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All eyes are on China

May 14 and 15 are testing days for China, which seeks recognition as a country that can lead the world economies, a status enjoyed by America for more than seven decades. More than 20 heads of state, over 50 leaders of international organisations, over 100 ministerial-level officials, as well as over 1,200 delegations from various countries and regions are invited to participate in the two-day Belt and Road Forum for International Co-operation in Beijing Sunday and Monday.

Chinese President Xi Jinping’s concept on globalization was spelled out in his Jan 17 speech at Davos, presenting the Belt and Road as a win-win for all stakeholders. The odds are in favour of China, considering that America’s new doctrine in favour of America first and the UK having moved out of the European Union desperately in search of new markets and Europe needs to fill the gap due to the slowdown of its business with America.

The best outcome of the event in Beijing could be that the world leaders by and large accept the Belt and Road concept as a win-win for all participating nations, while the worst outcome will be the creation of two blocks facing each other, leading to economical and political confrontations and uncertainty. Prime Minister Nawaz Sharif is participating in the Belt and Road Forum for International Co-operation.

“Pakistan is an important partner of China in promoting One Belt One Road Initiative and we believe that Prime Minister Sharif’s visit and his attendance at the forum will give a boost to our co-operation in the relevant fields,” Geng Shuang said while responding to a question during his regular press briefing here on Wednesday. The prime minister is attending the forum on the invitation of Chinese President, Xi Jinping. The spokesperson said, as an organiser and host of the forum, China will warmly welcome all the guests from around the world including Pakistan. He said, the CPEC is a premier and a pilot project of the One Belt One Road Initiative and progress has already made in this regard.

According to official sources here, during his stay in China, the prime minister will also hold important meetings with the top Chinese leadership particularly, Chinese President, Xi Jinping and Prime Minister Li Kaqiang to further promote bilateral relations between the two friendly countries. The forum will build consensus and connect development strategies of various countries and will also examine co-operation in key areas and finalise major projects in infrastructure connectivity, trade and investment, financial support and people-to-people exchanges, according to a senior official of the Chinese Ministry of Foreign Affairs.

Medium- and long-term co-operation initiatives will be announced and long-term co-operation mechanisms explored to build a closer and more result-oriented network of partnerships, he added. The CPEC is indeed an important part of Belt and Road if not the most important of all the corridors China is coming up with in its quest to show-case its global connectivity.

Pakistan must leverage its position of strength which is far beyond the $57 billion it appears contented with. There are far greater financial and political dividends which Pakistan can draw out of it as a strategic stakeholder in the CPEC. Advantages gained out of the CPEC also bring home many worries for Pakistan. The foremost is the rising debt.

Pakistan’s debt and other repayments on China’s Belt and Road initiative will peak at around $5 billion in 2022, but will be more than offset by transit fees charged on the new transport corridor, says the Pakistan government’s chief economist. China has pledged to invest up to $57 billion in Pakistan’s rail, road and energy infrastructure through its vast modern-day “Silk Road” network of trade routes linking Asia with Europe and Africa.

Officials expect an uptick in trade between the two nations once Pakistan’s Arabian Sea port of Gwadar is functional and work on motorways is finished allowing goods to cross the Himalayas to and from China’s western Xinjiang province. The China Pakistan Economic Corridor (CPEC), a flagship “Belt and Road” project, has been credited with helping revive Pakistan’s sluggish economy, but investors have raised concerns that Pakistan’s currency could come under severe pressure once debt repayments begin and Chinese firms start taking profits home.

It is reported that Nadeem Javaid, who advises Prime Minister Nawaz Sharif’s government and works closely on the CPEC programme, told a foreign news agency that such fears are misplaced as Islamabad would earn vast fees from charging vehicles moving goods from and to China. Javaid said the Gwadar-Xinjiang corridor should be operational from June next year, and Pakistan expects up to 4 percent of global trade to pass through it by 2020.

It is reported that “the kind of toll tax, rental fees that the Pakistani system will gain is roughly $6-$8 billion a year,” Javaid, chief economist at the Planning Ministry, said in an interview. “By 2020, I expect we will get this much momentum.” He said China has huge incentives to transport oil and other goods bound for its western regions through Pakistan as the Gwadar-Xinjiang corridor shaves some 9,500 miles (15,000 km) off other traditional routes.

Reportedly the Investors, too, are watching Pakistan’s ballooning current account deficit, which widened by more than 160 percent to $6.1 billion in the nine months to March, largely due to imports of machinery for big CPEC projects. It is reported that the debt repayments and profit repatriation from CPEC projects will begin in 2019, totalling about $1.5-$1.9 billion, and rising to $3-$3.5 billion by the following year. It would be low in the beginning, and in 2022 it will peak at around $5 billion but the government does not think it likely that Pakistan will face a balance of payments crisis.

The officials take is that CPEC should boost economic growth, which could hit 5.2 percent in 2016-17. Exports should also pick up once CPEC power projects totalling 7,000 megawatts come online and reduce often crippling energy shortages. It is reported that the two countries have also discussed using a currency swap agreement between their central banks to create a mechanism to avoid any third currency in international transactions. “If some mechanism is going to be finalised on that, it will work as a buffer or a cushion that’s going to basically avoid or prevent any kind of default that could happen in unforeseen circumstances.”

There are divergent views of financial gurus on the subject. But one thing is clear, debts are messy and in no time they spin out of control. Many mature and seemingly vibrant economies have lost out on this account bringing misery to its people and their sovereignty dented. Pakistan is on the edge on this account all the time with the need to rush to IMF for help off and on.

Countries exposure to debt is escalating exponentially while its exports is sliding down over the last three years, whereas, the Foreign Direct Investment is static. All of these numbers do not add well.

Farhat Ali, "All eyes are on China," Business Recorder. 2017-05-13.
Keywords: Economics , World economies , International organisations , Economic Corridor , Debt repayments , Foreign news , China , America , Pakistan , CPEC