CHINA’s RAPID ECONOMIC GROWTH: COST AND BENEFIT FOR...

CHINA’s RAPID ECONOMIC GROWTH: COST AND

BENEFIT FOR PAKISTAN (2001-2014)

MUHAMMAD ZAHID ULLAH KHAN

Ph.D. (Scholar)

DEPARTMENT OF INTERNATIONAL RELATIONS

UNIVERSITY OF PESHAWAR

(SESSION 2011-12)

CHINA’s RAPID ECONOMIC GROWTH: COST AND

BENEFIT FOR PAKISTAN (2001-2014)

A Dissertation submitted to the Department of International Relations,

University of Peshawar in partial fulfillment of the requirements for the Degree

of

DOCTOR OF PHILOSOPHY

IN

INTERNATIONAL RELATIONS

Supervised By:

DR. MINHAS MAJEED KHAN

Assistant Professor



(SESSION 2011-12)

CERTIFICATE OF APPROVAL

The dissertation titled ‘China’s Rapid Economic Growth: Cost and Benefit for

Pakistan (2001-2014)’ Submitted by Mr. Muhammad Zahid Ullah Khan for

the Degree of Doctor of Philosophy in International Relations is accepted and

approved by the Supervisory Committee.

External Examiner:

Supervisor:

Dr. Minhas Majeed Khan

Assistant Professor,

Department of International Relations,

University of Peshawar.

Chairperson:

Prof. Dr. Hussain Shaheed Soharwardi

Department of International Relations,

University, Peshawar

Dean:

Prof. Dr. Minhaj ul Hassan

Faculty of Social Sciences,


Dated:



(SESSION 2011-12)

CERTIFICATE OF APPROVAL

CHINA’S RAPID ECONOMIC GROWTH: COST AND BENEFIT FOR

PAKISTAN (2001-2014)

Dissertation Presented

By

MUHAMMAD ZAHID ULLAH KHAN

To the Department of International Relations

University of Peshawar,

In Partial Fulfillment of the Requirement for the Degree of Ph.D. in International

Relations

December 2017

We, the undersigned have examined the thesis entitled “China’s Rapid Economic

Growth: Cost and Benefit for Pakistan (2001-2014)” written by Muhammad

Zahid Ullah Khan, a Ph.D. scholar at the Department of International Relations,

University of Peshawar and do here by approve for the award of Ph.D. Degree.

APPROVED BY:

Supervisor:

DR. MINHAS MAJEED KHAN

Assistant Professor.

Department of International Relations


External Examiner:

Dean:

PROF.DR. Minhaj Ul Hassan

Faculty of Social Science


Chairperson:

PROF. DR. Husain Shaheed Soharwardi Department of International Relations


DEDICATION

I dedicated this dissertation to my loving Parents

who have been a source of inspiration

throughout my life.

i

ABSTRACT

The study is an attempt to understand Chinese rapid economic growth and its

impact on China – Pakistan relations from 2001 to 2014. The incidents of 9/11

had severe impact on global economic scenario resulting in global recession.

Ironically, by the end of 2001 the major growth polls of the world slipped into

recession, it caused serious damage to the economies of the developing countries

particularly Pakistan as it was a front line state in war against terror. As a result

of recession, imports and exports, industrial production, tax revenue and foreign

direct investment were badly affected in Pakistan which resulted in huge

economic loss - approximately US$ 67 billion. Due to emergence of terrorism

since 9/11, foreign direct investment in Pakistan declined and thus, a large

amount of Chinese Foreign direct investment was directed towards Latin America

and Africa which affected the economy of Pakistan. The present study highlights

core areas of economic cooperation between China and Pakistan, which can

further strengthen Pakistan’s economy, resulting in a win – win situation in trade

between the two countries. The research adopts and follows the theories of

Liberalism and highlights the Flying Geese model in the economic and trade

affairs between the two countries. Further, the study seeks to find out possible

ways to overcome the weak areas of trade between China and Pakistan for better

economic relations between both the countries, in which Pakistan could also gain

more benefit. The study provides a baseline to the policy makers in Pakistan to

overcome the weaknesses due to which Pakistani exports could not find a suitable

place in the Chinese market.

ii

ACKNOWLEDGEMENT

Indeed, without the blessing of Allah (SWT) nothing can ever be achieved in life.

I am in gratitude to Allah (SWT) who gave me mental and physical strength to

complete this research on time.

First of all, I am grateful to my parents and my family members who

provided me an environment to concentrate on my research work and finish my

thesis in due time. This work would not have been possible without my parent’s

prayers and unconditional love for me.

I extend my profound gratitude to the chairperson, faculty and office staff

of Department of International Relations, University of Peshawar, for their

support and cooperation in countless ways during my stay in the department and

also during the completion of my dissertation.

I must also extend my gratitude to my course mates and friends,

particularly to Dr. Zahid Anwar and Dr. Naimat Ullah, for their comments and

suggestions to improve this study.

Lastly, I express my gratitude to my supervisor Dr. Minhas Majeed Khan,

Assistant Professor, Department of International Relations, University of

Peshawar, for her generous advice, inspiring guidance and encouragement who

very diligently checked all the chapters and guided me in the right direction to

finish my dissertation.

Muhammad Zahid Ullah Khan

iii

AUTHOR’S DECLARATION

I Muhammad Zahid Ullah Khan hereby state that my Ph.D thesis title “China’s

Rapid Economic Growth: Cost and Benefit for Pakistan (2001-2014)” is my on

work and has not been submitted previously by me for taking any Degree from

this University


Or anywhere else in the country/world.

At any time if my statement is found to be incorrect even after my graduate in

university has the right to withdraw my Ph.D Degree

Muhammad Zahid Ullah Khan

Date:

iv

Plagiarism Undertaking

I Solemnly Declare That Research Work presented in the thesis titled “China’s

Rapid Economic Growth: Cost and Benefit for Pakistan (2001-2014)” is solely

my research work with no significant contribution from any other person.

Small Contribution/help wherever taken has been duly acknowledged and that

complete thesis has been written by me.

I understand the zero tolerance policy of the HEC and University of Peshawar

towards plagiarism. Therefore I as an Author of the above titled thesis declare that

no portion of my thesis has been plagiarized and any material used as reference is

properly Referred and Cited.

I undertake that if I am found guilty of any formal plagiarism in the above titled

thesis even after award of Ph.D Degree, the University has the right to publish my

name on the HEC/ University website on which names of students are placed who

submitted plagiarized thesis.

Student/Author signature;___________________

Name:________________________

v

Office of The Controller Examinations

Notification

No___________ Date:____________

It is notified for the information of all concerned that Mr. Muhammad Zahid

Ullah Khan Ph.D scholar of University of Peshawar has completed all the

requirements for the award of Ph.D degree in the discipline International

Relations as per detail given hereunder:

Ph.D Education Cumulative result

Registration

No.

Scholar’s Name Father’s Name Credit Hours Cumulative Grade

point average

CGPA Course

work

Research

work

Total

Research topic:________________________________________________

___________________________________________________________

Local Supervisor Name:________________________________________

Local Supervisor II Name:______________________________________

Foreign /External Examiners:

a. Name:_______________________________________________

University____________________________________________

Address______________________________________________

b. Name:_______________________________________________

University____________________________________________

Address______________________________________________

Detail of Research articles published on the basis of thesis research work

__________________________________________________________________

________________________________________________________

Note: this result to declaration as notice only. Errors and omissions, if any, are

subject to subsequent rectification

Signed by

Controller of Examinations

CC

1.

2.

vi

LIST OF TABLES

Table – 1.1: China – Pakistan Trade (2005 - 2010) .......................................7

Table – 1.2: FDI in Pakistan (2008 - 2014) ...................................................8

Table – 4.1: Trade between China and Pakistan (2001-2005) .......................93

Table – 4.2: Balance of Trade (2006-2010) ...................................................107

Table – 4.3: China – Pakistan Trade and Percentage of Increase in Trade

(2001 –2010) .................................................................................108

Table – 4.4: Balance of Trade between China and Pakistan

(2011-2014)..................................................................................118

Table – 5.1: Export of Marble, Copper and Chromium to China

(2010 to 2014) ..............................................................................129

Table – 5.2: Export of Oil Seeds and Rice to China (2010 to 2014) .............132

Table – 5.3: Import of Fertilizers from China (2010 to 2014) .......................133

Table – 5.4: Import of Home Appliances from China (2010 to 2014) ..........141

Table – 5.5: Import of Automobiles from China (2010 to 2014) ..................143

Table – 5.6: Import of Weapons from China (2010 to 2014) ........................144

Table – 6.1: Major Projects of CPEC ............................................................182

vii

LIST OF FIGURES

Figure – 4.1: Exports to China (2003 – 2005) ...............................................94

Figure – 4.2: Imports from China (2003 – 2005)...........................................94



Figure – 4.5: Chinese Investment in Pakistan ................................................113



Figure – 5.1: Composition of Agriculture Sector in Pakistan ........................132

Figure – 5.2: Water Crisis in Pakistan ...........................................................136

Figure – 5.3: Pakistan’s Arms Imports from China and US

(2006 to 2015) .............................................................................144

viii

LIST OF MAPS

Map – 3.1: The Ancient Silk Road ................................................................50

Map – 3.2: The Ancient Silk Road with the Present Countries and

Cities .............................................................................................51

Map – 6.1: China Proposed New Silk Roads .................................................156

Map – 6.2: Master Plan of Gwadar Port ........................................................161

Map – 6.3: Distance Reduced through Gwadar Port for

Chinese Maritime Trade ................................................................161

Map – 6.4: China – Pakistan Economic Corridor ..........................................166

Map – 6.5: Fiber Optic Project of CPEC .......................................................168

Map – 6.6: Railway Network of CPEC .........................................................170

Map – 6.7: Economic Corridor: Roads, Rails, Ports and

Specials Economics Zones .............................................................173

Map – 6.8: Highways Network of CPEC.......................................................181

ix

ABBREVIATIONS

ADB Asian Development Bank

AIIB Asian Infrastructure Investment Bank

AJ & K Azad Jammu and Kashmir

APEZ Asia Pacific Economic Zone

ASA Air Services Agreement

ASEAN Association of South East Asian Nations

CAAM China Association of Automobiles Manufacturers

CACF China Africa Cooperation Forum

CAFTA China ASEAN Free Trade Agreement

CBA Cost Benefit Analysis

CCPIT China Council for Promotion of International Trade

COPHC China Overseas Port Holding Company

CPEC China – Pakistan Economic Corridor

DFI Development Financial Institution

DVD Digital Versatile Disc

EEZ European Economic Zone

EHP Early Harvest Program

ERC Emergency Relief Cell

ETIM East Turkistan Islamic Movement

EU European Union

FDI Foreign Direct Investment

FTA Free Trade Agreement

GDP Gross Domestic Products

GEO Global Economic Order

GLP Great Leap Forward

GNP Gross National Products

x

GST General Sales Tex

ISSI Institute of Strategic Studies, Islamabad

KP Khyber Pakhtunkhwa

LCD Liquid Crystal Displays

MFN Most Favored Nation

ME Middle East

MNCs Multi – National Corporations

MOU Memoranda of Understanding

NATO North Atlantic Treaty Organization

NBS National Bureau of Statistics

NDMA National Disaster Management Authority

NDMC National Disaster Management Commission

NDMO National Disaster Management Ordinance

NIEO New International Economic Order

NSR New Silk Road

PCIC Pak – China Investment Company

PDMA Provincial Disaster Management Authority

PPP Purchasing Power parity

PBI Pakistan Board of Investment

PRC People’s Republic of China

PSA Port of Singapore Authority

PSDP Public Sector Development Program

PTA Preferential Trade Agreement

QASP Quaid-e-Azam Solar Power Park

RAW Research and Analysis Wing

SDA Swiss Development Authority

SEZ Special Economic Zone

SPA Singapore Port Authority

xi

SPGS Solar Power Generation System

TDAP Trade Development Authority of Pakistan

UN United Nations

UNCTAD United Nations Conference on Trade and Development

US United States

USAID United States Agency for International Development

WB World Bank

xii

TABLE OF CONTANTS

Abstract ..........................................................................................................i

Acknowledgement .........................................................................................ii

Author’s Declaration ......................................................................................iii

Plagiarism Undertaking .................................................................................iv

Notification of Award of Ph.D Degree ..........................................................v

List of Tables .................................................................................................vi

List of Figures ................................................................................................vii

List of Maps ...................................................................................................viii

Abbreviations .................................................................................................ix

Chapter–1 .................................................................................... 1

INTRODUCTION TO THE STUDY ............................. 1

Introduction ........................................................................................1

1.1 Aims and Objectives ....................................................................11

1.2 Significance of the Study .............................................................12

1.3 Methodology ................................................................................14

1.4 Hypotheses ...................................................................................15

1.5 Chapterization ..............................................................................15

1.6 Conclusion ...................................................................................19

References ..........................................................................................20

Chapter–2 .................................................................................... 24

THEORETICAL FRAMEWORK ................................. 24

Introduction ........................................................................................24

2.1 Liberalism ....................................................................................24

2.2 Basic Assumptions of Liberal School of Thought .......................26

2.3 Philosophical Foundation of Liberalism ......................................27

2.4 Interdependence Liberalism .........................................................32

2.5 Liberalism and International Trade ..............................................35

2.5.1 Embedded Liberalism ...................................................36

2.5.2 Neo – Liberalism...........................................................37

2.5.3 Mixed Liberalism ..........................................................38

2.6 China – Pakistan Trade in Liberal Perspective ............................39

xiii

2.7 Flying Geese Theory ....................................................................41

2.8 Conclusion ...................................................................................43

References ..........................................................................................44

Chapter–3 .................................................................................... 48

HISTORICAL BACKGROUND OF ECONOMIC

RELATIONS .................................................................... 48

Introduction ........................................................................................48

3.1 First Phase: Chinese Trade with the Indian Sub – Continent ......48

3.2 Second Phase: China – Pakistan Relations from 1947 till 1960 ..51

3.3 Third Phase: China – Pakistan Relations from 1960 till 1978 .....54

3.4 Fourth Phase: China – Pakistan Relations from 1978 till 2000 ...58

3.5 Fifth Phase: China – Pakistan Relations from 2001 till 2014 ......62

3.5.1 China – Pakistan Free Trade Agreement ......................66

3.6 Conclusion ...................................................................................74

References ..........................................................................................76

Chapter–4 .................................................................................... 82

IMPORTS AND EXPORTS BETWEEN CHINA AND

PAKISTAN ....................................................................... 82

Introduction ........................................................................................82

4.1 Trade During 2001 .......................................................................83

4.2 Trade During 2002 ...................................................................85

4.3 Trade During 2003 .....................................................................86

4.3.1 Imports from China ......................................................86

4.3.2 Exports to China ..........................................................87

4.4 Trade During 2004 .......................................................................88


4.4.2 Exports to China ..........................................................90

4.5 Trades During 2005 ....................................................................91


4.5.2 Exports to China ..........................................................92

4.6 Trade During 2006 .......................................................................95


4.6.2 Exports to China ..........................................................96

xiv

4.7 Trade During 2007 .......................................................................97


4.7.2 Exports to China ...........................................................98

4.8 Trade During 2008 .......................................................................99


4.8.2 Exports to China ..........................................................101

4.9 Trade During 2009 .......................................................................101


4.9.2 Exports to China ..........................................................103

4.10 Trade During 2010 .....................................................................103

4.10.1 Imports from China ....................................................104

4.10.2 Exports to China .........................................................105

4.11 Trade During 2011 ....................................................................109


4.11.2 Exports to China .........................................................110

4.12 Trade During 2012 .....................................................................111


4.12.2 Exports to China ........................................................112

4.13 Trade During 2013 .....................................................................113


4.13.2 Exports to China ........................................................114

4.14 Trade Between China and Pakistan During 2014 ......................115


4.14.2 Exports to China .........................................................116

4.15 Conclusion .................................................................................119

References .........................................................................................121

Chapter –5 ................................................................................... 123

AREAS OF MUTUAL COOPERATION AND

ADVANTAGES ................................................................ 123

Introduction ........................................................................................123

5.1 Cooperation in Disaster Management ..........................................124

5.2 Exploration of Energy and Minerals ............................................129

5.3 Opportunities for Pakistani Labour ..............................................131

5.4 Cooperation in Agriculture ..........................................................131

xv

5.5 Water Management ......................................................................135

5.6 Cooperation in Technology Transfer ...........................................138

5.6.1 Home Appliances Technology ......................................140

5.6.2 Automobiles Technology ..............................................141

5.6.3 Weapon Technology .....................................................143

5.6.4 Solar Energy Technology ............................................145

5.6.4.1 Solar Energy in Pakistan ................................146

5.6.4.2 Solar Energy in China ....................................148

5.7 Conclusion ..................................................................................149

References ..........................................................................................151

Chapter–6 .................................................................................... 155

CHINA PAKISTAN EONOMIC CORRIDOR ............ 155

Introduction ........................................................................................155

6.1 One Belt one Road Initiative........................................................156

6.2 China – Pakistan Strategic and Economic Cooperation ..............158

6.3 Strategic Importance of Gwadar .................................................158

6.3.1 Expansion of the Gwadar Free Trade Zone ..................162

6.4 CPEC – As A Corridor of Opportunity .......................................162

6.4.1 Major Components of CPEC ........................................165

6.4.2 Early Harvest Energy Projects ......................................167

6.5 Special Economic Zones .............................................................171

6.6 Challenges for the CPEC .............................................................173

6.6.1 Security Threats for CPEC in Pakistan .........................174

6.6.2 Indian Reservations about CPEC ..................................174

6.6.3 Political Controversies about CPEC in Pakistan .........177

6.7 Projects Under CPEC ...................................................................181

6.8 Pakistan’s Perspective ..............................................................182

6.8.1Importance of Gwadar for Pakistan ...............................183

6.8.2 Seaborne Trade and Economic Growth ............184

6.8.3 Increased Opportunity for Shipping Industry ...184

xvi

6.8.4 Security through Economic Development ........185

6.9 Conclusion ...................................................................................186

References ..........................................................................................189

Chapter –7 ................................................................................... 193

ANALYSIS AND RECOMMENDATIONS ................. 193

7.1 Critical Analysis...........................................................................196

7.2 Future Prospects ...........................................................................200

7.2.1 CPEC As A Game Changer ..........................................201

7.2.2 Threats and Challenges .................................................203

7.3 Conclusion and Recommendations ..............................................207

References ..........................................................................................215

BIBLIOGRAPHY ....................................................................... 218

GLOSSARY ................................................................................ 245

ANNEXURES ............................................................................. 250

ANNEXURE 1: Chinese FDI in Pakistan during 2001 to 2014 ....................250

ANNEXURE 2: Treaty of Friendship, Cooperation and Good

Neighborly Relations between the People’s

Republic of China and Islamic Republic of

Pakistan, April 05, 2005.....................................................251

ANNEXURE 3: Major Events in the China – Pakistan Relations

over the Past 65 Years........................................................256

ANNEXURE 4: Ten Major Imports out of All Imports from

China Presented in the Research ......................................267

ANNEXURE 5: Ten Major Exports out of All Exports to China

Presented in the Research work .........................................268

ANNEXURE 6: List of China – Pakistan MOUs ..........................................269

QUESTIONNAIRE .................................................................... 276

1

CHAPTER – 1

INTRODUCTION TO THE STUDY

Introduction

The present research examines China – Pakistan economic relations with

particular emphasis on trade relations between the two countries from the year

2001 to 2014.The era between 2001 to 2014 was very instrumental as it had

severe impacts on the economy of Pakistan. Post 9/11 war on terror in the region

badly affected Foreign Direct Investment (FDI) in Pakistan as it was the front line

state in this war. However, many analyst believe that there was no stalemate in

economic relations between Pakistan and China due war on terror. Pakistan and

China sharing a long history of time tested friendship are committed to fight

terrorism and extremism, which is necessary for peace and stability of the region.

Both countries have enjoyed strong political, defence, social and economic

relations, therefore, 9/11 has not effected their economic relations. According

Zhao the incident of 9/11 and war on terror did not affect or reduce Chinese FDI

in Pakistan (Zhao, December 01, 2015). The current research focuses on the

maximum benefits for Pakistan that can be achieved from China‟s rapid economic

growth by adopting and implementing economic and financial policies since

China is the second largest economy and is on trajectory of further economic

growth.

In 2013, China‟s Gross Domestic Product (GDP) was around US$ 8.227

trillion making it the world‟s second largest economy in terms of GDP.

Examining the Chinese Purchasing Power Parity (PPP)*

in 2012, it was estimated

at US$ 12.405 trillion, hence, China‟s economy stood second to the United States

(US) (“World‟s second largest economy,” October 01, 2013). To be able to

* PPP is a technique used to determine the relative value of different currencies.

2

understand as to how China became the world‟s second largest economy, it is

important to understand its GDP growth.

China‟s annual average GDP growth from the year 2001 to 2010 remained

10.5 percent, whereas, from the year 2007 till 2011 its economic growth was equal

to all of the G7 countries (Malik, 2013). Another key point is that China, with

membership of the World Trade Organization (WTO), was the world‟s largest

trading authority with a total value of US$ 3.87 trillions of global trade in 2012.

Correspondingly, it‟s foreign exchange reserves reached US$ 2.85 trillion by the

end of 2010, which was 18.7 percent growth than the year 2009. China is holding

around US$ 1.16 trillion in the US treasury bonds, which makes it the largest

foreign holder of US public debt. At present, China owns US$ 1.09 trillion and

wants to keep the value of the dollar higher then Yuan as that keeps its exports

affordable for the US and help its economy to grow. China replaced the United

Kingdom (UK) as the second largest foreign holder on May 31, 2007. (“Foreign

holding of US, Treasury Securities” June 15, 2017). Furthermore, China is the

world‟s third largest receiver of FDI among top ten countries which attracts most

FDI from the world. Among the ten countries to attract most FDI, US is on top of

the list followed by Germany with second position. Whereas, China holds third

position, UK is fourth, Canada holds fifth position, Japan sixth, France seventh,

India eighth, Australia ninth and Singapore is at number ten on the list (Top ten

countries projected to attract most FDI, June 13, 2017).

China is also progressively investing overseas, with a total outward FDI of

US$ 68 billion (“World‟s second largest economy”, October 01, 2013). Overseas

investment increases opportunities for China to bolster its economy further

besides increasing its influence abroad. In this regard, China in the past few years

has dynamically increased its foreign investments and has explored investment

prospects in various sectors, for example, natural resource-exploration in Africa,

3

Australia, Canada, and Latin America, which has been dominating its FDI.

Additionally, companies in China have also commenced securing strategic assets

in the high-tech sectors of the US and European. The Chinese Investment outflow

towards Latin America started growing steadily from just US$ 430 million in

2006 to US$ 4.87 billion in 2009 and reached to its peak at US$24.48 billion in

2010. Over the last decade, Australia has become second largest recipient country

of Chinese FDI after US, while China is also the nineth largest investor of FDI in

Africa (Chinese Overseas Investments, June 13, 2017). It is also noteworthy to

mention that China is expected to be the world‟s biggest FDI investor by the end

of 2020 (“China to become one of world‟s biggest overseas investors by 2020”,

June 25, 2015).

With its growing economy, it is pertinent to mention that China‟s middle

class population touched more than one hundred million by the year 2011.

According to a report, compiled by Hurun, China stands at number two in the

world with the highest number of billionaires. The number of billionaires in three

years has swelled from 130 in 2009 to 151. This indicates that China has gained

and developed its economy in a very short time period (Farndon, 2007). This is

because of the prevalence of these attitudes and the change in its economic

policies that China is able to change her economic position in short time period.

An equally significant aspect of its economic growth is the fact of

changing its economic policy, as from its creation in 1949 until late 1978 Chinese

economy was centrally planned. Economic liberalization started in 1978 under the

leadership of Deng Xiaoping (Dillion, 2012). After Chairman Mao Tse-Tung‟s

death in 1976, Deng Xiaoping and the new Chinese Government initiated the

economic reforms and moved towards a more market-oriented diverse economy

(Marti, 2002). This led to making China one of the major economies in the world.

4

Deng initiated to modernize China, for which he promoted foreign trade and more

contacts with foreign nations, particularly the non–Communist nations. The plan

mainly included modernization of agricultural sector and up-gradation of industry.

He emphasized that without improving the agriculture sector and upgrading the

industry, achieving a developed status is very difficult. He also encouraged

development in the sector of science and technology along with improving the

defense forces. At present, China is largely considered as having a market

economy based on private property possession, and is one of the examples of state

capitalism (“World‟s second largest economy”, October 01, 2013). Consequently

after introducing modernisation plan, China acknowledges the importance of

regionalism and hence, has focused on developing strong links with the regional

countries.

After the disintegration of the Soviet Union, the geo-strategic priorities

were remade, having more emphasis on geo-economic consideration, and thus,

preferring regionalism. According to Rehman (2006), Pakistan and China

realizing the need, also emphasized to increase economic cooperation in order to

enhance and develop overall relations in the rapidly changing regional and

international scenario. It was early 1950s, when China and Pakistan entered into

trade relations. The first formal Trade Agreement was signed in January 1963.

The emergence of regionalism increases the importance of expansion of economic

relations. However, defense and political relations between China and Pakistan

strengthened since the inception of both the states but economic relations did not

take off till 2001.

Expansion in China – Pakistan economic relations in particular, has been

progressing rapidly since 2001, despite the fact the region was badly affected due

to the war on terror in the region. It particularly affected the economies of the

developing countries including Pakistan. Still, both the countries focused upon

5

strengthening their economic relations, and thus the period from 2001 to 2010

institutionalized China – Pakistan economic relations. The two countries are

determined to take economic relations to a higher level that is proportionate to

both political and defence ties (Rehman, 2006). The rapid development in

economic relations, since early 2000, is also due to the efforts of public and

private sectors of both the countries which is a good sign for Pakistan. Moreover,

the two countries are working to draw out a road map for trade and to improve

investment chances in Pakistan in the future (Rehman, 2011). As a result, to

strengthen economic relations, China has supported different projects in Pakistan

such as, Gwadar Deep Seaport, Coastal Highway, up-gradation of the Karakorum

Highway, up-gradation of Pakistan railway, China-Pakistan Economic Corridor

(CPEC) and numerous other projects related with the sector (Butt, 2007). The

ground breaking ceremony of Gwadar Deep Seaport was attended by General

Musharraf and the Chinese Vice Premier, Wu Bang Guo on March 22, 2002 and

phase one of the Port was successfully completed in April 2005.

Both Pakistan and China signed six agreements and one MoU on May 12

2001. During that phase, Chinese financial assistance for the agreed projects was

estimated to be worth over US$ 01 billion. The signing of these agreements was in

fact a practical initiative for swelling economic cooperation between the two

countries. Under one agreement, China also approved a grant of fifty million Yuan

for the advancement of economic and technical cooperation between China and

Pakistan (Shabir, and Reema, September 2007, p.177).

From 2001 to 2010, trade between China and Pakistan has grown

significantly from US$ 01 billion to around US$ 07 billion, but the trade between

the two countries is not moving in the direction to create a win – win situation,

because the percentage of Pakistani exports has been decreasing annually and

imports from China have been increasing rapidly. Thus, the equilibrium of trade

6

tends to go in favour of China, leading to unequal trade balance between both the

countries. Although China – Pakistan trade grew by twenty two percent and

crossed the US$10 billion landmark in 2012, Pakistani exports to China are still

very limited. Pakistani exports during 2012 were close to only US$ 2.12 billion,

whereas imports from China were close to US$ 7.88 billion, which are very high

as compared to Pakistani exports (“Pak – China trade”, October 22, 2013).

Despite the fact that the mutual trade has grown, some concerns emerged in

Pakistan regarding the disadvantages of the trade and negative trade balance

between Pakistan and China. For example, the trade between the two has effects

on local business and producers (Six advantages and disadvantages of free trade,

June 14, 2017). Moreover, it also increases dependence on foreign goods (Nine

disadvantages of international trade, June 14, 2017).

The main concern in Pakistan about trade is that the Chinese imports have

been increasing; however, Pakistani products have not found their place into the

Chinese market at the same level resulting in the decrease of Pakistani exports,

which indicates that mutual trade is heavily in favour of China. Above all, it is

also a major concern in Pakistan that the Chinese companies control the Chinese

sponsored industries in Pakistan at financial and managerial levels, which are

sending profit to Beijing (“Pak – China trade”, February 02, 2012).

Under these circumstances, despite the fact that economic relations since

2000 have grown rapidly, Pakistan‟s share remains very low. The trade deficit

between China and Pakistan is presented in the following table, which shows trade

data from 2005 to 2010.

7

Table – 1.1

China – Pakistan Trade

(2005 - 2010)

Year 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Imports in US$ m. from

China

1843 3534 4688 4087 4411

Exports in US$ m. to China 354 576 685 701 1154

Source: http://www.tdap.gov.pk/china_tab.php

According to the Trade Development Authority Pakistan (TDAP), China‟s exports

are twenty percent more than its imports to Pakistan. Whereas, Pakistan‟s exports

to China constitute only 0.13 percent, as compared to its imports from China

which is very low, and need to be improved to create a win-win situation (Pak-

China trade data, January 29, 2014).

In this scenario, it is argued that the trade imbalance between Pakistan and

China can be reduced by simultaneous investment and focus on the industrial and

agricultural sector. There is great potential for investment between China and

Pakistan because the latter is fourth largest export destination of the former,

particularly in sectors like, telecommunication, infrastructure, agriculture and

energy. According to Rehman (2011), Pakistan attempted to convince the public

and private sectors of China to bring investment into Pakistan, besides

commodities for viable trade partnership, thereby creating a win-win situation.

Furthermore, besides looking at the increasing trade between China and Pakistan

it is equally significant to understand FDI in Pakistan.

Chinese Prime Minister Wen Jiabao, on his visit to Pakistan in April 2005,

in his address at the China – Pakistan Business Cooperation Conference,

emphasized to further enlarge the scope of bilateral trade and investment between

Pakistan and China. Furthermore, acknowledging that Pakistan has resources,

which needs exploration with the help of experts, and China possesses technology

8

and technical know-how, he emphasized to follow the basic principle of

equivalence, mutual benefits and shared complementary advantages. However,

when after five years the Chinese Premier again visited Pakistan in December

2010, the trade was still in favour of China due to imbalance of import and

exports, and there had been no functional growth on the investment side from

China (Rehman, 2011).

It is important to mention here that during the years 2000 to 2005, the over

all FDIs in Pakistan has increased around six hundred percent, but China‟s share

remained very little. In 2001, the inflow of Chinese FDI in Pakistan was recorded

at US$ 0.1 million and in 2002 and it reached US$, 0.3 million. In 2003 FDI was

recorded US$ 3.0 million and in 2004 it increased to US$ 14.3 million, however,

it declined again in 2005 which was recorded at US$ 0.4 million (Chinese FDI in

Pakistan during 2001 to 2014, June 01, 2017) which resulted in an increase in the

trade imbalance between the two countries (Rehman, 2011). The following table

illustrates the FDI from China and the rest of the world in Pakistan.

Table – 1.2

FDI in Pakistan (2008 - 2014)

Year

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14

2014-

15

Total FDI in US$ m.

3,719.9

2,150.8

1,634.8

820.7

1,456.5

1,698.9

9,87.9

China‟s share in US$

m.

101.4

3.6

47.4

126.1

90.6

695.8

319.1

Source: http://boi.gov.pk/ForeignInvestmentinPakistan.aspx

As mentioned earlier, there are concerns in Pakistan about the trade deficit. The

Pakistani business community has observed that both the private and public

sectors of China show less interest in investment in those areas, which could

9

empower Pakistan to produce an export surplus for Chinese market. They argue

that Chinese industrialists are more interested in selling their products in order to

make speedy incomes (Hamid, 2012). To understand as to why Pakistan could not

achieve a win-win situation in trade with China, a detailed analysis of the facts is

important which is discussed in the subsequent paragraphs.

Pakistan has not achieved the desired outcomes in trade and investment

with China despite having a history of cordial relationship and political

interdependence. Notwithstanding the 1963 trade agreement, that granted Most

Favoured Nation (MFN) status to each other and in October 1982, China –

Pakistan Joint Committee on the Economy, Trade and Technology was set up.

However, practical trade relations could not truly develop due to which Pakistan

could not achieve the desired level of trade and business with China.

According to Shabir and Reema (2007), both the countries conducted trade

under the 1963 Trade Agreement. During that time, Pakistan had multi-modal

trade with China, that is, barter trade and cash trade. However, currently trade

with China is conducted almost entirely on a cash basis in convertible currency

(Shabir, and Reema, September, 2007, p.176). After signing the Preferential

Trade Agreement (PTA) in 2003 with China, which became operative in 2004,

both the countries established a joint group to negotiate and search out feasibility

for a Free Trade Agreement (FTA), which was signed in 2006 between the two

countries and became operative in January 2007 (Anwar, 2014).

As it is understood that FTAs are bilateral agreement between two or more

countries for the purpose of facilitating free flow of trade and investment and

creating closer economic integration among member states by eliminating tariff

and other restrictions on each other‟s commodities for mutual benefits of all the

countries involved. The purpose of these FTAs is not only to serve the economic

10

needs of member states, but also to accommodate political motivations, or in other

words, legitimatize trade between two coalition allies to facilitate and accelerate

the development process between them (Shabir, and Reema, September, 2007,

p.174). In case of China – Pakistan trade, it is important to mention here that

before the formation of the FTA, many Chinese firms were operational in

Pakistan, which demands investigation of the investment scenario in Pakistan.

Moreover, the enormous historic trade deficit with China makes it necessary to

see the impact of FTA on trade between China and Pakistan. The fact however is

that, China has signed FTA not only with Pakistan, but conceptualized FTA with

the ASEAN known as China ASEAN Free Trade Agreement (CAFTA) in 1995 as

well. However, a comparison of China FTA with Pakistan and ASEAN indicates

the concern of Pakistan.

It is also to be noted that the FTA signed with ASEAN and eight other

countries was operative from January 2010. However, ASEAN countries at

present are enjoying trade surplus with China, while Pakistan is suffering from

trade deficit and could not got the desired goals (Anwar, 2014). Consequently,

under those circumstances, it is generally questioned, whether this was a market-

forced choice or a political choice. The most compelling evidence is the big gap in

the level of industrial growth between Pakistan and China. Keeping in view the

above facts and Wen Jiabao‟s vision for a win-win situation for both countries, it

remains difficult to comprehend the trade inequity between the two countries.

Some analyst argue that among others, one of the reasons for the trade

deficit between both countries is due to the reason that Pakistan‟s exports have

been strikingly concentrated in the markets of some countries, for example, USA,

Japan, Germany, Hong Kong, Dubai and Saudi Arabia. Moreover, Pakistan‟s

exports are also limited to commodities like cotton, leather, rice, synthetic textiles,

sporting goods, etc. Also, Pakistan is exporting cotton textile material, leather,

11

chromium, mineral and crude oil, marble and aquatic products to China and these

products have been very small (Shabir, and Reema, September, 2007, p.187).

Analytically, Pakistan has a thin base* for exportable goods and, as

discussed above, more than seventy five percent of its exports originate from

marble, handmade carpet, cotton, rice, leather and sports goods. Diversifying

goods to make them appropriate and much suitable for the Chinese market, is the

kind of active export policy that could improve the capacity of exports and help to

resolve the trade inequity. Therefore, it will not be feasible for Pakistan to upturn

its exports to China without this specific step to improve the quality of its export

commodities and search out the need and demand of the Chinese market.

Moreover, Pakistan should pursue Chinese investment for schemes aimed at

export modification. If Pakistan wants a balance in trade with China, it needs to

upgrade her industries including leather, marble, textile and handmade carpets and

also focus on the export of mangoes and rice. Pakistan also needs to take measures

to eliminate the invisible trade.*. Moreover, the up-gradation of industries, which

is need of the time, will improve the quality of products. If Pakistan has quality

products to sell, the huge Chinese market would be the right destination for them

(Khan, 2013).

1.1 Aims and Objectives

Since 2001 China – Pakistan economic relations have gained some positive

momentum; but still there is trade imbalance between the two countries,

highlighting that regular trade flows have always been in favour of China and

Pakistan could not gain the desired goals from this trading relationship with

China. To understand the trade inequity between China and Pakistan as discussed

* Means Pakistan has limited exportable commodities.

*Illegal trade from China via Afghanistan to Bara market in Tribal Areas and Karkhano market in

Hayatabad. Currently, most of Pakistani markets are heavily flooded with Chinese smuggled goods

– a major part of the illegal trade in the country.

12

above this study aims to explore the areas of cooperation between Pakistan and

China, which are very vital for creating a win-win situation for both the countries.

The above aim will be accomplished by fulfilling the following research

objectives:

To explore the ways and techniques through which Pakistan can secure a

suitable place in China‟s market for its exports.

To divert the direction of trade and its outputs in favour of Pakistan, to

create balance of trade and create a win-win situation.

To pinpoint the areas of Pakistani industrial products which are the

demand of Chinese market.

1.2 Significance of the Study

This study is significant in many ways. There is abundance of scholarships

available on China – Pakistan economic relations. The present study examines

China – Pakistan economic relations with particular emphasis on trade relations

between the two countries from the year 2001 to 2014 .The era between 2001 and

2014 was very crucial because Pakistan‟s alliance in war on terror brought a war

to Pakistan which was not its own. Many terrorists inside Afghanistan fled the

country and took refuge in the adjacent tribal areas of Pakistan. The terrorist

started attacking schools, infrastructure, civilians, military and paramilitary

personnel throughout the country, which adversely affected the economy of

Pakistan and Foreign direct investment (FDI) in Pakistan. Pakistan was isolated

as many neighboring countries were blaming it for sponsoring terrorist activities

in their countries. During this time, China stood beside Pakistan, and provided

moral and material support.

13

Furthermore, the present study highlights the importance of economic and trade

relations with China keeping in view the regional set up and Pakistan‟s relations

with other regional countries, particularly Afghanistan and India. Pakistan has

been facing various challenges due to ongoing militancy and the phenomenon of

terrorism. There are chances that it might lose political support of China as the

latter itself is faced with challenges posed by East Turkestan Islamic Movement

(ETIM) in Western China.

Therefore, in this scenario, it is argued that both economic and political

relations are dependent on each other. Hence, to strengthen these relations, this

research helps to explore the ways through which Pakistan can balance its trade

with China, because equal trade between the two is vital for a win-win situation

for both. This study also focuses on China‟s huge market, and the demand of the

Chinese market which could be fulfill by Pakistani exports, because Chinese

market is the right destination for a variety of Pakistani exports. The study also

provides a thorough research on different aspects of trade of Pakistan in general

and with China in particular. In addition, it suggests viable solutions and options

for policy makers of Pakistan to overcome the weaknesses due to which Pakistani

goods cannot find the desired place in the Chinese market. Furthermore, the study

highlights the areas where both the countries can take advantages from each

other‟s expertise and technical know-how. For instance, China can facilitate

Pakistan in improving the energy sector, as Pakistan is an energy deficient

country, while Pakistan can provide them a gateway to other parts of the world

particularly to Arabian Sea, Indian Ocean and the Middle East via the Gwadar

port.

14

The expected outcomes of the study are as under:

Pakistan can secure a suitable position in trade with China to take

advantage of the latter‟s rapid economic growth.

Pakistan can get maximum advantage from China‟s huge market, by

making it the right destination for Pakistani exports.

By exploring and analyzing the weaknesses and flaws in its trade and

economic policies, Pakistan will be able to achieve the desired outcomes in

trade and investment with China.

1.3 Methodology

Methodology used to carry out this research work is “inductive as oppose to

deductive”. The three basic principles of methodology focused during the entire

research work are;

a. “Where you are”, which refers to literature review.

b. “Where you want to go”, which means Hypotheses and theoretical

framework of the study.

c. “How you want to go”, that is the type of methodology adopted to carry

out the research work (Rehman, June 05,2017).

As the research follows mixed method strategy, both qualitative and

quantitative methods are used. Primary and secondary sources are utilized for data

collection. Primary sources consist of field research, structured and unstructured

interviews with experts on the subject to substantiate research in an effective

manner. Secondary sources include books, journals, periodicals and newspapers.

Throughout the course of this research, a wide range of literature has been

consulted to obtain all the essential record of the relationship between the two

countries. Furthermore, conference papers, reports of working groups, workshops,

official documents and research studies carried out by local and international

15

scholars, research institutes and organizations have also been integrated. Online

information is also employed. The researcher also conducted survey with the

relevant authorities and personnel related to trade between the two countries. The

researcher made a number of visits to the Embassy of Peoples Republic of China

in Islamabad to collect data, and interviewed officials at the Embassy. A number

of Government offices have been visited and the concerned officials were

interviewed to collect data, such as Trade development authority of Pakistan,

Water Management Department Khyber Pakhtunkhwa, Agricultural Extension

Department, Provincial Disaster Management Authority and Peshawar Chamber

of Commerce, Khyber Pakhtunkhwa. Furthermore, markets in Hayatabad known

as Kharkhano Markets in Peshawar also visited to collect data from local

businessmen. Above all, to carry out this research work in effective manner

experts from Institute of Strategic Studies Islamabad (ISSI), Department of

Economic, Department of Political Science, Department of International

Relations, Institute of Management Studies, Collage of Home Economics and

Area Study Center in University of Peshawar were interviewed.

1.4 Hypotheses

This study seeks to test the validity of the following hypothesis:

Pakistan has not benefited from Chinese rapid economic growth.

The political interdependency will result in the improvement of the

economy of Pakistan that will create a win – win situation.

The political and economic interdependence between China and Pakistan

will increase the international standing of Pakistan.

1.5 Chapterization

The study consists of the following chapters:

16

Chapter 1: Introduction to the study

This chapter of the study highlights the background, aims and objectives, and

significance of the study. It also includes literature review and methodology used

in the research. The chapter focuses on all-weather friendship between Pakistan

and China particularly in terms of strong defense and political relations and

economic relations. Moreover, it briefly highlights the rapid economic growth of

China, which has set new trends in the global market and examines the concerns

raised by various quarters within Pakistan about the imbalance in trade with

China. Particularly export of Pakistani goods to Chinese markets and the

realization to further strengthen economic relations with China, which is vital for

the economic progress of Pakistan, is discussed.

Chapter 2: Theoretical Framework

Theory of Liberalism, its sub-theories and the theory of Flying Gees are

elaborated in this chapter. It discusses the application and relevancy of these

theories to the economic and trade relationship between China and Pakistan. The

chapter discusses that international trade has been influenced by the theory of

Liberalism and its sub-theories in different eras and particularly it has influenced

China – Pakistan trade. Traditionally, both the countries have political dependency

on one another, but in economic and trade ties China has advantage over Pakistan.

The chapter highlights the importance of trade balance between both the countries.

It also focuses on the fact as to how a push forward in China – Pakistan trade

relations on equal basis is important to create a win-win situation for the larger

benefit of both China and Pakistan. The chapter also discussed that development

is a step by step game, and Pakistan can follow the Chinese model of development

to achieve its economic development.

17

Chapter 3: Historical Background of Economic Relations

In this chapter, historical background of the economic relations of China and

Pakistan are discussed to explore and find out the possible areas of cooperation

and mutual advantage. The chapter also discusses China – Pakistan relations in

terms of the former‟s political and economic relations with other regional

countries. Furthermore, it elaborates that economic and trade relations exist

between China and Pakistan since the inception of Pakistan. However, both the

countries paid more attention to political and defence ties as compared to

emphasis on enhancing the volume of the trade between them. Nevertheless,

since 2001, China – Pakistan trade and economic relations got momentum and

have strengthened gradually. Different aspects of China – Pakistan trade,

advantages and disadvantages of trade between the two countries are also focus of

this chapter. It highlights that for long-term cooperation, the balance of trade

between the two countries is very important. Moreover, it discusses that both

China and Pakistan need to reevaluate their economic and trade policies to create

a win-win situation for themselves.

Chapter 4: Imports and Exports between China and Pakistan

This chapter enlists the yearly imports and exports of China and Pakistan. The

statistical data of trade between the two countries, since 2001 to 2014, is presented

year wise in the chapter. The chapter has been divided into fourteen different

sections, each section have two parts. Part one discusses imports from China while

part two elaborates exports to China. Furthermore, for comparison and analysis

ten major products from imported commodities are presented in all fourteen

sections with the year wise increase or decrease in imports. In the same fashion,

ten major products from export commodities are presented with annual increase or

18

decrease. It also details statistics of the trade volume of the two countries and

explains the trade deficit between the two countries.

Chapter 5: Areas of Mutual Cooperation and Advantage

This chapter assesses and analyzes the areas of cooperation and mutual advantage,

based on the history of economic and trade relations between the two countries. It

highlights the areas in which cooperation is much needed for the development and

strengthening of economic relations between the two countries. The chapter

highlights the areas in which China has tremendous expertise, while Pakistan due

to lack of technical know-how despite rich in resources, is suffering in that

particular area. The chapter also examines that agriculture sector, disaster

management, water management, exploration of energy and minerals and

cooperation in transfer of technology such as home appliances, automobiles,

weapons and hybrid seed production technology are the core and important areas

of cooperation between Pakistan and China which can empower Pakistan to

balance trade with China.

Chapter 6: China – Pakistan Economic Corridor

The chapter assesses and analyses the importance of China – Pakistan Economic

Corridor (CPEC). The chapter highlights the importance of CPEC for Pakistan

and how it will increase sea borne trade and will promote shipping industry of

Pakistan, which as a result will contribute positively in booming Pakistan‟s

economy. The chapter also analyses the importance of this project for China and

highlights as to how this project will reduce the distance for Chinese trade with

Middle East, Europe and Africa, particularly maritime route distance. Moreover,

the chapter also focuses on the challenges for the said project such as security

19

threats, regional and global reservations, and political controversies in Pakistan

about the route direction of CPEC and discusses the share of the provinces.

Chapter 7: Analysis and Recommendations

Based on analysis of the economic relations between China and Pakistan,

recommendations are put forward in this chapter. It entails suggestions for policy

makers as to how Pakistan can improve trade with China and how trade balance

can be achieved. Moreover, it looks into the future prospects of China – Pakistan

economic relations.

1.6 Conclusion

Pakistan has enjoyed very cordial relations with China since its inception. Both

the countries supported one another on different issues at several international

forums. China and Pakistan have strong defense and political relations but

economic relations could not reach the level where both the countries are at par. It

is argued in this prospect, that strengthening of economic relations with China is

vital for the economic progress of Pakistan. Pakistan can take advantage from the

Chinese rapid economic growth by enhancing economic relations with the latter.

Since 2001 China – Pakistan economic relations gained some momentum; but the

bilateral trade has remained in favour of China, and has not added much to

Pakistan economic growth. There are, however, bright prospects for a win-win

situation with the initiation of CPEC project which are discussed in detailed in the

study.

20

References

Anwar, Zahid. (February 02, 2014). Department of Political Science, University

of Peshawar, Pakistan. Personal communication.

Butt, M. Ijaz. (2007). Focus on China: Relations with Pakistan; domestic

concerns: Lahore: Advance Publishers.

China‘s FDI in Pakistan. Retrieved on February 05, 2014, from:

http://boi.gov.pk/ForeignInvestmentinPakistan.aspx

Chinese FDI in Pakistan during 2001 to 2014. (June 01, 2017). Retrieved on June

01, 2017 from: http://www.issi.org.pk/chinese-fdi-in-pakistan-during-

1999-2017/

Chinese Overseas Investments. (June 13, 2017). Retrieved on June 13, 2017,

from: http://chinapower.csis.org/china-foreign-direct-investment/

China to become one of world‟s biggest overseas investors by 2020. (June 25,

2015). Retrieved on June 19, 2016, from:

https://www.ft.com/content/5136953a-1b3d-11e5-8201-

cbdb03d71480?mhq5j=e3

Dillon, Michael. (2012). China a modern history: London: I.B. Tauris.

Farndon, John. (2007). China rises: How China‘s astonishing growth will change

the world: London: Virgin Books.

Faust, John R., Kornberg, Judith F. (1995). China in the world politics: US: Lynne

Rienner Publishers Inc.

http://boi.gov.pk/ForeignInvestmentinPakistan.aspxhttp://www.issi.org.pk/chinese-fdi-in-pakistan-during-1999-2017/http://www.issi.org.pk/chinese-fdi-in-pakistan-during-1999-2017/http://chinapower.csis.org/china-foreign-direct-investment/https://www.ft.com/content/5136953a-1b3d-11e5-8201-cbdb03d71480?mhq5j=e3https://www.ft.com/content/5136953a-1b3d-11e5-8201-cbdb03d71480?mhq5j=e3

21

Findaly, C. Watson. (1994). Rural enterprises in China. New York: St. Martin‟s

Press.

Foreign holding of US, Treasury Securities. Retrieved on June 15, 2017, from

http://ticdata.treasury.gov/Publish/mfh.txt

Hamid, Bushra. (May 07, 2012). Institute of Management studies,University of

Peshawar, Pakistan. Personal communication.

Jiang, F (2003). Chinese import & export. Retrieved on December 20, 2013, from:

www.molss.gov.cn

Kang, David C. (2007). China rising: peace, power and order in East Asia: New

York: Columbia University Press.

Khan, Atlas. (November 21, 2013). Trade Development Authority, Ministry of

Commerce, Pakistan. Personal communication.

Lardy, N.R (2001). Integrating China into the global economy. Washington D.C.:

Brookings Institution Press.

Malik, Zalakat Khan. (December 09, 2013). Department of Economics,

University of Peshawar. Personal communication.

Marti, Michael E. (2002). China and the legacy of Deng Xiaoping: US: Brassey‟s

Inc.

Nine disadvantages of International trade. (June 14, 2017). Retrieved on June 14,

2017, from: http://www.economicsdiscussion.net/international-trade/9-

disadvantages-of-international-trade-discussed/1910

http://www.economicsdiscussion.net/international-trade/9-disadvantages-of-international-trade-discussed/1910http://www.economicsdiscussion.net/international-trade/9-disadvantages-of-international-trade-discussed/1910

22

Pak China Trade. Retrieved on February 02, 2012, from:

www.nation.com.pk/pakistan-news-newspaper-daily-english-

online/editorial/02-feb-2012/pak-china-trade

Pak-China Trade Data. Retrieved on January 29, 2014, from:

http://www.tdap.gov.pk/china_tab.php

Pak - China trade volume to rise to $10b in 2 years. Retrieved on October 22,

2013, from: The Nation, Lahore. http://nation.com.pk/business/22-oct-

2013/pak-china-trade-volume-to-rise-to-10b-in-2-years

Rehman, Fazal. (2006). Pak-China economic relations: Constraints and

opportunities. Strategic Studies 26,(2). Retrieved on December 10, 2013,

from: www.ISSI.org.pk/journal.html

Rehman, Fazal. (2011). Pak – China trade and investment relations. Paper

presented at the seminar on “Pak-China Relations: 2011 the year of

friendship”, organized by the Institute of Strategic Studies, Islamabad,

January 11-12, 2011. from: www.ISSI.org.pk/journal.html

Rehman, Khalil. (June 05, 2017). Area Study Center, University of Peshawar,

Pakistan. Personal Communication

Shabir, Samina and Kazmi, Reema. (September 2007). Economic Effects of the

Recently Signed Pak-China Free Trade Agreement: The Lahore Journal of

Economics. (Special Ed), p. 177).

Six advantages and disadvantages of free trade. (June 14, 2017). Retrieved on

June 14, 2017 from: https://furtureofworking.com/6-advantages-and-

disadvantages-of-free-trade/

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/editorial/02-feb-2012/pak-china-tradehttp://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/editorial/02-feb-2012/pak-china-tradehttp://www.tdap.gov.pk/china_tab.phphttp://nation.com.pk/business/22-oct-2013/pak-china-trade-volume-to-rise-to-10b-in-2-yearshttp://nation.com.pk/business/22-oct-2013/pak-china-trade-volume-to-rise-to-10b-in-2-yearshttp://www.issi.org.pk/journal.htmlhttp://www.issi.org.pk/journal.htmlhttps://furtureofworking.com/6-advantages-and-disadvantages-of-free-trade/https://furtureofworking.com/6-advantages-and-disadvantages-of-free-trade/

23

The World‟s second largest economy. (October 01, 2013). Advertisement

supplement, p.01: Dawn, Islamabad.

Top ten countries projected to attract most FDI. ( June 13, 2017). Retrieved on

June 13, 2017, from:

http://www.chinadaily.com.cn/bizchina/2017top10/2017-

05/03/content_2917579.htm

Zhao, Lijian. (December 01, 2015). Deputy Chief of Mission, Embassy of the

People‟s Republic of China, Islamabad, Pakistan: Personal

communication.

http://www.chinadaily.com.cn/bizchina/2017top10/2017-05/03/content_2917579.htmhttp://www.chinadaily.com.cn/bizchina/2017top10/2017-05/03/content_2917579.htm

24

CHAPTER – 2

THEORETICAL FRAMEWORK

Introduction

The chapter presents the theoretical framework within which this study has been

conducted. The theoretical framework helps in analyzing the factors influencing

China – Pakistan economic relations particularly after 2001. To understand China

– Pakistan economic relations in theoretical perspective, Liberalism and its sub

theories, such as, Sociological Liberalism, Institutional Liberalism, Republican

Liberalism, Interdependence Liberalism and the theory of Flying Geese are

examined and applied on the current study. The chapter deals with the era of

Liberalism, but the focus is more on economic Liberalism. Economic Liberalism

is about the principles of free trade symbolised by reducing tariff barriers and in

opening markets to global economic network, for example, the era of embedded

liberalism of late 1940s. Embedded Liberalism was followed by neo-Liberalism

and mixed-Liberalism. Before 1940s, classical Liberalism dealt with international

trade but at that time Pakistan had not come into existence, therefore, the study

focuses on the era of Liberalism after 1940s. To be able to understand liberal

trends in China – Pakistan economic relations, it is necessary to understand and

explore Liberalism and its sub theories with a comprehensive explanation and

analysis.

2.1 Liberalism

The scholars of international relations usually advocate one of the two main

theories – Realism or Liberalism. The classical or neo - Realist school of thought

is more skeptic about the prospects of peace, cooperation and human progress,

whereas, Liberal school of thought is more optimistic and upbeat about human

25

nature and human potentials. Liberalism is a political and economic philosophy

focusing on progress and individual freedom. In other words, it is the economic

and political concept of the government. By economic point of view, it is the

responsibility of the government to ensure equilibrium among majority of the

citizens in term of providing open competition to them. In political point of view,

Liberalism is a concept of providing liberty and freedom to the people by their

representative governments (Business Dictionary, June 23, 2017).

Koehane in one of his article quotes Michael W. Doyle as one who sees

“liberalism similar to „a family portrait of principles and institutions‟, focused on

the indispensible principle of freedom of the individual and associated with

negative freedom and positive freedom and democratic participation or

representation. Institutions are essential for exercising these rights (Robert, 2012,

p.127). By negative freedom, he means freedom from arbitrary authority and by

positive freedom, the social rights essential for promoting the capacity for

freedom. Therefore, it can be argued that Liberalism is all about protecting and

enhancing individual‟s freedom. Liberals also expect from their representative

governments to protect their liberty and freedom from being harmed by others

(Liberalism Politics, June 23, 2017).

As discussed, Liberalism usually emphasizes upon optimistic view of

human nature. The liberal school of thought relies greatly on human reason and is

convinced that rational principles can be applied to international relations.

Liberals are of the view that individuals are self – centered and competitive up to

a certain point. However, they also classify that individuals share many benefits

and are involved in supportive social actions. For example, non – government

organization working in any society, or in other words social workers in the

society and their cooperative social activities, which results in larger benefits at

local as well as global level (Jackson, Sorensen, 1999).

26

Furthermore, besides being optimist, Liberal school of thought also focuses on

development. Development in the view of liberals leads to development of

individual. The key theme of liberalism is the pleasure and good will of individual

human beings. In short, liberal thinking is closely associated to and connected

with the appearance of the contemporary constitutional state, because the pre-

constitutional world was lacking liberal thoughts and the societies and individuals

were not very liberated and more so the individuals did not enjoy much

importance (Jackson, Sorensen, 1999).

The Liberal school of thought also emphasize on modernisation, by

clarifying that modernisation is a process involving development in maximum

areas of life. Furthermore, the process of modernization increases the scope for

collaboration across international boundaries. In pre-modern times, people and

scholars use deductive methods in their dealings and in research, while in modern

times inductive methods is adopted by the people, which is indeed the outcome of

Liberalism (Rehman, June 05, 2017). Liberal school of thought further elaborates

that progress means improved life with positive change for, at least, the majority

of individuals. According to this school of thought, humans possess reason, and

when they apply it to international dealings, the result will be greater cooperation

(Jackson, Sorensen, 1999, p. 110). To further exemplify Liberalism, it is vital to

understand the basic assumptions of Liberal school of thought.

2.2 Basic Assumptions of Liberal School of Thought

As discussed above, the Liberal school of thought focuses on norms, regimes,

economic interdependence and international organizations. Liberal do not see any

difference between high-politics and low-politics and believe that issues like,

terrorism, drug trafficking, human rights, environment, technology and finance are

as important as are security issues. They reject the view that the major influencing

27

force of international politics is chiefly dominated by military and security related

issues. They are of the view that the agenda of international politics is varied and

all-encompassing. Hence, they put economic and social issues at the forefront of

foreign policy discussions (Devitt, September 01, 2011).

Liberalism rests on a number of assumptions. Based on the above

discussion, Jackson and Sorensen present the basic Liberal assumptions as: a)

Liberals always take optimistic view of human nature, which means positive

approach toward human dealings. b) They also emphasize upon a conviction that

international relations can be cooperative rather than conflictual. c), Finally,

liberals have strong belief in human progress. This indicates that liberals focuses

on soft power such as economic, infrastructure, media, strong educational system,

enrich culture to inspire and attract the international community rather than

through military power (Soharwardi, April 09, 2012).

Hence, Liberal assumptions emphasize upon progress and cooperation

between and among states and individuals, which ultimately leads to the

development of all stakeholders. Besides the basic Liberal assumptions, an equally

significant aspect of Liberalism is to understand the foundation that has been

provided by various philosophers to Liberal school of thought, which is discussed

in the subsequent paragraphs.

2.3 Philosophical Foundation of Liberalism

The Liberal customs and traditions in international relations are closely associated

with the appearance of the contemporary liberal state. John Locke (1632-1704)

was the principal advocate of Liberal philosophy. He saw numerous potential for

individual growth in modern civil society and capitalist economy. He highlighted

that both could do well in states that guaranteed individual freedom and liberty.

He further claimed that states are there to guarantee the freedom of their people

28

and consequently, states facilitate individuals to live their lives and follow their

pleasure in daily life without interference from other individuals (Jackson,

Sorensen, 1999).

Jeremy Bentham (1748-1832), an English philosopher, who coined the

term „International Law‟, further extended this argument. He believed that it is in

the interest of states to adhere to International Law in their foreign policies as

international trade is bound by International Law. The result of this is in the

broader interests of individuals, because it will protect individual rights

internationally. Furthermore, Immanuel Kant (1724-1804) emphasized that

„Republics‟ (which are defined as constitutional and mutually respectful states)

could ultimately create harmony in the world, which is also in favour of

Individuals (Jackson, Sorensen, 1999). This mutual respect of state for each other

ultimately involves them in cooperation, which results not only in their prosperity

but also their citizens.

Thus, it can be argued that the philosophical foundation of Liberalism and

the present research are supplementary, as discussed in the subsequent paragraphs

for further clarity. To understand the association, Liberalism can further be

classified into four categories, which are the four strands of Liberal thoughts: a)

sociological Liberalism, b) institutional Liberalism, c) republican Liberalism, and

d) interdependence Liberalism.

Sociological Liberalism highlights non-governmental connections among

societies, such as communication between individuals and groups. Sociological

Liberals perceive international relations in terms of relationships between and

among people, groups and organisations in different states. They believe that

increased transnational relations could help create new forms of human society

(Jackson, Robert and Sorensen, 2006). Sociological Liberals acknowledge that

international relations is indeed relationship between and among people, groups

29

and organizations. Their emphasis is again on the fact that increasing international

relations could help create new forms of society (International Relations portal,

June 13, 2017).

Indeed, one can argue that sociological Liberalism is that branch of Liberal

school of thought which emphasizes that international relations is not only state to

state relations, but it also deals with multi – dimensional relations such as relations

between people, groups and organizations belong to different parts of the world.

Institutional Liberalism underlines the significance of planned

collaboration between states or in other words, institutional Liberalism

emphasizes on the importance of cooperation between states (Lanuza, June 01,

2017). According to Devitt, Liberal institutionalism indicates that to achieve peace

in international affairs, states must cooperate with each other and in effect yield

some of their sovereignty to build „integrated community‟ for promotion of

economic growth and respond to regional and international security issues.

(Devitt, September 01, 2011). Liberal Institutionalism also means that power must

be used, though with restraint, in the interests of liberal values. That is to say,

those institutions serve a vital social purpose since they are crucial for co

CHINA’s RAPID ECONOMIC GROWTH: COST AND BENEFIT FOR...

Documents

Transcript of CHINA’s RAPID ECONOMIC GROWTH: COST AND BENEFIT FOR...