As China and Pakistan deepen economic cooperation, what’s the effect on the Gulf?

Arab Gulf countries’ interest in building their own stakes into the China-Pakistan economic relationship could be reinforced by a geopolitical desire to not provide an uncontested space to Iran and Turkey.
Sunday 11/11/2018
A container is loaded on to the Cosco Wellington, the first container ship to depart after the inauguration of the  China-Pakistan Economic Corridor port in Gwadar, on November 13.        (Reuters)
Lucrative waters. A container is loaded on to the Cosco Wellington, the first container ship to depart after the inauguration of the China-Pakistan Economic Corridor port in Gwadar, on November 13. (Reuters)

DUBAI - China and Pakistan have been close partners for decades but their ties are taking on renewed significance with a massive economic collaboration programme to build on long-standing defence cooperation.

The deepening China-Pakistan partnership will have strategic implications for the Arab Gulf countries considering Pakistan’s ties to the region and its proximity, as well as China’s era-defining rise.

China’s story is unparalleled. The scale, speed and scope of its economic turnaround have been breathtaking. China, however, is entering a new phase of economic growth. A trade war with the United States looms, new export markets need to be cultivated to sustain China’s industrial output and its export-driven economic model must rebalance towards greater domestic consumption.

Looking ahead, Beijing will logically want to reduce its reliance on trade with the United States, seek more efficient ways to conduct business in frontier markets across Central Asia, the Middle East and Africa and to level out development in China by supporting provinces where growth has been comparatively lagging.

Fortunately for China, its economic transition can be smoothed by Beijing’s ability to spend hundreds of billions of dollars in support of it. The Belt and Road Initiative, 12 times the scale of America’s Marshall Plan that rebuilt Western Europe after the second world war, aims to redraw global trade networks by bankrolling infrastructure development on an unprecedented scale to unlock the promise of geo-economics.

One of the Belt and Road Initiative’s flagship sectors is the $46 billion-plus China-Pakistan Economic Corridor (CPEC), which will connect Kashgar in north-western China to Pakistan’s Gwadar, a deep-sea port overlooking the Arabian Sea.

Gwadar aims to eventually handle 400 million tonnes of cargo per year and host multiple oil and liquid natural gas terminals alongside a specialised economic zone and international airport. China has leased the Gwadar port until 2059 to circumvent traditional shipping routes and open western provinces of China for economic regeneration.

With almost 60% of China’s oil imports from the Middle East, 80% of which transit through the Straits of Malacca, the effect of trade route reconfigurations will be massive. Reaching western China via Gwadar, for instance, cuts out more than 9,000km of the route’s traditional length.

Pakistan is keen to court investment from Saudi Arabia and the United Arab Emirates to develop oil refining and petrochemical manufacturing facilities in Gwadar to feed markets its new trade corridor unlocks. The Imran Khan-led government in Pakistan has been especially enthusiastic about engaging Arab Gulf partners, even exploring the possibility of opening CPEC to Saudi Arabia as a third partner.

Ultimately, the success of CPEC, focused on infrastructure development, will depend on how well China and Pakistan co-opt partners, especially in the Arab Gulf, into exploiting its potential.

Pakistan’s prospects of reaping the dividends of its new trade corridor hinge on getting a handle on its corruption-linked political instability, seeing a successful resolution to the conflict in Afghanistan and, crucially, fixing its enduring problems with current account deficits.

As it is, there appears to be a convenient convergence of interests around the CPEC, whose dynamics are largely divorced from the geopolitics of the Middle East. China is supporting the new government in Islamabad, helping it overcome impending economic woes with its balance of payments problems through a short-term assistance package, following $6 billion in credit relief assistance already pledged by Riyadh.

China and Pakistan’s growing ties promise new trade connectivity to the Arab Gulf, virtually bringing China to the Arab Gulf’s doorstep in Gwadar as well as making Central Asia accessible like never before. With a population of 215 million and growing, Pakistan is a sizeable market with considerable potential for industrialisation that CPEC could help unlock.

Arab Gulf countries’ interest in building their own stakes into the emerging China-Pakistan economic relationship could be reinforced, beyond the economic rationale by a geopolitical desire to not provide an uncontested space to Iran and Turkey.

There appears to be few impediments to the Arab Gulf embracing potential lucrative opportunities the Belt and Road Initiative promises especially in close-by Pakistan. After all, the Arab Gulf is accustomed to pursuing a balanced international approach. It does so successfully between arch-rivals India and Pakistan and maintains a strategic alignment with the United States while courting deeper economic ties with the Chinese as well as engagement with Russia.

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