There’s a lot of talk about the US China trade war, but while you’re looking over here a conflict between the two giants is brewing over in Pakistan. The conflict is about global dominance and Pakistan’s financial security is hanging in the balance. If China succeeds it could be on the path to becoming the new center of global trade. If the US wins it could frustrate Chinese latest push to become a global superpower. As Pakistan goes bankrupt, the US and China fight for dominance. Either way the impact will be felt for decades around the world.
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Belt and Road Initiative
To understand how we got here you first have to understand why China is in Pakistan at all. China is there to invest in infrastructure – part of an effort to show the region that the friendship with China brings tangible economic benefits. This falls under China’s Belt and Road Initiative aimed at building of Chinese global trade network. President Xi Jinping started it in 2013 and there are estimates that China plans to spend as much as 1 trillion dollars on infrastructure projects in the next few years across 68 countries.
A couple of things to know about the Belt and Road Initiative. First, many in the US see the initiate as a threat. The US still has the largest GDP in the world but China is gaining ground. Take for example the fact that the US was the largest export of goods and services in the world until 2013 when China passed the US and two world powers have been neck and neck ever since.
The second thing to know is that China is giving huge loans to the countries it’s investing in for the Belt and Road Initiative. But some recipients are not well positioned to pay them back. For example, China funded construction for the Sri Lankan seaport in Hambantota. But when Sri Lanka couldn’t afford to repay, it reached a deal to give China the port on a 99 year lease. By loaning Sri Lanka money it can’t afford to pay back China secured a port on a potentially strategic maritime trade route. Some people have dubbed this type of loan “Debt-Trap Diplomacy”, and worry China could do it again.
So, where does Pakistan fit into all of this?
China Pakistan Economic Corridor
China’s biggest Belt and Road project is taking place in Pakistan – the China Pakistan Economic Corridor. The plan is to build Pakistan’s infrastructure on a grand scale. Once completed China could use these highways, ports, railways and pipelines for efficient access to the entire Indian Ocean and continue to supplant the US in Pakistan. But for Pakistan there are a lot of catches and these catches are driving Pakistan which is already struggling economically, deeper and deeper into debt.
Among its planned new dams is a massive project at Metog, or Motuo in Chinese, on the world’s highest-altitude major river, the Brahmaputra. The proposed dam is close to the disputed and heavily militarized border with #India. Yet no response from India? https://t.co/NNzofjUlm0
— GreatGameIndia (@GreatGameIndia) December 7, 2019
For example, in one initiative China is building a series of hydro, wind and coal power plants. But as part of the agreement Pakistan has to buy the electricity produced at a price that covers a hefty return on investment and pay back the debt. The country is already behind on payments giving Chinese authorities more leverage.
The Bailout
Pakistan is expected to ask the International Monetary Fund for a bailout. Experts say they will ask for at least 8 to 12 billion dollars, maybe more. But some lawmakers in the US are expressing concern over how that bailout money is going to be used. They say that the US as the largest contributor of IMF funding shouldn’t have American taxpayers help Pakistan pay off debt to China. But not bailing out Pakistan isn’t really an option either. It’s the IMF’s job to help developing countries and if the US doesn’t help bailout Pakistan it could cost US a close ally and destabilize a geopolitically important country.
So the US is expected to use this as an opportunity to limit Chinese influence in Pakistan. One way it could do that would be to influence the IMF to place terms on the ballout – such as specific restrictions on borrowing from China. This would force Pakistan to significantly scale back Belt and Road projects.
The Secret Chinese Deals
Pakistan for its part is in a tough spot. On one hand it may need a financial rescue from the IMF, funded in part by the US. On the other hand it desperately needs the infrastructure improvements offered by China. And the incoming Pakistani administration has added another layer of complication.
#ImranKhan – Prime Minister of #Pakistan OR #Rothschilds Boy in #Islamabadhttps://t.co/5ZrcKUVTVl
— GreatGameIndia (@GreatGameIndia) October 18, 2019
Imran Khan’s party stated that it might look for options besides the IMF to help with its debt, maybe even borrowing more from China. However, Mr Khan’s government has also pledged to make public the Chinese deals shrouded in secrecy up until now.
If the US comes out on top it could start to discredit China’s Belt and Road Initiative. In future countries may be hesitant in accepting Belt and Road money, slowing China’s expansion. If China comes out on top, it’s closer to its goal of displacing the US, becoming the new center of global trade. These issues will come to head in a few weeks as Pakistan is rapidly running out of foreign exchange reserves. When that time comes it could amount to a battle between the US and China. A battle for the number one spot as a worldwide superpower.
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