EDITORIAL: Jake Sullivan, the United States National Security Advisor, warned Beijing that it would “absolutely” face consequences if it helped Moscow evade sweeping sanctions over the war in Ukraine.
That the threat is credible as well as significant to the Chinese economy can best be gleaned from the following trade figures: notwithstanding the ongoing trade war with China that dates back to the Trump administration with tariffs imposed on some key Chinese exports to the US total trade surplus (in China’s favour) was 523.9 billion dollars in 2020, 676 billion dollars in 2021 and between January to February 2022, the surplus was 115.95 billion dollars; in contrast, China’s trade with Russia is in the latter’s favour with China mainly importing energy intensive products amounting to 79 billion dollars last year while exporting 68 billion dollars worth of products to Russia. In spite of a dramatic 38.5 percent spike in China-Russia trade January to February 2022, total trade between the two was only of 26.4 billion dollars.
There is no doubt that the Chinese economy’s reliance on a trade surplus as a percentage of GDP has been marked in recent years that make the country very vulnerable to external shocks (particularly the implementation of US threat).
Therefore, the threat of sanctions by the West where the bulk of Chinese trade surplus emanates from today is not likely to be dismissed and this is in spite of the fact that China has been moving towards “rebalancing its growth away from potentially volatile exports towards a more sustainable path driven by domestic demand” and noted by a 2007 IMF report which predates the surge in Chinese investments abroad under President Xi’s One Belt One Road initiative of which China Pakistan Economic Corridor is an integral part.
The use of the word “absolutely” by Jake Sullivan evokes the repeated public statements by Prime Minister Imran Khan that he categorically told the Americans “absolutely not” when requested to allow US bases on Pakistani soil which incidentally was denied by the Americans. Discussing foreign policy matters publicly for short-term domestic political considerations should be avoided at all costs as the forum to take up such matters rests with experienced diplomats in the Foreign Office.
It is important to note that the prime minister has twice in less than one week referred to his refusal to allow US bases and an inappropriate letter to the Foreign Office sent by EU ambassadors urging the government to denounce the Russian invasion of Ukraine in public speeches which he avers is a reflection of his administration’s independent foreign policy.
Sadly, the Prime Minister’s claim ignores the applicability of two critical factors that may further compromise Pakistan’s ongoing economic impasse with the International Monetary Fund (IMF) subsequent to the 28 February relief package (envisaging a ten-rupee per unit reduction in petroleum products till 30 June 2022 irrespective of the rise in prices as a consequence of the Russia-Ukraine war and a 5-rupee per unit tariff decline in electricity rates — decisions violating the sixth review agreement) and the 1 March industrial package which envisages the third amnesty package in three and a half years opposed by the Fund and the Financial Action Task Force.
First, that the bulk of Pakistan trade is with the West — the US and Europe and with the European Union GSP Plus status to Pakistan in 2014 coming up for review — a package that accounts for a significant portion of the rise in exports in recent years — it may be appropriate to desist from using the public platform to berate these powers and allow the competent and relevant ministry to deal with such matters.
And secondly, remittance inflows, the major boon for the country’s beleaguered economy post-pandemic, though it is necessary to also acknowledge the supportive policy decisions taken during the PTI administration to attract remittances through legal banking channels, is also mainly sourced to the West and the Middle East. While the Saudis and the UAE have not yet supported the US drive to increase output to mitigate the impact of reduced supply of Russian oil on the market yet it is unclear whether they would resist Western pressure to sanction all those countries that continue their engagement with Russia.
Pakistan today is heavily dependent on foreign assistance and is simply not in the same position as China or indeed the oil rich Middle Eastern countries — a dependence that has risen from 95 billion dollars inherited by the PTI administration as debt that has risen to over 130 billion dollars today with at least 10 billion dollars used for budget support as per government data which cannot be blamed on previous administrations.
In addition, the government pledged to the Fund that it would ensure the roll-over of all existing loans and acquire 38.6 billion dollar additional loans from external sources till programme end (from July 2019 till September this year). The math indicates that the country needs considerable external funding which may account for the request to China for 21 billion dollars, a need exacerbated by a widening trade deficit. China in turn has been clamouring for the government to meet its contractual obligations which remain pending to this day. In short, one would hope that better sense prevails and a truly economic-centric foreign policy be actively pursued given the country’s significant economic woes today.
Copyright Business Recorder, 2022
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