As Xi Jinping concludes Pakistan visit, the dollars do not obscure the questions

Xi Jinping addresses a joint session of parliament in "the house of his brother"

By Ajai Shukla

Business Standard, 22nd Apr 15

China’s President Xi Jinping left Pakistan on Tuesday after a two-day state visit with the Nishan-e-Pakistan --- the Islamic Republic’s highest civilian honour --- pinned to his breast, having provided badly-needed infrastructure funding to a beleaguered and cash-strapped Pakistan.

Even so, the euphoria over the signing of more than 50 agreements during Xi’s visit, committing some $46 billion in Chinese funding for the China-Pakistan Economic Corridor, is tempered with apprehension.

Both sides know this 3000-kilometre passage from Kashgar in China’s restive Xinjiang Autonomous Region to Gwadar in Pakistan’s insurgency-affected Baluchistan, passes through these countries’ most chronically unstable areas.

Beijing fears for the security of its engineers and workers in Pakistan, several of whom have been killed in terrorist attacks, especially in Baluchistan. Earlier this decade Beijing had insisted on deploying People’s Liberation Army (PLA) soldiers in the Northern Areas for safeguarding Chinese labour there. New Delhi had strongly protested the stationing of PLA troops on Indian-claimed territory.

With Islamabad eager to reassure Beijing about safety of its personnel, Pakistani President Mamnoon Hussain told Xi in a one-on-one meeting on Tuesday that Pakistan would raise a 10,000-man security division dedicated to protecting Chinese workers in Pakistan.

According to Dawn newspaper, a major general would head this force, reporting directly to General Headquarters (GHQ), as Pakistan calls its army headquarters.

President Xi’s announcement of $46 billion in funding in Pakistan is the tip of the spear for Beijing’s so-called “Silk Road Economic Belt” project, which aims to extend Chinese infrastructure to South and Central Asia. First announced in Kazakhstan in 2013 and since renamed “One Belt, One Road”, this infrastructure development strategy has multiple aims.

At the security level, it aims to tamp down rising Islamist radicalism in Xinjiang, Pakistan and Afghanistan through economic development. Bringing development to Baluchistan is also expected to cool the decades-old insurgency there.

At the macro-economic level, extending infrastructure through Asia into Europe is expected to open up new markets to Chinese producers, whose domestic markets are stagnating in the face of overcapacity.

Finally, this provides China with a more remunerative use for its massive foreign currency reserves, much of which currently stagnates in low-yielding US treasury bonds. China’s foreign exchange reserves stand at $3.7 trillion, according to Beijing’s March-end figures.

Beijing dispenses this infrastructure funding through its so-called “policy banks” --- three government lenders that focus on financing infrastructure development in China and abroad. These are China Development Bank (CDG); Export-Import Bank of China (Ex-Im Bank); and Agricultural Development Bank of China.

The Financial Times quotes the Chinese financial website, Caixin, that China’s central bank has already disbursed $62 billion to two of these banks for the “One Belt, One Road” initiative. The CDB has received $32 billion in forex reserves, while Ex-Im Bank has received $30 billion.

China’s generous chequebook diplomacy has provided Pakistanis an opportunity to ridicule America, which has never come close to dispensing such largesse.

Even in arms supplies, Beijing has clearly overhauled Washington. Earlier this month, Washington notified the US Congress of its intention to sell Pakistan $952 million worth of defence equipment, including 15 AH-1Z attack helicopters and 1,000 fire-and-forget Hellfire missiles.

China, however, has bigger deals in the making. Beijing and Islamabad are in the final stages of negotiating the purchase of eight Chinese conventional submarines --- these could be either the Yuan-class Type 039A or Type 041; or the Qing-class Type 032. This $4-5 billion deal was expected to be signed during President Xi’s visit, but was eventually a notable omission.

Stationed in Gwadar with suitable reserves of spare parts and maintenance facilities and personnel, these submarines would allow the Pakistan Navy to support Chinese submarines of the same type whilst they operate in the Indian Ocean.

The authoritative Stockholm International Peace Research Institute (SIPRI) says Pakistan sourced 51 per cent of its arms imports from China during the period 2010-14. The US was in second place with 30 per cent, says SIPRI.

A significant part of China’s arms sales to Pakistan are accounted for by the JF-17 Thunder light fighter, which has been “co-developed” by both, but still has a large part supplied by China. President Xi’s flight was symbolically escorted by a detachment of eight JF-17s as he arrived in Pakistan and on his way out.