China is to pump US$46bn into Pakistan’s crumbling infrastructure, as it seeks to usurp the US as the dominant regional economic superpower.
Xi Jinping, China’s President, arrived in Islamabad to much fanfare and pomp in order to announce a raft of areas in which China would invest in Pakistan’s economy, including US$15.5bn worth of energy projects that will contribute 16,400MW of electricity to the grid, US$5bn of defence spend, a host of transport infrastructure initiatives and huge telecommunications upgrades, including a US$44m fibre optic cable from China to Pakistan.
At the crux of the strategy is a China-Pakistan Economic Corridor (CPEC), a transportation and pipeline network that will span 3,000km between the two allies.
The news comes days after Beijing finalised the 57-stong founding members of the Asian Infrastructure Investment Bank (AIIB). Completing a triumvirate of economic power plays, Xi arrived in Islamabad just as Chinese media was reporting that China is to inject a further US$62bn into the Silk Road Fund, the huge One-Belt, One-Road plan that looks set to revolutionise global trade.
China has spent years refining its ambitious trade goals and it looks as though the planning will soon begin to bear fruit, with the AIIB set to begin operations before the end of the year.
According to Caixin, a Chinese business publication, the government plans to fund the Silk Road through the three state-owned banks: China Development Bank, China Exim and the Agricultural Development Bank of China. All of the funds will be injected into these three institutions by the Central Bank, before being converted into equity payments for infrastructure projects along the “New Silk Road”, spanning from Southeast Asia to Europe.
“The leadership role that China is playing in setting up new multilateral organisations like the AIIB and BRICs Bank does reflect its intention to create a greater role in international governance. China will have stronger influence on the decisions and direction of these banks, compared to its limited influence in the World Bank. The projects that AIIB engage in are also likely to be in line with China’s strategic goals and provide long-term benefit to China’s trade and outbound investment,” Ben Wang, China analyst at the Eurasia Group told GTR.
There has been much speculation as to how the AIIB and the Silk Road Fund will impact on the existing multilateral banks, most notably the World Bank and its cohort the Asian Development Bank (ADB). This week again, the leader of the ADB has attempted to downplay the potential clash, claiming that there is ample work to go around for all parties.
Speaking to the Financial Times, Takehiko Nako – the Japanese head of the ADB – said: “I don’t think there will be major change to the world of development finance, although there can be interpretations as to the symbolic meaning of this.”
He explained why the US and Japan have not joined the AIIB as founding members, saying: “The US and Japan have invested a lot in the ADB and the World Bank in these decades after Bretton Woods in 1944 and the start of the ADB in 1966 to ensure the prosperity and stability of the Asia Pacific region. It is in a sense understandable that the stance of the US and Japan are different from the stance of European countries. They are Asia Pacific countries.”
China’s huge investment abroad come at a time of concern for its trade and economic wellbeing at home. In March 2015, imports fell by 12.3% while exports were down 14.6%, compared with the previous year. This is well below the expected 12% rise in exports analysts had predicted for the month. China’s monthly trade surplus was US$3.1bn in March, well below the predicted US$45.4bn.
And the policy shift towards yet more international infrastructure spend comes in spite of the five year plan laid out by Xi Jinping, which outlined Beijing’s desire to move China’s economy from an investment-led model to a consumption-led one.