Zardari takes begging bowl to Beijing
By Syed Fazl-e-Haider
QUETTA - Pakistani President Asif Ali Zardari arrived in Beijing on Tuesday for
his first official four-day visit to China, hoping for words or actions that
will help his country's economy, which faces testing times. In particular, a
severe balance of payment deficit and fast-depleting foreign exchange reserves
have raised fears of Pakistan defaulting on its foreign repayment obligations.
Zardari is expected to seek urgent financial help from China, possibly a soft
loan of between US$500 million and $1.5 billion, according to a report
published in The Financial Times on Tuesday. The report claims that he would
also request new reactors from China to boost Pakistan's civilian nuclear power
sector.
Hailing China as "the future of the world" ahead of his arrival in
Beijing, Zardari said, "A strong China means a strong Pakistan," according to a
Xinhua report.
China has in recent years rapidly increased its strategic stakes and economic
interests in Pakistan, funding infrastructure, engineering and mining projects,
including a deep sea port at Gwadar in Balochistan province. Bilateral trade
between the two countries is worth more than US$7 billion a year and the two
countries are looking to more than double that by 2011.
Meanwhile, mounting tension between Islamabad and Washington on the issue of
cross-border intrusions by US forces from Afghanistan may force Pakistan to
reduce its dependence on the US for economic and military assistance and turn
increasingly to China for such support.
Zardari is visiting China as concern grows over Pakistan's ability to meet a
$500 million euro-bond debt obligation in February next year. Pakistan is
losing about $1 billion of its foreign exchange reserves on a monthly basis and
the central bank at present holds enough foreign reserves to cover only two
months of imports.
The foreign exchange reserves shrunk to $8.1 billion in the week ended
September 27 from a peak of $16.5 billion last October. If forward liabilities
are included they may be as low as $3 billion and be unable to meet even one
month's import bills, according to analysts. Pakistan faces a total financing
gap of $7 billion to cover a projected current account deficit of $14 billion
in year ending June 2009.
Zardari will be exploring how Pakistan can meet this and other even more
pressing economic challenges through Chinese investments in different sectors
and increasing bilateral trade by giving Pakistani goods easier access to
markets in China.
Pakistan and China have signed a free trade agreement (FTA), the first phase of
which was completed in July, and an investment protocol will make the FTA more
comprehensive. The two countries are also to sign a protocol for the
establishment of economic zones (SEZs) in Pakistan to house industrial units to
produce goods for duty-free export to China.
The first phase of SEZs is expected to attract $2 billion to $5 billion from
Chinese investors setting up export-oriented industries. The protocol will
enable foreign direct investment from China, and relocation of textile
industries to the proposed zones may substantially increase Pakistan's exports
to China.
The recently established Pak-China Joint Investment Company (PCJIC), with paid
up capital of $200 million (equally shared by both sides), will serve as a
bridge between Pakistani and Chinese entrepreneurs and facilitate investors to
set up joint ventures in various fields.
Nearly two dozen Chinese companies have already committed to investing in the
first SEZ, being built at Kala Shah Kako, near Lahore, in Punjab province and
established exclusively for Chinese investors and Pakistan-China joint
ventures. One venture, between the Ruba Group of Pakistan and the Haier Group
of China, has brought in an initial investment of $35 million. Pakistan is
scheduled to hold two investment conferences, one in Shanghai, next month to
drum up further interest.
Zardari is also expected to use his visit to China to strengthen ties in the
nuclear energy field. Pakistan is heavily dependent on expensive oil imports,
which imposes a heavy drain on its foreign currency reserves. At the same time,
a shortage of power generation capacity has left the country facing regular
blackouts amid a power deficit of up to 4,000 megawatts. Pakistan Prime
Minister Yousaf Raza Gilani recently held a meeting with senior officials to
discuss buying nuclear plants to meet the growing energy shortages.
In the long term, Pakistan hopes to secure a deal similar to that recently
reached between neighbor India and the United States, which allowed India to
trade in nuclear technology although it is not a signatory to the nuclear
Non-Proliferation Treaty. Washington has refused to offer such a deal to
Islamabad because of the alleged involvement of Pakistani scientist Abdul
Qadeer Khan in a network of international dealers spreading nuclear technology.
In a meeting of the Nuclear Suppliers' Group (NSG) at Vienna last month, which
concluded by granting India the right to trade in civil nuclear technology,
China reportedly demanded a similar concession for Pakistan.
Cheng Jingye, head of the Chinese delegation, had pointed out that China would
cooperate with all parties on the peaceful use of nuclear power in accordance
with its international obligations and on the basis of equality and mutual
benefit. India's inclusion into the 45-member NSG allows New Delhi to buy
nuclear fuel, technology and reactors.
Pakistan is already in touch with China for a nuclear deal to help meet its
energy crisis and talks will start during Zardari’s visit, according to a story
recently published in The Daily News. Local analysts believe that Islamabad
started to step up efforts to acquire 1,000-MW nuclear power plants from China
in 2006.
Pakistan built its first nuclear power station in 1972 with Canadian help.
Western countries, under pressure from Washington, later severed cooperation on
concern that Pakistan was covertly developing nuclear weapons. A second nuclear
power plant, with a generation capacity of 325 MW, was built with the help of
China in 1999 at Chashma in the eastern province of Punjab. China has agreed to
negotiate on building Chashma-3 and 4 power projects after the completion of
the Chashma-2 plant.
Syed Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including The
Economic Development of Balochistan, published in May 2004.
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