One always felt, Pak-China friendship, while rich on clichés fell a bit short on economic substance. In fact India, which jumped on China’s success wagon only recently, is today far more locked into the Chinese economy than Pakistan - the age-old friend. And it is in this context that Prime Minister Nawaz Sharif’s recent trip to China can be termed as successful, since for the first time economic priorities and meaningful business linkages were placed at the centre of the plate. Various projects (mainly energy and power) of combined worth in excess of $18 billion were discussed and even if half of this practically gets implemented, the multiplier effect can be huge. However, with investment comes responsibility of efficient management.
Once the stimulus of fresh capital injection gets immersed in the regular flow of funds, the results largely depend on how equitably that additional capital is allocated in the first place. No one should know this better than China where its new leadership is precisely trying to carve out a new course for the country by signalling that it would no longer emphasise growth at all costs and would down-shift development (if it has to) to place priority on social programmes.
One hopes that during the five-day visit, the Prime Minister and his delegation also picked up on this new Chinese focus and somewhat learnt from China’s experience so that we here can avoid making the same kind of mistakes that it made in its run to achieving economic excellence.
The marked shift in Beijing’s economic management is emblematic of a once-a-decade leadership transition that began about six months ago and is now trying to move post 2008 China away from a Keynesian focus. Whereas, Keynes feared shortfalls in investment spending, his adversaries worried more about misallocations of that spending. Inadequate investment, Keynes argued, would leave the economy deprived of demand and workers bereft of employment. But mal-investment, argued Friedrich Hayek, an Austrian economist, would leave the economy poorly coordinated and workers stranded in the wrong jobs. The new Chinese leadership is now keen to avoid the “Hayekian risk” of inadequate demand and weak growth.
In a country like Pakistan, which already moans gross misallocations of past loans and opportunities, the Hayekian risk vis-à-vis even these new borrowings and projects can again very quickly become a reality if this new government continues to avoid adopting the principles of “good corporate governance”.
So far, their record on avoiding “conflict of interest” and placing priority on merit over personal preference has been dismal, to say the least. Their quick fire budget also regrettably, added to the woes of the common man and enhanced the burden and difficulties of the honest taxpayer, instead of broadening the tax base and making the system more equitable.
If such a poor management showing by this government continues, the result would unfortunately be no different than in the past five years: low growth amidst an environment of inequitable distribution of resources and opportunity.
In China, the new leadership comes to power at a time when Chinese feel the policies that delivered stunning growth are foundering in the ill-effects of corruption and environment degradation, and that benefits unfairly accrue only to the connected elite.
Xi Jinping, the new President, has raised expectations for change in his initial months at office by aiming to stanch graft and adhere to laws, rather than rule of untrammelled power. He called for a change in the ground model to reduce waste, build out the service sector as a source of the much needed employment, broaden common man’s access to housing and education, and direct state spending to subsidised housing and other social programmes that would boost household consumption.
Ironically, the script seems quite familiar. For anyone who either read the PML-N manifesto, or followed its leadership’s pre-election speeches, would know that the promises made in China are no different than what were made by them in Pakistan. The litmus test though, in either of the countries, would be in placing actions where the leadership’s rhetoric has been.
The new Chinese leadership has thus far shown courage by taking actions on some bold corrective reforms where the previous government failed to do so. For example, when former Prime Minister Wen Jiabao was asked to test a proposal in a few areas that would require officials to disclose assets publicly, he failed to sanction it; however, Li Keqiang (his successor) has already committed that he intends to carry this measure through.
Mr Sharif’s government needs to come out with its own such success stories that improve its perception and send out a message that it means business.
The reformers of the early 19th century were the first to declare that China was “big and weak”, and though the statement was true, at the time it bordered on heresy. The solution the early reformers proposed was to “self-strengthen”, which would be achieved by adopting selective Western technologies and methods.
By the turn of the 20th century, after a series of even more severe setbacks, prescriptions from scholars grew bolder. In a way, Mao paved the way for Deng Xiaoping (the architect of modern-day economic reforms in China) and his acolytes, because Deng’s pursuit of market-oriented reforms might well have met far more resistance if Mao had not bequeathed him a ‘blank’ slate.
Much the same way as Mr Sharif finds himself today, simply because the previous government made a complete hash of things in managing the Pak economy.
In the brief economic history of Pakistan, the similarities between its economic challenges and the ones faced (over the years) by China are quite fascinating. Sadly, for us the difference though has been in the respective responses to such challenges.
The resilient and hard working trait in Chinese culture worked its way through politics and intellectual life in a dramatic saga to not only reconcile with, but to also build China’s current economic success on the setbacks of its past sufferings.
More importantly, in doing so, the real message it sends to its friends like Pakistan is that if a change has indeed to occur, the leadership of today has to stop fighting its vanquished ghosts forever.
The writer is an entrepreneur and economic analyst.