China’s neo-mercantilism and Sino-Pak strategic relations

By Qura tul ain Hafeez

The economic reforms of 1978 in China brought about an increase in its Foreign Direct Investment (FDI). Following the neo mercantilist policies it has encouraged the free trade wherein the Chinese firms introduced themselves and opened up to the international markets. Although the central government gave some relaxation on some of the industrial products but there are still state owned enterprises in large numbers. Better educational plans, export/import controlled regimes, and Chinese engagement in FTA with different South Asian countries including Pakistan are the contributing factors in the Chinese economic strides. Today China’s top trade commodities are textile, technological equipments and machinery, organic chemicals, iron, steel and other products. According to an estimate China earned $10.36 trillion GDP growth in the fiscal year 2014.In the mid of year 2015 China’s trade surplus was worth $59.49 billion achieving favorable amount of 70.9 hundred million as balance of trade.

It is to be understood that the Chinese neo mercantilism in not harmful for the developing countries and under developed regions of the world although there is a lot of criticism on China’s economic policies. It is one of the core assumptions of neo mercantilism, which addresses that along with the economic development of a state it emphasizes on the world economic development. Neo mercantilism promotes the regional organizations and markets. It’s a broader platform. Hence in the light of that it can be assumed that the Chinese investment projects are going to be beneficial for Pakistan as well as for China. China receives a positive response that encourages it for investment abroad because most of the investment is done for providing better conditions of infrastructure, roads, bridges, energy sector, railway projects etc. It not only benefits China by providing Chinese contractors business, but it is also helpful for creating job opportunities in Pakistan and for its economic growth .The purpose behind neo mercantilist policies of China is that China itself is running through the process of development. So it encourages doing business in different parts of the world because overseas economic relations are mutually beneficial for China’s home markets and other countries.

Similarly, China’s neo mercantilist approach should not be seen as harmful for Pakistan’s strategic relations specifically within the context of Sino-Pak strategic partnership .Both countries are enjoying trustworthy strategic relations whereas for past one decade there has been a lot of improvement in the economic relations as well. China believes in regionalization through promoting regional trade and interaction with business community. China’s active role in regional organizations like SARRC, ASEAN, and SCO is meant as part of its efforts to bring economic stability for the whole South Asian region.

Another aspect of neo mercantilism is that it puts emphasis on increasing the exports and decreasing the imports.  According to the estimates collected from the UN Comtrade Database and United Nations Comtrade Statistics and International Trade Centre (2016) by 2013 the trade volume between China and Pakistan increased over $12 billion. In 2000 Pakistan’s exports to China were $244.65 million and in 2004 and 2005 it reached $300.53 and $435.68 million respectively. While Pakistan’s imports to China in 2000, 2004 and 2005 were $550.11, $1488.7 and $2349.3 respectively. The overall volume of Pakistan’s imports and China’s exports is more than Pakistan’s exports and China’s imports. It might appear that China through its mercantilist policies is only increasing the level of exports but the reality is that it is simultaneously providing business to Pakistan. As per the official records, in 2006, the percentage of Pakistan’s export to China after free trade agreements was $506.64 million i.e. around 6% of what?.And Pakistan’s share of total import to the world was 7%. Similarly in 2012 exports to China were 30% and percentage of share to world was 27%. While Pakistan’s imports in 2006, and 2012 were 9% and 20% whereas total share to the world was 11% and 18% respectively. It shows that Pakistan is doing most of its trade with China, and Chinese companies are providing Pakistan a good business. Hence it surely is proving beneficial for Pakistan. The amount of this trade balance increased after Pakistan’s FTA with China. At the same time Chinese neo mercantilist policies are bringing developments for Pakistan’s as well as for its own trade enlargement.

There is no denying the fact that China is one of the world’s largest economies and it is hoped that Pak-China economic collaboration will bring economic stability in South Asia and will make Pakistan a regional hub of trade activities. Currently China has started about 22 projects in Pakistan including reconstruction of Karakorum highway, heavy machinery complex, tank and aircraft building, and the mega project of Gwadar Seaport under the umbrella of CPEC (China Pakistan Economic Corridor).  CPEC being a flagship project of China’s BRI strategu  includes Chinese investment of about $52 billion from deep seaport Gwadar to civil energy agreements, infrastructure and road projects. This will enhance trade and commercial opportunities for Pakistan. Moreover about 10,000 MW of electricity will be generated when it is completed by the end of 2018.

Eventually China’s neo mercantilist policies are a source of regional economic integration and the BRI will bring the countries economically more close to each other in a network of interdependence. The CPEC will be especially a major project of China’s Vision of BRI and will make Pakistan a boon for economy and a source for FDI. Already according to Board of Investment, Pakistan’s expected net foreign direct investment (FDI) has had a jump of about 60 percent in 2017/2018. Hence it can easily be interpreted as a project of mutual interests and collective benefits and by no means the CPEC should be viewed as  another East India Company.

Qura tul ain Hafeez has an M Phil in international relations from Quaid-I Azam University Islamabad. She currently works as a researcher at Strategic Vision Institute in Islamabad. Her domain of work include China as an emerging global power, Sino-Pakistan strategic and civil nuclear relations, South Asian strategic issues, regional integration, nuclear issues including nuclear non-proliferation and NSG, foreign policy analysis, and international politics.