Prime Minister Imran Khan before and during his recent visit to China has underscored his intention to learn lessons from China’s phenomenal economic progress over the past four decades. The Chinese experience indeed offers a lot from which Pakistan’s policy makers can benefit in the interest of its rapid economic development. I have had the good fortune of witnessing personally and first-hand the remarkable Chinese journey from poverty to economic prosperity during my posting as Deputy Ambassador/Minister in the Pakistan Embassy, Beijing from 1985-88 and subsequently during my several visits to China during which I had the opportunity to exchange views with senior Chinese diplomats, officials and scholars.

Let us first see a few facts and figures to understand the enormity of China’s dramatic rise. Thanks to the new direction given to it by its paramount leader Deng Xiaoping, China has been able to achieve the average GDP growth rate of 10% per annum since 1980, doubling its GDP after every seven years. Consequently, as against the GDP of $ 300 billion in 1980, China’s GDP was estimated to be $ 12.23 trillion in 2017 in nominal terms according to the World Bank, making it the second largest economy in the world after the US. In purchasing power terms, the Chinese GDP had already overtaken the US in 2014. China’s economy has slowed down more recently. Still its GDP grew at the rate of 6.8 percent last year and is likely to grow at the targeted rate of 6.5 percent in 2018.

As Graham Allison, a noted American scholar, has pointed out in his book “Destined for War”, China as the largest producer of ships, steel, aluminum, furniture, clothing, textiles, cell phones, and computers has become the manufacturing powerhouse of the world. In 1980, 88 percent of China’s one billion people were struggling to survive on less than $ 2 a day. Today, fewer than 3 percent do. Its average per capita income rose from $ 193 in 1980 to over $ 8800 last year. China rivals and in some cases outperforms the US in international rankings of nations in education, science, technology, and innovation. According to the 2015 PISA (Program for International Student Assessment) test for comparing education performance of high school students, China ranked sixth in mathematics while the US ranked thirty-ninth. In 2015, China’s Tsinghua University passed MIT in the US News & World Report rankings to become the number-one university in the world for engineering.

The understanding of the factors behind China’s dramatic economic progress may provide the clues that PM Imran Khan is seeking for accelerating Pakistan’s economic growth. As mentioned earlier, the foundation for China’s rapid economic growth was laid down by Deng Xiaoping in December, 1978 through the policies of economic reforms and opening to the outside world. These policies entailed the following:

Rapid economic development was to be the supreme national goal of China and all of China’s policies, including its political, economic, security and foreign policies, were to be geared to its realisation.

Under the process of reforms, the Mao-era emphasis on egalitarianism was jettisoned in favor of reward for private initiative and hard work. In pursuance of the new policy, the economy was gradually liberalised by allowing competition and market forces to play an increasingly important role in different sectors.

In pursuit of the goal of rapid economic development, China decided to follow a “low-risk foreign policy” to avoid the possibility of its involvement in a major armed conflict and to limit the diversion of its resources to the military. Under Deng Xiaoping, China’s defense expenditure was reduced from about 6.8 percent of GDP in 1983 to 1.5 percent by 1989.

The policy of opening to the outside world was pursued in right earnest to attract foreign investment and learn from the advances in science, technology, and management techniques in the developed world for accelerating China’s economic growth.

China’s dramatic economic growth was fueled by the huge pool of resources available domestically because of its high national saving rate, which has been generally around 45 percent of the GDP over the past few decades, and the massive inflow of foreign investment attracted by China’s liberal economic policies and the large size of its market. A high national saving rate enables a country to maintain a high national investment rate resulting in rapid economic growth without incurring current account deficits. The excess of national investment over national savings results in a current account deficit. The greater the discrepancy between the national investment and saving rates, the higher would be the current account deficit. Conversely, the excess of national saving rate over the national investment rate leads to a current account surplus.

China’s high national saving rates have allowed it to maintain high national investment rates, estimated to be around 43 percent of GDP, and the consequent high GDP growth rates while running current account surpluses. By way of contrast, Pakistan’s GDP growth is severely constrained by its low national saving rate. As a result, any attempt to raise its GDP growth rate through increasing its national investment rate leads to high levels of current account deficits. This is precisely what happened in 2017-18 when the government’s attempt to raise the GDP growth rate by increasing the national investment rate to 16.4 percent of GDP as against the national saving rate of 11.4 percent of GDP led to a huge current account deficit forcing it to draw down the country’s foreign exchange reserves.

The moral is that Pakistan must raise its national saving rate to at least 25 percent of GDP in the immediate future and increase it to 30 percent of GDP (as is the case for India) as soon as possible to finance a high national investment rate and accelerate its GDP growth rate to 7 percent or above without having to rush to friendly countries with a begging bowl. Our heavy dependence on foreign donors for financing our economic growth not only robs the nation of dignity but also makes high GDP growth rates unsustainable. Further, it prevents us from pursuing an independent foreign policy in our best national interest because economic dependence and an independent foreign policy cannot go together.

Perhaps, the most important message with which IK is returning from China virtually empty-handed as far as a bailout package is concerned, barring the welcome reiteration of the determination of the two countries to strengthen strategic partnership and cooperation in various fields, is that we should learn to stand on our own feet. IK would also be well advised to instruct his loose cannon economic advisers to refrain from criticising CPEC publicly and instead seek to remove their reservations, if any, through diplomatic channels.

National policies of austerity to raise the national saving rate and self-reliance to eliminate our dependence on foreign donors as historically practiced by China, thus, are a must for Pakistan if we wish to achieve economic prosperity, strengthen our security, and attain a position of dignity in the comity of nations. This must be combined with according the highest priority to education, particularly to the development of science and technology in the country. It is unfortunate that in the pronouncements of the present PTI government, one hardly sees any practical steps to move in these directions. The reliance instead is on phony pronouncements of putting an end to corruption, which though desirable per se, is not a substitute for new policy initiatives to reform our economy and put it on a high growth trajectory.

 

The writer is an author, a retired

ambassador and the president of the

Lahore Council for World Affairs.

 javid.husain@gmail.com