This is the 74th article in the series The China Chronicles.
Read all the articles here.
Both China and Pakistan have for long indulged in hyperbole about their ‘all-weather friendship.’ While the Chinese have for long described Pakistan as their
Israel, the Pakistanis have not been quite as expansive in calling China their USA. The reasons for this were clear. Until 10 years or so, there was very little economic heft in Sino-Pak relations. Political and strategic relations (centred around their mutual animosity towards India) constituted the bedrock of their relations. The US was, however, the principal patron of Pakistan. Episodically and after long hiatuses, Pakistan profited and prospered enormously from its relations with the US. This this was not just in the economic realm such as aid, trade, grants, but also in the political, diplomatic and most of all defence and security.
From around 2007-08, the US influence in Pakistan waned, and steadily replaced by China. The global financial crisis saw the emergence of China as a major global economic player with deep pockets. The US economy was in a crisis and the perception that the US was a declining power gained ground. It was also a stage when the Taliban in Afghanistan were resurgent. US-Pakistan relations were tense partly because of the support and safe havens given to the Taliban by Pakistan and in part due to the growing closeness between the US and India turned off Pakistan. In addition, the US-Pakistan relations were in a downward spiral because of the US intervening in Pakistan’s politics to effect a deal between the military dictator Pervez Musharraf and Benazir Bhutto, who was seen as the answer to the wave of terrorism inside Pakistan. The former Pakistan Army Chief Ashfaq Kiyani went to the extent of accusing the US of “
causing and maintaining a controlled chaos in Pakistan…to de-nuclearise Pakistan.” The Chinese meanwhile remained steadfast in their diplomatic, political and military support to the Pakistani state without interfering or imposing themselves in Pakistan’s domestic affairs.
The global financial crisis saw the emergence of China as a major global economic player with deep pockets.
In the defence and security domain, China had long surpassed the US as Pakistan’s most important partner and patron. Although the US arms supply made more of a splash because of the quality of weapons and platforms, the
Chinese arms transfers are almost double of what Pakistan has received from the US. Not only have the Chinese assisted Pakistan in developing an arms industry for tanks, armoured vehicles, and fighter aircraft, they have been closely involved in Pakistan’s strategic weapons programme, including providing them missile technology. China had, over the years become an indispensable ally while the US was perceived as an undependable, unreliable, and an overbearing, country.
However, China’s importance for Pakistan is no longer limited to only defence and security. Data from Pakistani and Chinese official documents reveals the deep inroads that China has made in the Pakistan economy, especially in the last decade. The economic dimension of the Sino-Pak relationship — the China Pakistan Economic Corridor is but one manifestation of this — has only emboldened Pakistan to defy and deny the US. The way the Pakistanis see it, they can live without the US pumping in money to keep them afloat because the Chinese seem to have taken it upon themselves to double down on
stabilising Pakistan. Since 2011-12, Pakistan’s annual budget documents have consistently shown that the
estimates of financial assistance from China far outstrip those from the US. In the last few years, the Chinese assistance is estimated at 20 times more than that coming from the US.
The economic dimension of the Sino-Pak relationship — the China Pakistan Economic Corridor is but one manifestation of this — has only emboldened Pakistan to defy and deny the US.
China is not just emerging as the largest debtor to Pakistan but is also the largest investor. What is more, China is Pakistan's largest trading partner and the lender of last resort to bailout Pakistan from its chronic deficit on the external account. In short, China is virtually the only game in town as far as the tottering Pakistan economy is concerned. Almost 60% of the
Foreign Direct Investment comes from China, and the number is rising. However, along with it are rising fears that Chinese FDI might be crowding out FDI from other countries. Since 2006-07, China has committed to loans of over $21 billion and
disbursed over $9 billion (most of them after 2013-14 when the CPEC projects were launched). In addition, Chinese commercial banks had loaned $4.5 billion for balance of payments support to Pakistan in the last couple of years. Compared to China, the US has given no loans to Pakistan since 2002-03.
On the trade front, Chinese exports to Pakistan have been galloping ahead while imports from Pakistan have been declining in recent years. Ever since the
Free Trade Agreement between the two countries became operational in 2006, trade tilted heavily in favour of China. According to
Chinese trade data, in 2017 Chinese exports to Pakistan were over $18 billion while imports from Pakistan were under $2 billion. Compared to China, the trade with the US was more balanced and, more importantly, favourable to Pakistan. However, the sheer quantum of trade and Pakistan’s dependence on it, gives China solid leverage over the country.
Clearly, Pakistan is now deeply in hock to China. From weapon systems to economic bailouts, to diplomatic support in various international fora, China is Pakistan’s go-to country. This has been leveraged by China to influence both the military and civilian leaders of Pakistan. Mostly this influence secures sweet deals with no questions asked — the easiest way to push through a deal in Pakistan is by adding a Chinese angle to it, but increasingly China has also started pushing the envelope on security, foreign policy and even domestic politics of Pakistan. At the same time, while Pakistan increasingly looks upon China as its new America, the Chinese are not as generous as the US had been in the heady days of the US-Pakistan relationship.
While Pakistan increasingly looks upon China as its new America, the Chinese are not as generous as the US had been in the heady days of the US-Pakistan relationship.
Even more importantly, China is still not in a position to bail out its ‘iron brother’ Pakistan out of trouble frequently, especially if the US is the source of trouble. Nor is China likely to go out on a limb for Pakistan every time it gets into crisis. Pakistan is an important client state, but not a state critical for China’s survival. And despite the fact that China has been doubling down in its support for Pakistan, there are some straws in the wind that suggest the beginning of a rethink in China on how much it should invest itself in Pakistan, which could turn out to be a poor investment ultimately.
Consequently, India can use to force China to be more even-handed in its policy in South Asia, especially on issues like designating and sanctioning terrorists like the Jaish-e-Mohammed chief, Masood Azhar, who China has been protecting for years. Until the Pulwama suicide attack on the CRPF bus, this was an irritant in Sino-Indian relations. It is going to become a core issue from now onwards for New Delhi. What China will need to decide is whether the benefit it derives from its economic and strategic relationship with Pakistan is worth the economic and strategic cost of antagonising India and pushing it to a point where India reconsiders and revaluates its policy of strategic caution in pushing ahead with the Quad and other initiatives aimed at containing China. The fact that China makes more money out of India every year than it will out of its trade and investments in Pakistan is the economic side of things. India, instead of assuming that the depth of Sino-Pak ties is immutable, needs to leverage its economic relationship with China and force China to understand the economic and political consequences of its support for a notorious Pakistani terrorist state. India has cards to play that can pry open the Sino-Pak nexus, provided it is willing to stare down the Chinese while playing these cards which include an active and intensive involvement in strengthening the Quad and more specifically in strategically engaging the US.
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