OPINION
Uzair Younus
The China-Pakistan impasse is very real
Multan-Sukkur Motorway; and issues at SEZs including water, gas, and electricity connections for projects worth almost $1 billion. To many domestic investors, the above are familiar challenges they face when operationalizing major projects in the country. As a result, Pakistan’s geoeconomics ambitions are hitting the brick wall of reality that is propped up by misgovernance and reinEven as the government claims all is sunshine forced by a dysfunctional bureaucracy. Ease of doing business remains a challenge in the country, with most local investors preferring to park and rainbows, tensions continue to rise their money in unproductive assets like plots. The Chinese, who had high hopes of leveraging their strategic relationship with Pakistan to he Chinese are not happy. Once known and proudly shown not only bypass but bring down this wall, are quickly realizing that off as Pakistan’s all-weather friend, the relationship between their optimism may have been unfounded. These challenges mean that the two countries is precariously balanced on a knife’s edge. the risk-adjusted returns in productive assets are simply not worth The relationship started to go awry soon after the PTI the trouble and investors, both domestic and foreign, either avoid government came to power. The first cracks in the relationtaking risks or demand guaranteed rates of return with the sovereign’s ship became apparent when Abdul Razak Dawood in September 2018 backing. Government interlocutors including senior ministers who deal told the Financial Times that Pakistan was rethinking its role in the Belt with the Chinese on a regular basis insist, both publicly and privately, and Road grand plan. that these are not serious issues. Their argument is that the Chinese The downturn has only accelerated in recent months, with the have a direct line to the very top levels of Pakistan’s government and Dasu terror attack marking a major inflection point in the China-Pakistan that all issues are resolved in an efficient manner. Others outside the economic relationship. Mounting issues have become an irritant for the government who also engage with the Chinese believe these claims Chinese and a warning signal for international investors who dare to look and agree that all is not well. But for argument’s sake let us agree that at Pakistan as a potential destination. journalists are sensationalizing routine issues and that all is well. A key The most recent Joint Cooperation Committee (JCC) meeting, held question still lingers: why is it that routine issues require attention from in September 2021 after a two-year hiatus, brought all the major issues and intervention by senior government officials? After all, a half-decent into the limelight. According to media reports the Chinese demanded ingovernment machinery ought to provide water and gas connections at creased security as a “precondition” for progress on CPEC. Pakistan’s deSEZs and clear materials through the ports in an efficient and timely sire to renegotiate power tariffs with Chinese investors was also rebuffed manner without any delays. by the Chinese. Pakistan also assured that almost $1.5 billion in payables The data from 2018 onwards highlights the costs these issues to China would also be disbursed in the coming days. In recent weeks have inflicted: after peaking at $1.3 billion in 2017-18, foreign direct Special Advisor to the Prime Minister on CPEC Khalid Mansoor has also investment (FDI) inflows from China have declined to $758 million in sought intervention from the Chinese government to push Sinosure to 2020-21. From 2013 to 2018, the average annual inflow from China was provide insurance coverage for almost $13 billion worth of projects. The almost $823 million and this has dropped by almost 30 percent to an Chinese are also facing a whole host of other issues including, but not average annual inflow of almost $578 million. The immediate pushback limited to: imposition of anti-dumping duties on construction materials against this data might be that a twin deficit crisis inherited by this for Gwadar Airport; delays in issuance of work visas, with procedural government coupled with a once-in-a-century pandemic has meant issues leading to penalties; pending payments on projects including the that the investment climate has been difficult. While this may be true, comparative data from across the border shows that India attracted a record-high $81.7 billion in FDI during 2020-21, meaning that the fallout of the pandemic, which included a traumatic national lockdown, need not dampen investor confidence. The fact of the matter is that Pakistan’s byzantine governance and bureaucratic system needs massive overThe writer is Director haul, especially if those at the helm of affairs are serious about a geoeconomics pivot. The decline in FDI coupled with of the Pakistan the issues faced by the Chinese is evidence that misgovernance and a dysfunctional bureaucracy are major unresolved Initiative at the issues that are scaring away investment. And while this government, like its predecessors, has conducted yet another Atlantic Council, a multistakeholder process to pursue institutional reforms, the lack of implementation means that things are only Washington D.C.getting worse. As I have argued elsewhere, succeeding at geoeconomics requires the state machinery to operate like a based think tank, and well-drilled orchestra, with each musician playing their instrument in sync with everyone else. For non-Chinese inhost of the podcast ternational investors then, the performance is just not good enough to command attention. After all, if a strategic ally Pakistonomy. He with a relationship that is proverbially higher than the Himalayas is struggling to navigate Pakistan’s dysfunctional tweets @uzairyounus. governance and bureaucratic structures, what hope do others have?
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