors’ rhetoric that China is merely a developing country and has embraced its rise as a major power. Russian President Putin, at the same time, has embarked on a series of assertive moves to directly challenge U.S. and Western aims in both Eurasia and the Middle East[12].

Pakistan can now adjust to the evolving opportunities in the short and midterm for its strategic economic security in the aftermath of two-day visit[13] of Pakistan (April 6-7, 2021) of  Russian Foreign Minister, Sergey Lavrov, who quoted as under:

I came with a message from my president that tells Pakistan we are open for any cooperation, whatever Pakistan needs Russia is ready for it”. Lavrov was quoted by a senior Pakistani official, who attended the closed door meeting between the Russian foreign minister and Pakistani authorities, as saying. “In other words, the Russian president offered us a blank cheque,” said the official, who requested not to be named because of the sensitivity of the issue[14].

It is worth mentioning that Pakistan and Russia have already started work on the US$2 billion North-South gas pipeline project—signed in 2015 to lay a pipeline from Karachi to Lahore. Russia has also shown keenness to revive the Pakistan Steel Mills that it originally built. Moscow also showed interest in hydroelectric projects and inclined to make US$8 billion investment in different areas.

The most critical area for Pakistan, Iran, China and Russia is the withdrawal of US withdrawal from Afghanistan without securing a peace deal as it can jeopardise regional security. By now, it is not a disputed that there exists New Great Game[15], aimed at sabotaging BRI and keeping South Asia and Middle East in turmoil. The ultimate aim of USA is containment of China and blocking of BRI with the help of India. The rise of extremism and militancy in the entire area, including Modi-driven Hindutva ideology and genocide of Muslims in Indian held Kashmir—all are part of the New Great Game[16]. The forces behind this New Great Game want to make a nuclear Muslim State—Pakistan—economically subservient to the IMF and World Bank.  

The fruits of CPEC connectivity would be enormous for the entire region without which, the huge potential of trade within South Asia cannot be achieved. Imagine hundreds of service stations along the roads giving employment to our youth, acceleration of trade between different parts of Pakistan, boost to tourism, peace and prosperity as Afghanistan, India and Iran transit trade through the CPEC. There is no doubt that this would bring prosperity to the millions inhabiting South Asia and Central Asia.  It is thus imperative for the government of Pakistan and all stakeholders to highlight the advantages of the CPEC and create an atmosphere of love and fraternity among all the beneficiaries.

The new dawn of economic well-being for Pakistanis is not very far and the only thing we need to do is to ensure that all citizens get adequate opportunities to prosper and benefit equally from economic growth. We must move fast to end economic apartheid that is presently inbuilt in our elitist economic structure. Without removing these distortions, the real benefits of even mega project like CPEC could be wasted. Equitable growth can come through this great initiative if we implement Chinese model: “A harmonious society should feature democracy, the rule of law, equity, justice, sincerity, amity and vitality”— Chinese President Hu Jintao[17]       

The challenge for Pakistan, while remaining within IMF programme, is to secure the economic security through regional and international connectivity, partnerships and strategic economic investments. This will develop infrastructure and industry to stimulate economic development and growth resulting in economic stability and security.

The new paradigm shifts of innovations in technology, manufacturing and supply-chain management (improved the products and services with growing consumer markets) have emphasised to influence the approaches of human capital management. Pakistan has the abundance of human resource but less of human capital as compared to other economies in the region and the World. The notion of “economic security for self-reliance” requires serious participation of all the segments of population by making them active and productive. The multi-sectoral cooperation mechanism for macro-stability ensures the better human resource management policies in different industries as China did and succeeded in last few decades.

The present PTI Government has so far failed to undertake much-needed and long-delayed fundamental structural reforms in administration, where singularly Pakistan Administrative Service (PAS, still better known as DMG) controls most of the key posts both in federal and provincial governments. The highest judicial forum repeatedly in the last many years pointed out failure of successive governments in governance, including poor justice delivery system. However, the PTI Government came with tall claims of establishing egalitarian society and providing “justice” to all—the very name of party means “movement for justice”. However, it has failed to provide resources and roadmap for reformation of obsolete and outmoded institutions, especially the administrative and judicial systems. No country has progressed economically without fixing its justice delivery system, improving all areas of governance, especially countering corruption. The example of China is before us, taking the following steps in recent years:

  • In March 2018, two new “super agencies” were established to regulate both the public and the private sector.
  • For the public sector, National Supervisory Commission (NSC) replacing all previous agencies. The scope of NSC was enhanced covering investigation and to act as watchdog for all state-owned enterprises, public health care, research and educational institutes. Since then NSC is securing executable evidence and recommending cases for prosecution.
  • The “super agency that regulates the private sector ‘State Administration for Market Regulation (SAMR).
  • China’s Anti-Unfair Competition Law (AUCL) deals with commercial bribery by individuals and companies in China. 

Pakistan has many organisations, like National Accountability Bureau (NAB), Federal Investigation Agency (FIA) and many provincial anti-corruption and law enforcement bodies, even inspection teams of Prime Minister and Chief Ministers in all provinces. However, the quality of investigation, prosecution rate and justice delivery in Pakistan are extremely unsatisfactory. The lesson is clear: mere establishing of institutions and passing of laws are not the answer. The investors and international watchdog like Financial Action Task Force (FATF) and its affiliate Asia Pacific Group (AGP) in their evaluation reports judge us by our performance and not political rhetoric in which all our political parties believe in rather than delivering after making tall claims, like its predecessors, Pakistan people’s Party (PPP) and Pakistan Muslim League (Nawaz), the PTI is no exception.     

On the 70th anniversary of Pak-China relationship, besides the challenges mentioned above, the main issue is faulty economic policies of the Government of PTI giving leverage to IMF to dilute tax exemption granted to beneficial CPEC projects while maintained the same for IFC-funded projects of Independent Power Plants (IPPs) destroying our growth due to high cost of energy[18].

It is surprising that the PTI Government is painting a rosy picture of economy and many so-called experts (especially self-assumed defence analysts appearing in TV talk shows regularly) portrays Pakistan as “fortress of Islam”, due to its nuclear capability and advance programme in missile technology. However, it needs to be remembered that erstwhile United States of Soviet Republic (USSR) dismembered due to economic bleeding while engaged a war in Afghanistan. China has a prudent foreign and economic policy, avoiding armed conflicts with neighbours and doing trade even with countries having territorial disputes, for example India and Taiwan, despite the fact that on the backing of United States both confront China. The nuanced foreign policy of China towards India and Taiwan should be followed by Pakistan while dealing with its hostile neighbouring countries.  

The economic challenges faced by Pakistan are due to lack of regional trade, oppressive taxes on narrow base, amnesties, money and asset-whitening schemes, huge tax expenditure and monstrous debt with ever-increasing debt servicing, poor social spending and high cost of running inefficient gigantic state apparatus—all these interlinked requiring all-out reforms[19].

In the days of international recession due to Covid-19 endemic, the first and foremost priority should have been to take measures to ensure survival, revival and growth in all sectors. Till today, no concrete steps have been taken by the federal and provincial governments for meeting this emergent situation. Resource mobilisation should be given preference to build infrastructure, facilitate growth of small and medium sized firms in the industrial sector and small farms in the agricultural sector for an employment intensive and equitable economic growth process. In all these areas great scope exists with China, Iran, Turkey and Russia for achieving rapid growth, human resource development and a regional EU [European Union] style bloc.  

There is still time for the Prime Minister, Imran Khan, to realise that the iniquitous prescriptions of World Bank/IMF of high taxes, complicated laws and enormous cost of doing business will not solve our fiscal woes. These will bring more miseries as economy in recession cannot grow due to economic toll of Covid-19 endemic. The viable solution is simple/low-rate taxes, reduce the huge tax expenditure by withdrawing exemptions available to the rich and mighty, give relief to taxpayers as they suffered heavily during lockdown due to Covid-19 endemic.

If the PTI Government wants to adopt the path to prosperity as China did in the last few years, it must drastically cut wasteful expenditure, eliminate circular debt, get rid of loss-bearing public sector enterprises and improve efficiency and productivity in all sectors of economy. State lands, situated in the heart of cities, should be leased out for business and commercial ventures, which would generate substantial funds, rapid growth and new jobs. For these joint ventures with Golden Ring, countries (China, Iran, Turkey and Russia) should be the top priority[20].

It is time we should come out of “despair” and utilise CPEC and regional connectivity as an opportunity with China as our main partner to make BRI a success.

On this historic occasion of celebrating 70 years of relations with China, we must not miss a great opportunity to reform our outdated elitist structures that are the main impediments for robust economic growth. A new era of economic development is at our doorstep and it offers a great opportunity for Pakistan to dismantle and upgrade all its delivery systems. The elitist structures if not dismantled will offer the benefits to the selected few and not to the common citizens like in China. Our great friend and neighbour on November 23, 2020 “successfully achieved the daunting task of removing the last remaining counties from a list of poor regions, in what officials described as achieving President Xi Jinping’s longstanding political goal of eliminating extreme poverty by the end of this year. The milestone was achieved by lifting 93 million people out of poverty since 2013. Foreign ministry spokesman Zhao Lijian told a press briefing that China was prepared to share its experience with other developing countries[21].

This is what PTI Government needs to learn from China on the historic moment of celebrating 70golden years of relation, where we are lagging behind and the other partner has potential and political will to serve its masses and make the country in the coming few years the most powerful economic power of the world.

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Twitter: DrIkramulHaq

[1] In his 1901 novel ‘Kim’, he made the term popular and introduced the new implication of great power rivalry. It became even more popular after the 1979 advent of the Soviet–Afghan War.

[2] Dr. Sachithanandam Sathananthan holds a PhD degree Cambridge University and this paper is available at https://www.outlookindia.com/website/story/the-great-game-continues/238370, accessed on April 13, 2021

[3] https://www.imf.org/en/News/Articles/2021/02/16/pr2141-pakistan-statement-by-imf-staff-on-pending-reviews, accessed on April 13, 2021

[4]  IMF’s Country Report No. 2021/073 of April 8, 2021, https://www.imf.org/en/Publications/CR/Issues/2021/04/08/Pakistan-Second-Third-Fourth-and-Fifth-Reviews-Under-the-Extended-Arrangement-Under-the-50344, accessed on April 13, 2021

[5] More on the fiscal fiasco, TNS, [Political Economy] The News, February 28, 2021, https://www.thenews.com.pk/tns/detail/796572-more-on-the-fiscal-fiasco, , accessed on April 13, 2021

[6] http://cpec.gov.pk/, accessed on April 13, 2021

[7] Unshackling debt shackles, Business Recorder, November 6, 2020, https://www.brecorder.com/news/40031027, accessed on April 13, 2021

[8] https://www.beltroad-initiative.com/belt-and-road/, accessed on April 13, 2021

[9] https://tribune.com.pk/story/2254958/india-kicked-out-of-chabahar-rail-project, accessed on April 13, 2021

[10] https://thediplomat.com/2020/09/chinas-stake-in-the-afghan-peace-process/, accessed on April 13, 2021

[11] https://theconversation.com/russia-and-china-are-sending-biden-a-message-dont-judge-us-or-try-to-change-us-those-days-are-over-157771, accessed on April 13, 2021

[12] https://globallnghub.com/wp-content/uploads/attach_246.pdf, accessed on April 13, 2021

[13] https://tribune.com.pk/story/2294265/putin-offers-blank-cheque-to-pakistan, accessed on April 13, 2021

[14] Ibid

[15] Hidden agenda & “deal” with Taliban, Business Recorder, September 11, 2020, https://www.brecorder.com/news/40017964, accessed on April 11, 2021

[16] https://dergipark.org.tr/en/download/article-file/1127165, accessed on April 11, 2021

[17] http://pk.chineseembassy.org/eng/zgxw/t203354.htm, accessed on April 11, 2021

[18] IMF-imposed ordinance and IT exports, TNS, [Political Economy] The News, April 11, 2021, https://www.thenews.com.pk/tns/detail/817976-the-imf-imposed-ordinance-and-it-exports, accessed on April 13, 2021

[19] Need for all-out reforms, Business Recorder, March 20 & 26, 2020, https://www.brecorder.com/news/582171/need-for-all-out-reforms-i and https://www.brecorder.com/news/583639, accessed on April 13, 2021

[20]  The emerging strategic security alignments: A case of Golden Ring security in Eurasian region, by Muhammad Samrez Salik and Ms. Khurshid Fatima, https://ndu.edu.pk/issra/issra_pub/articles/margalla-paper/Margalla-Papers-2018/05-The-Emerging-Strategic.pdf, accessed on April 13, 2021

[21] https://www.reuters.com/article/us-china-poverty-idUSKBN284142, accessed on April 13, 2021

[i] Originally published in the online Magazine Narratives on May 8, 2021 version of without footnotes and under the title, Friends for all season.

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