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Is the new Pakistani government good for China?


Announcements for Access members

Slack chat schedule:

  • Manya Koetse of What’s on Weibo was our guest on Tuesday this week; transcript will be posted soon, but chat is viewable on the channel.

  • Sam Crane, an expert in ancient Chinese philosophy, will join us in a week or two; time TBA.

—Lucas Niewenhuis (Jeremy travelling again today)


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1. New Pakistan government makes friendly noises to China, but trouble brews

On July 26, the Pakistan Movement for Justice (PTI) and its leader, the former cricket superstar Imran Khan, achieved victory in Pakistan’s general election. It is “considered the country’s second consecutive democratic transition,” the BBC reports.

What does this transition mean for China?

  • Few countries are as important to China’s foreign policy as Pakistan. The China-Pakistan Economic Corridor (CPEC), a network of over $60 billion in planned infrastructure that runs from Xinjiang in China’s far west to the southwestern port of Gwadar in Pakistan, is a centerpiece of the Belt and Road initiative.

  • Imran Khan has previously criticized CPEC, according to Inkstone, but “later reassured Chinese officials that he had no problem with the Chinese money – only where the Pakistani government was allocating it.” Now he says he wants to “use it and drive investment into Pakistan.”

  • “Pakistan is likely to review some” of the CPEC projects following the power transition, but “is likely to maintain close ties to Beijing as a foreign policy priority,” analysts told the South China Morning Post.

  • The PTI says that it wants to learn poverty alleviation from China, according to a statement on its official Twitter feed, along with “how they curbed corruption and set the example that corruption does not pay.”

  • Pakistani media also made happy noises, mostly sticking to simple reports on boilerplate statements from China’s foreign ministry about the two countries’ “all-weather strategic partnership.”

Though the new government does not appear to intend to disrupt relations with China, trouble is brewing, Andrew Small, an expert on China-Pakistan relations at the German Marshall Fund, writes for War on the Rocks:

“In the run-up to the elections, CPEC has been languishing. The second phase of the scheme has stalled, civil-military skirmishing has consumed the country’s political energies, and Pakistan’s balance of payments situation has entered another crisis. Meanwhile, Beijing is facing growing pressure to improve its fraught relationship with New Delhi, where the deepening China-Pakistan axis has become one of the biggest points of contention.”

In the past few days, a controversy erupted over how much debt CPEC projects were putting on Pakistan.

  • Pakistani officials told the Wall Street Journal that the country was headed towards a debt crisis (paywall), and the newspaper reported that “by early fall…Pakistan’s new government is likely to seek a bailout from the International Monetary Fund,” the conditions for which “would force the country to curtail” CPEC projects.

  • China said that report “deviates from the facts,” because, the Journal says, “it didn’t identify who say that the infrastructure program is becoming a debt trap.” But the Journal stands by its reporting (paywall).

Another perennial issue for CPEC is political instability, as the all-important Gwadar port lies in the province of Balochistan (also spelled Baluchistan). Akbar Shahid Ahmed, a Pakistan native who works for the Huffington Post as a foreign affairs reporter, describes Balochistan as essentially the Xinjiang of Pakistan:

“I’m a skeptic [of Gwadar in CPEC], but there aren’t many of us. For the 200 million Pakistanis who, like me, were born and raised outside of Balochistan, the region is a national black hole. The province is the size of Germany and home to gas reserves and minerals we’ve been told will guarantee a Pakistani economic miracle. But it’s understood less as a real place than as our country’s version of the 19th-century American West ― and with little fanfare or accountability, Pakistan has subjected the province’s indigenous population, particularly the 7 million who belong to an ethnic minority called the Baloch, to decades of threats, kidnappings, torture and discrimination. The result has been four insurgencies, the most recent and vicious of them ongoing.”

Just over half of the 12 million people who live in Balochistan are Baloch. Admed continues:

“But a decade of writing on Pakistan has me convinced that predicting the country’s future is like politely asking fate to spit in your face. There’s one certainty in the only nuclear-armed country in the majority-Muslim world: The military, wealthy and unaccountable like no other institution, calls the shots. It’s thrilled with the Chinese project because it involves a massive infusion of outside cash without any pesky requirements about democracy. And it’s certain Balochistan should be handled with force and manipulation ― even though it’s never really tried the alternative.

China is well aware of the volatile situation in Balochistan, and has even tried — in a breach of Beijing’s “non-interference” policy regarding other countries’ internal affairs — “quietly holding talks with Pakistani tribal separatists [in Balochistan] for more than five years,” the Financial Times reported back in February (paywall). In January this year, it was reported that the port of Gwadar would be the site of China’s second overseas military base, after Djibouti.

—Lucas Niewenhuis

2. Germany blocks China deal to protect power grid

Germany is toughening up its scrutiny of Chinese deals, per Deutsche Welle:

“The German economy and finance ministries said in a joint statement on Friday that the German government would buy a 20 percent stake in electricity network firm 50Hertz, in effect blocking Chinese investors from taking a majority stake in the strategic company.”

The government cited “national security grounds” for the decision.

Three days ago, Bloomberg reports (paywall), the most senior official in Germany’s intelligence apparatus “said Chinese acquisitions of high-tech companies in Germany represent a potential national-security threat.”

DW notes that more blockages for Chinese deals are on the horizon:

“To add to the negative visuals, earlier this week the German government said it would prevent Chinese investors from buying the machine tool manufacturer Leifeld Metal Spinning. The veto would be the first time Germany has prevented one of its firms being sold to Chinese investors.”

—Lucas Niewenhuis

3. Trade war, day 22

A quick roundup of the latest news in the U.S.-China trade war:

  • A “miscellaneous tariff bill” to lower taxes on hundreds of imported Chinese products, and products from other countries, has been unanimously passed by the U.S. Senate, Reuters reports.

  • The bill is aimed at “getting rid of tariffs set up to protect industries that no longer exist in the United States” — for example, “Hamilton Beach…would pay reduced tariffs on Chinese-made toaster ovens, steam irons and other household appliances it used to make domestically.”

  • The White House has not taken a position on the bill, though it appears ready to head to President Trump’s desk soon: It earlier passed the House of Representatives, which now just needs to “resolve minor differences” with the Senate’s version of the bill “before they can send the legislation to Trump to sign into law.”

  • Preparations for the China International Import Expo, scheduled for November 5 to 10 in Shanghai, have taken on new urgency with the trade war. “China has mobilized 60,000 companies to buy imported goods” to “promote the allure of the country’s market” and counter its closed-off image, according to the South China Morning Post.

  • Despite plummeting investment in the U.S. — see this SupChina report — Chinese firms may be increasing overseas investment overall, according to investment bank Natixis, CNBC says.

  • “Overseas investments [from] China rose from $170.2 billion in 2016 to $185.4 billion in 2017” and “outbound acquisitions and investments are expected to pick up further in 2018.”

  • A full-blown trade war would “wipe 20% off” the S&P 500, and “profits for S&P firms would take a 14.6 percent hit,” CNBC reports, based on a new report from UBS.

  • For now, China’s economy is mostly insulated from the “direct impact” of tariffs on its economy, according to the International Monetary Fund.

—Lucas Niewenhuis

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact us anytime at editors@supchina.com.


Here are the stories that caught our eye this week:

  • Chinese parents are in an uproar after reports that Changchun Changsheng, a vaccine producer in northeastern China’s Jilin Province, had produced and sold 250,000 substandard vaccines. Chinese authorities have arrested 15 people close to the matter on suspicion of “criminal offenses” as wary parents are reportedly flocking to Hong Kong to get their children vaccinated.

  • The #MeToo movement in China has reached the nonprofit and media worlds. Several prominent Chinese men have been accused of sexual misconduct, including high-profile television host Zhu Jun 朱军, veteran journalist Zhang Wen 章文, and Lei Chuang 雷闯, an activist for equal rights for hepatitis B carriers.

  • Amid pressure from China, major U.S. airlines, including American Airlines, Delta Air Lines, and United Airlines, have updated their websites, where Taiwan is no longer listed in a way that implies it’s a separate country. But China insists that the compliance is “incomplete,” because they did not outright list “Taiwan, China” as an option in their website dropdown menus.

  • An improvised bomb exploded near the U.S. embassy in Beijing several hours after a woman tried to self-immolate in the same area. It appears from eyewitness accounts in the media that both incidents were acts of protest, but were not connected.

  • Three weeks into the U.S.-China trade war, Beijing has confirmed that contact with the Americans is frozen. Xi Jinping has declared that the trade war will have “no winner,” and the ideological divisions between the two countries are widening.


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Lakeside tai chi

A woman practices tai chi at West Lake (西湖 xīhú) in Hangzhou.

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Jeremy Goldkorn

Jeremy Goldkorn worked in China for 20 years as an editor and entrepreneur. He is editor-in-chief of SupChina, and co-founder of the Sinica Podcast.