China, Pakistan and the financial crisis

October 13, 2008

File photo of rally with Pakistan national flagIf your country is desperate to stave off economic collapse, there is probably no better place to visit, and no better friend to have, than China right now. With $2 trillion in foreign exchange reserves, China is sheltered from the worst of the financial storm, so much so that many are looking at it to play a part in hauling the global economy into calmer waters. 

Pakistan President Asif Ali Zardari begins a trip to China on Tuesday on what is being billed as his first official visit abroad – his earlier trip to the United States has been presented as one to attend the U.N. General Assembly.

Pakistan has long seen China as its most reliable friend, in contrast to the United States, whose support has waxed and waned in line with U.S. strategic interests in the region. And China in turn has long been content to provide quiet support, avoiding the brashness of the United States while building a relationship with an ally that could be used as a counterweight to India. So there is nothing unusual about a Pakistani leader making China his first choice for a bilateral trip.

At a brokerage house in Shanghai/Ali SongWhat is unusual is the context.  Because of the financial crisis, China’s economic clout has soared relative to the United States. It has recently begun to flex its economic muscles to exercise political power, as this Financial Times story about China using its forex reserves to convince Costa Rica to sever ties with Taiwan suggests.

On its part, Pakistan is keen to show its independence from the United States. With tensions running high over U.S. missile strikes and one reported ground raid by U.S. troops across the border from Afghanistan into Pakistani territory, no Pakistani leader right now can afford to be seen as too pro-American. Pakistan Army chief, General Ashfaq Kayani, has already made a trip to China to discuss defence cooperation. And though Pakistan’s economy may be teetering on the brink of collapse, Zardari has in the past ruled out seeking a bail-out from the International Monetary Fund – identified by public opinion in Pakistan as being too much of an “American” institution.

And that makes China’s role as a potential saviour all the more important. The question that needs to be asked is whether China, with its new found economic power, will extract a higher price for its support than it has done in the past, and how far Zardari will go to pay for that support.  In an interview with Xinhua, Zardari said he had a long-term economic cooperation plan, and will “bring my own concept to China”. 

File photo of an elderly Uigur leaving a mosque in Xinjiang/Nir EliasChina has its own reasons to want to ensure the stability of Pakistan, not just because of its unspoken rivalry with India, but also because it cannot afford to let Islamist militancy seep from Pakistan into neighbouring Xinjiang, the restive far-western region where in August it said it faced a ”life and death struggle” against terrorism, following a series of attacks blamed on Muslim separatists.

So will Zardari’s visit to China intensify a relationship that will maintain global economic stability by helping to prevent another national economy from sliding off the edge, while bolstering the battle against Islamist militancy? Or are there hints in there of a Faustian pact? The devil, as usual, will be in the details.



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