China, Pakistan and the financial crisis

[dr.umer]

China, Pakistan and the financial crisis​

October 13th, 2008

If your country is desperate to stave off economic collapse, there is probably no better place to visit, and no better friend to have, than China right now. With $2 trillion in foreign exchange reserves, China is sheltered from the worst of the financial storm, so much so that many are looking at it to play a part in hauling the global economy into calmer waters.

Pakistan President Asif Ali Zardari begins a trip to China on Tuesday on what is being billed as his first official visit abroad – his earlier trip to the United States has been presented as one to attend the U.N. General Assembly.

Pakistan has long seen China as its most reliable friend, in contrast to the United States, whose support has waxed and waned in line with U.S. strategic interests in the region. And China in turn has long been content to provide quiet support, avoiding the brashness of the United States while building a relationship with an ally that could be used as a counterweight to India. So there is nothing unusual about a Pakistani leader making China his first choice for a bilateral trip.

What is unusual is the context. Because of the financial crisis, China’s economic clout has soared relative to the United States. It has recently begun to flex its economic muscles to exercise political power, as this Financial Times story about China using its forex reserves to convince Costa Rica to sever ties with Taiwan suggests.

On its part, Pakistan is keen to show its independence from the United States. With tensions running high over U.S. missile strikes and one reported ground raid by U.S. troops across the border from Afghanistan into Pakistani territory, no Pakistani leader right now can afford to be seen as too pro-American. Pakistan Army chief, General Ashfaq Kayani, has already made a trip to China to discuss defence cooperation. And though Pakistan’s economy may be teetering on the brink of collapse, Zardari has in the past ruled out seeking a bail-out from the International Monetary Fund – identified by public opinion in Pakistan as being too much of an “American” institution.

And that makes China’s role as a potential saviour all the more important. The question that needs to be asked is whether China, with its new found economic power, will extract a higher price for its support than it has done in the past, and how far Zardari will go to pay for that support. In an interview with Xinhua, Zardari said he had a long-term economic cooperation plan, and will “bring my own concept to China”.

China has its own reasons to want to ensure the stability of Pakistan, not just because of its unspoken rivalry with India, but also because it cannot afford to let Islamist militancy seep from Pakistan into neighbouring Xinjiang, the restive far-western region where in August it said it faced a ”life and death struggle” against terrorism, following a series of attacks blamed on Muslim separatists.

So will Zardari’s visit to China intensify a relationship that will maintain global economic stability by helping to prevent another national economy from sliding off the edge, while bolstering the battle against Islamist militancy? Or are there hints in there of a Faustian pact? The devil, as usual, will be in the details.

 

[dr.umer]

Pakistani president hails China as he looks for financial help​

14 Oct 2008

BEIJING (AFP) — Pakistani President Asif Ali Zardari hailed China as "the future of the world" ahead of his arrival in Beijing on Tuesday for a trip that is expected to see him seek urgent financial help.

Zardari made it clear in an interview with China's official Xinhua news agency that building economic ties would be his top priority during his four-day trip, his first state visit anywhere since taking office in September.

"China is the future of the world. A strong China means a strong Pakistan," Xinhua quoted Zardari as saying in an interview in Islamabad on Monday ahead of his departure.

His comments come as Islamabad's alliance with Washington in the "war on terror" falls on rocky ground due to Pakistan's inability to shut down Taliban and Al-Qaeda fighters based in its tribal belt.

Zardari, due to arrive in Beijing at 6:00 pm (1000 GMT), inherited a country on the brink of bankruptcy and plagued by huge security problems from Islamic extremists.

The global financial crisis has pushed Pakistan closer to the financial edge, with reports -- denied by Islamabad -- that it faces bankruptcy as early as February.

And while Pakistan has looked to the United States for financial help, it is also one of China's closest allies in Asia, with Beijing seeing the country as a counter-balance to rival India.

China has boosted its economic interests in Pakistan in recent years, funding major infrastructure, engineering and mining projects, including a deep sea port, as well as helping develop its nuclear power industry.

Bilateral trade between China and Pakistan is worth more than seven billion dollars a year and officials from both sides have said they are looking to increase that to 15 billion dollars by 2011.

Zardari indicated he wanted to go further.

"We have a lot of cultural ties, friendly ties, but that is not properly depicted by our economic relationship," he told Xinhua.

The Financial Times newspaper reported Tuesday, without citing sources, that Zardari would seek a soft loan of between 500 million and 1.5 billion dollars from China to help Pakistan out of its financial crisis.

It also quoted Western defence officials as saying that he would request new reactors from China to boost Pakistan's civilian nuclear power sector.

Pakistan's foreign exchange reserves are widely considered to be at the root of its financial problems.

Until recently buoyed with US aid to former president Pervez Musharraf, they fell to 8.135 billion dollars this month from 9.129 billion in September, putting Pakistan at risk of defaulting on foreign loans.

Zardari, who will meet President Hu Jintao and Premier Wen Jiabao in Beijing, also said in his interview with Xinhua that he would seek to step up co-operation with China in the fight against terrorism.

"We need commonality to fight terrorism," he said.