Initiative gives boost to Pakistan economy

During his visits to Kazakhstan and Indonesia in 2013, President Xi Jinping proposed the Belt and Road Initiative, a revival of the land and maritime routes of the ancient Silk Road. The focus of the initial phase of the initiative was infrastructure, transportation and energy.

The economies, including Pakistan, involved in the Belt and Road Initiative today account for more than one-third of the global GDP. And the initiative has not only improved transnational infrastructure and trade connectivity, but also prompted China to invest more than $50 billion in the economies involved in the initiative, which has facilitated the establishment of 56 economic cooperation zones in more than 20 countries and created over 180,000 jobs and generated more than $1.1 billion in tax revenues.

China’s financial cooperation with and assistance for the countries and organizations involved in the initiative have been of various kinds. For instance, just the loans provided by the Asian Infrastructure Investment Bank and investments made by the Silk Road Fund add up to more than $5.5 billion. regional market with a huge population, large and diverse resources, and untapped potential for trade. In fact, China-Pakistan trade exceeded $13 billion last year and has been on a growth trajectory since the inception of the Belt and Road Initiative with China becoming Pakistan’s largest trading partner.

Trade is a vital catalyst for growth, too. The Belt and Road Initiative haled the total trade between China and the countries involved in the initiative to more than $3 trillion between 2014 and 2016, and it is estimated that it will generate incremental trade of $2.5 trillion over the next 10 years. Some of that trade volume will pass through the proposed CPEC.

The ability to meet the challenges of international trade head-on and with great success will largely depend on Pakistan’s banking and financial sector’s ability to adjust to the new trade environment.

With the existing and potential trade volumes between China and Pakistan on the rise, the internationalization of the renminbi is one of the keys to costefficient growth for both countries. The renminbi is the world’s fifth-most used payment currency, and the US dollar and the renminbi is the sixth-most traded currency pairing, whose volume increased by $82 billion in three years. Central banks have already started building renminbi reserves, with the Chinese currency accounting for 1.23 percent of the global currency reserves and growing. Besides, the renminbi was included in the International Monetary Fund’s Special Drawing Rights basket in 2016 with about 11 percent weight.

And as traders become more aware of the benefits of transacting in the renminbi and more offshore renminbi centers emerge, the demand for and growth of renminbi transactions and investments are steadily increasing. The growth in renminbi settlement is driven by corporations that are becoming increasingly aware of its benefits, including expanding buyer and supplier networks, shorter cash conversion cycles due to improved efficiency, real time payment under an extended clearing window, hedging cost reduction, tighter foreign exchange spreads and the availability of a wide range of hedging products.

International banks with a strong footprint across Asia, the Middle East and Africa will play a key role in embedding and amplifying this rapid transition. Facilitating cross-border trade settlement, developing renminbidenominated transaction and investment products, and having strong regulatory relationships in both China and the target markets mean that international banks can help both the buyers and the suppliers. to understand Pakistan’s regulations, processes and procedures and vice versa. The financial institutions will have a key role to play by assisting and adding value for their clients in carrying out basic banking activities, ranging from helping the clients to choose the right investment model, providing cash management, working capital and employee banking solutions to fulfilling more complex banking needs such as strategic financing, as well as assisting with mergers and acquisitions.

And Pakistan’s banking and financial sector will play a leading role in successfully meeting the challenges of global trade. Innovation empowers growth and the financial sector is poised to take this new road of innovative and advanced financial journey.

Delivering a keynote speech to the Belt and Road Forum for International Cooperation in Beijing last year, Xi quoted an ancient Chinese saying: “A long journey can be completed only by taking one step at a time.” We are taking those steps to calibrate the changing winds into our business models to capitalize on the CPEC opportunities.

Japan concluded negotiating a free trade agreement with the European Union, too, in December, and the two sides are making arrangements to sign the FTA deal in July at the annual summit in Brussels. Also, they aim to implement the FTA by late March next year when Britain exits the EU.

Two months ago, 16 countries reached a consensus to complete a basic framework for the Regional Comprehensive Economic Partnership within the year. After they reach an agreement, it will produce the most populous, diverse and energetic free trade area in the world, as Chinese Foreign Minister spokesperson Hua Chunying said.

At a trilateral summit in Tokyo on May 9, the leaders of China, Japan and the ROK advocated economic globalization and free trade, and agreed to accelerate negotiations on a China-Japan-ROK free trade agreement.

In addition, Japan has effectively joined the China-proposed Belt and Road Initiative. On May 9, during Premier Li Keqiang’s visit to Japan, Beijing and Tokyo agreed to establish a public-private council to discuss joint projects in third-party markets related to the Belt and Road Initiative.

Moreover, Japan does not want to negotiate a two-way trade agreement with the US because Trump despises multilateral frameworks.

The good news is that Japan is not alone in squaring off with the US. Russia and Turkey have warned the US of potential retaliation against its tariffs on steel and aluminum. And India and the EU have given the WTO lists of the US products that could incur high tariffs in retaliation for the US tariffs.

The higher tariffs on autos and auto parts that the Trump administration is exploring could backfire worldwide, further isolating the US from the international community. And Trump’s protectionist policies will give Japan the leverage to overcome the US pressure to seal a bilateral FTA.

The bad news is that Japan has to rely on the US for security. Leveraging its military strength, the US has asked Japan, as well as its other allies, to shoulder a larger share of the costs for hosting US troops. This could strengthen Japanese conservatives’ appeal that Japan should build a strong military of its own. This in turn could prompt Japan to intensify its efforts to strengthen its defense force.

And given that Japan’s defense budget has already been rising every year under the Abe administration ending a decade of military budget cuts, this could disturb the security balance in the region.

The The first first phase phase of of the the $62 $62 billion billion CPEC CPEC investment investment saw saw an an improvement improvein Pakisttan’s’s infrastructturree ... . IItsts positive impaccttoonn Pakistan’s Pakistan’s economy economy can can already already be be seen seen as as the the country country achieved a 5.3 perr-cent GDP growtth rate in 2016-17,,andd it it is is expected expected to to grow grow 5.8 5.8 percent percent in in 2017-18. 2017-18.

MA XUEJING / CHINA DAILY