Old State, New Client

The Economic Times - - The Edit Page - In­drani Bagchi

Irony died a mil­lion deaths on July 28 when Pervez Mushar­raf con­grat­u­lated the Pak­istan Supreme Court for get­ting rid of Nawaz Sharif. Mushar­raf him­self is in ex­ile and would have been in jail — af­ter he con­ducted the last pub­lic coup against Sharif in 1999, ban­ish­ing the lat­ter into the safe arms of the Saudi roy­alty — if former army chief Ash­faq Kayani hadn’t given him safe pas­sage.

Sharif dis­tin­guished him­self by be­ing tossed out of gov­ern­ment all three times in his ca­reer. And, com­ing on the eve of its In­de­pen­dence Day, a more de­press­ing fact for Pak­istan can be re­called: no gov­ern­ment has ever fin­ished a five-year term.

There will be elec­tions in 2018. But no­body, not even in Pak­istan, is hold­ing their breath for a re­birth of pow­er­ful civil­ian rule. The army, or an ac­tivist ju­di­ciary, can over­throw elected gov­ern­ments with im­punity, and with terms like ‘ameen’ (hon­est) and ‘sadiq’ (right­eous) tossed around, who has a chance? Not Im­ran Khan. Per­haps not even Shah­baz Sharif.

It’s an in­di­ca­tion of the rel­a­tive space Pak­istan has in our lives that nei­ther In­dia nor US lost sleep over what hap­pened last week. But China’s grow­ing alarm came through. In an un­usual state­ment, Bei­jing asked Pak­istan to con­cen­trate on its econ­omy.

In­dia does not have a Pak­istan pol­icy that has any in­formed strat­egy driv­ing it. Now our ap­proach to Pak­istan is cen­tred on coun­tert­er­ror­ism. Think sur­gi­cal strikes and the ter­ror­ist-flush­ing op­er­a­tions cur­rently un­der­way in Jammu and Kash­mir. To­mor­row, it might be some­thing else.

The Trump ad­min­is­tra­tion, too, is work­ing out its Pak­istan pol­icy, whi- ch, from all ac­counts, may be less in­dul­gent than be­fore. But we will only know if we are wo­ken up by a tweet.

Pak­istan’s US cush­ion is get­ting harder and more lumpy. That leaves Rawalpindi with one com­fort zone: China. Its po­ten­tially mas­sive in­vest­ment in the China-Pak­istan Eco­nomic Cor­ri­dor (CPEC), a flag­ship project for Xi Jin­ping’s One Belt, One Road (Obor) ini­tia­tive, is a life­line for both coun­tries.

Sharif ’s ouster may have put a shadow on some CPEC projects. But by and large, the Pak­istani se­cu­rity es­tab­lish­ment will strive to in­su­late the CPEC’s prom­ise from po­lit­i­cal and eco­nomic in­sta­bil­ity — ‘prom­ise’ here be­ing the op­er­a­tive word.

In the sec­ond half of 2016, Pak­istan’s ex­ports to China fell by al­most 8%, while im­ports jumped by close to 30%, mak­ing the CPEC more about China and less about Pak­istan, a fact that has kept Pak­istan’s pri­vate sec­tor from in­vest­ing mean­ing­fully into it. But the Pak­istani army con­trols its fu­ture and its nar­ra­tive, and eco­nomic growth for it means China and the CPEC.

But Pak­istan’s eco­nomic num­bers con­tinue to re­main grim. Gov­ern­ment debt is 66.5% of GDP in 2016; ex­ter­nal debt is high at $75 bil­lion; forex re­serves are down to $21 bil­lion. The In­ter­na­tional Monetary Fund looms large again be­cause Pak­istan has not com­pleted any of the promised tax re­forms.

China will, there­fore, have a greater in­volve­ment in Pak­istan’s af­fairs and its des­tiny, par­tic­u­larly if Pak­istan is headed south. This could mean a num­ber of things: Pak­istan’s agri­cul­ture sec­tor will pro­duce for China’s Xin­jiang re­gion, but with lower eco­nomic de­mand, and re­turns from the huge in­vest­ment in the power sec­tor will re­main low.

China has brushed aside se­cu­rity con­cerns and the Pak­istani army will do its damnedest to pro­tect the CPEC. So, that’s less of a prob­lem right now.

Pak­istan’s de­pen­dence on China will in­crease ex­po­nen­tially, which will also en­tail more debt to Chi­nese banks at usu­ri­ous rates. Just look at Sri Lanka.

At some point, China will have a greater say in Pak­istan’s for­eign af­fairs, par­tic­u­larly with re­gard to In­dia, Afghanistan, ter­ror­ism, etc. China would prob­a­bly be hap­pier if Pak­istan di­vests it­self of its terror shield, but would not mind In­dia com­ing un­der Pak­istani terror pres­sure. That will only per­pet­u­ate Pak­istan’s es­sen­tial dilemma of keep­ing the terror fac­tory go­ing against In­dia and Afghanistan, but hop­ing to in­su­late it­self from it.

In­dia will have less room to ma­noeu­vre if China be­comes an in­te­gral fac­tor in Pak­istan’s pol­icy. Should In­dia open chan­nels of com­mu­ni­ca­tion with the Pak­istani army when New Delhi is ready to open di­a­logue? It’s tempt­ing. And per­haps the most prag­matic way to go. China, the US, all go that way.

Would it seem as if we are aban­don­ing the civil­ian democ­racy project in Pak­istan? It may be a good thing to do. Pak­istan could end up as a ver­sion of China’s North Korea ex­er­cise in South Asia, kind of like screen vil­lain Ajit’s ‘liq­uid oxy­gen’ pun­ish­ment: its nu­clear weapons would keep it ‘alive’, but its econ­omy would not let it ‘live’, and the In­ter-Ser­vices In­tel­li­gence (ISI)terror es­tab­lish­ment would be a per­ma­nent cause of worry for In­dia. And China would re­tain just enough con­trol to make it worth its while. China has one of the most ac­tive dig­i­tal-in­vest­ment and startup ecosys­tems in the world.… China is in the top three in the world for ven­ture-cap­i­tal in­vest­ment in key types of dig­i­tal tech­nol­ogy, in­clud­ing vir­tual re­al­ity, au­ton­o­mous ve­hi­cles, 3D print­ing, ro­bot­ics, drones and ar­ti­fi­cial in­tel­li­gence.

China is the world’s largest ecom­merce mar­ket, ac­count­ing for more than 40% of the value of world­wide e-com­merce trans­ac­tions, up from less than1% about a decade ago. China has also be­come a ma­jor global force in mo­bile pay­ments with 11 times the trans­ac­tion value of the US. One in three of the world’s 262 uni­corns (star­tups val­ued at over $1 bil­lion) is Chi­nese,com­mand­ing43%of the­global value of these com­pa­nies.

The sheer scale of China’s in­ter­net user-base en­cour­ages con­tin­u­ous ex­per­i­men­ta­tion and en­ables dig­i­tal play­ers to achieve economies of scale quickly. In 2016, China had 731mil­lion in­ter­net users, more than the Euro­pean Union and the US com­bined. Be­yond scale, it is the en­thu­si­asm for dig­i­tal tools among China’s con­sumers that will sup­port growth, fa­cil­i­tate rapid adop­tion of in­no­va­tion, and make Chi­nese dig­i­tal play­ers and their busi­ness models com­pet­i­tive.

Nearly one in five in­ter­net users in China re­lies on mo­bile only, com­pared with just 5% in the US.… China runs a trade deficit in ser­vices but a trade sur­plus in dig­i­tal ser­vices. The coun­try’s out­bound ven­ture cap­i­tal to­talled $38 bil­lion be­tween 2014 and 2016.

From “China’s Dig­i­tal Econ­omy: A Lead­ing Global Force”

Let Bei­jing dunk us in liq­uid ni­tro­gen

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