Pakistan and China are allies of long-standing. This is due largely to the traditional logic of geopolitics.
It is an alliance spawned during the period of tension between China and India over competing territorial claims. Those tensions once exploded in border skirmishes during the depths of the Cold War.
India, the world’s second most populous country, has aligned with the Soviet Union during the Cold War period. China, which had earlier on entered into a rivalry with the Soviet Union, cultivated a strong relationship with Pakistan.
Pakistan, in turn, welcomed China’s support, given her own problems with India over Kashmir. At one point, there were a million soldiers on each side of the border prepared for hostilities.
Both India and Pakistan have since developed their respective nuclear capabilities. China, too, lest we forget, is a nuclear power.
All three are emerging powers on the world stage at this point.
India and Pakistan have, over the past few years, taken important steps towards the relaxation of tensions. Both understand that, in this new century, markets are more important than armies.
In a world threatened by international terrorists, the two countries have found much reason to cooperate against the terrorist threat. India has, over the recent period, been the target of terrorist attacks, spawned by the communal antagonisms between that country’s majority Hindi and minority Muslims. Pakistan has, post 9-11, evolved a close security relationship with the US.
Meanwhile, the Soviet Union has evaporated. Russia has found very little reason to continue investing in its relationship with India. China has found every reason to invest in the resource-rich former Soviet Asian republics. Last year, China bought out the oil company of Kazakhstan.
Meanwhile, too, India has dramatically reformed its once inward-looking economy. That has resulted in driving up growth rates. The second most populous country in the world is now also the second fastest-growing economy.
While a liberalizing India is freeing millions of its citizens from poverty each year, Pakistan continues to be mired in a stagnant state-driven economy that more properly belongs to the last century. It is to her strategic interest to latch on to the fastest-growing economy and reestablish her relations with China on more economic terms.
The point is definitely not lost to China’s market-savvy new leaders.
The emerging global economic superpower needs markets for her products and secure sources of raw materials she needs. The searing pace of her economic growth, the rising consumer appetite of her more prosperous population and her trillion-dollar foreign reserves drives China to re-imagine her role and interests in the world.
This is the context for the frenetic diplomatic initiatives coming out of Beijing.
Earlier this month, Beijing gathered about 40 African heads of government and offered each of them $2 billion in loans at virtually no interest. That massive offer to an entire continent in distress overshadowed all the efforts of western governments in that part of the world.
China has a standing offer of a free trade agreement with all members of ASEAN. That offer has been taken up bilaterally by individual members of the regional grouping.
We are all aware here of the assiduous courtship of China. Beijing has offered, and we have accepted, a low-interest credit package to finance the rebuilding of our railway system.
And Beijing is not done yet. With the much younger, more dynamic and more forward-looking leadership in place at the Chinese capital, we can expect more diplomatic initiatives that will enable this rapidly expanding economy to play a more prominent role in world affairs.
All the economies at the receiving end of China’s determined diplomatic offensive have to weigh their responses according to their own estimates of their best interests.
In our own case, the economics of our relationship with China has been net positive. We enjoy a hefty positive balance in our trade with China. This is true of most of China’s trade with the region.
As far as the region is concerned, China is the lead duck in a V-formation of economies. She piles up her trade surplus with the mature industrial economies while absorbing deficits in her trade with the neighboring emerging economies.
China has become the most promising market for our exports. Its consumer market for our products is expanding faster than we can cope with. We need to position better in this market.
We look to China as our main source of tourist revenue in the near future. She has an 80-million strong middle class that can afford to travel to nearby destinations. That middle class is growing by the day and, as it is, far too large for our existing tourism infrastructure.
More important, eventually, is that China will likely become our most important source of investments. Her burgeoning corporations will soon dwarf ours and will need to outsource many components of their operations.
China’s huge (and growing) foreign currency reserves, especially if taken in the context of the large reserves held by Taiwan, South Korea and Japan, will become critically decisive in defining the dynamics of the global financial system. These reserves enable the East Asian economies to exercise great influence on the rest of the world.
It is in the financial arena where the global balance will tilt to Asia’s favor. The de Venecia proposal to include the yuan in our foreign reserve holdings will better enable us to ensure the stability of our own currency.