Written by  Abhirup Bhunia and Pravakar Sahoo.

On the side-lines of the 14th SCO summit meeting, Chinese President Xi Jinping met Pakistani national security and foreign affairs adviser Sartaj Aziz and confirmed that Pakistan remains its top priority. Pakistan sees China as its all-weather friend, and vice versa. Both China and Pakistan have had largely undemocratic forms of government for most of their independent existence. While political misrule and bouts of failed democracy alternated with long periods of dictatorial or military rule has peppered Pakistan’s history, China has steadfastly remained under one-party rule run by the Communist Party. China’s administration is almost entirely authoritarian, although recent trends reveal some social awareness and thirst for greater political participation and accountability.

In India, Sino-Pakistani relations are seen with suspicion. India has had wars with both countries and continues to have somewhat belligerent tussles over borders and territory. Pakistan is notorious for its exploits with state sponsored terrorism and its shielding of internationally wanted extremists. China meanwhile has had a fairly aggressive stance with respect to the South China Sea and most of its Asia Pacific smaller neighbours have had to take refuge under the US umbrella in the face of increasing hostility. Human rights records in both countries are unflattering. But arguably, China, partly due to its meteoric economic rise in the past few decades and for lifting millions out of poverty has gained both international recognition and respect. It is one of the most successful developing countries and the figures demonstrate its might. It has an export surplus with the world and is integrated into the global economy and its production networks (global supply chains). It maintains the largest foreign exchange reserves, and recently emerged as the largest trading nation. It is also the single largest recipient of FDI. In short it is an economy which by itself is large enough to salvage its national image. Pakistan meanwhile is increasingly seen as a failed economy as much as it is a failed polity. But by virtue of its size China is in a position to provide patronage to a small state in need of help like Pakistan. The relationship between China and Pakistan has evolved over time, and its economic relationship underpins its strategic one.

Even so, while economic relations are yet to reach their full potential, military cooperation between the two countries is already at a high level, with Pakistan’s strategic location being of interest to China as the former is the main route between China and the Middle East and Central Asia. Pakistan on the other hand is happy boosting its military firepower to feel secure against a bigger and mightier India. As for trade, China and Pakistan signed an FTA in 2006, which came into force in early 2007. In the China-Pakistan FTA, Pakistan offered tariff concessions for Chinese goods across all industry slabs with provisions for elimination of tariffs or the reduction of tariffs to 0 to 5 per cent within the first five years. Tariff duties applicable on Chinese exports in the particular tariff lines in these industries would have been eliminated by 2012. Trade between the two countries touched $14.2 bn in 2013, an increase of about 15% from the previous year. Partly as a result of the FTA tariff concessions, China’s major exports to Pakistan, such as machinery and mechanical appliances, textiles and textile articles, chemical products and base metals and articles thereof have seen increases to the tune of anywhere between 100 and 120 percent in recent years.

China holds dominant positions in the Pakistan market of machinery and mechanical appliances where the Indian share of exports is negligible. Among the reasons behind overall Chinese trade success in Pakistan is the extension of a helping hand by the Pakistani government. Likewise, unlike with India, Chinese traders do not face visa problems or antagonism in Pakistan. Of course the FTA induced tariff rate concessions are of much help. In addition, Chinese trade has been more compatible with the demand of Pakistan and this is borne out in the difference between the trade complementarity index with Pakistan for Indian exports and that of Chinese exports, which has widened since 2006.

The extent of China Pakistan relationship cannot be gauged by trade alone. The nature of cooperation is almost on the lines of a long term commitment towards Pakistani economic resurgence and mutual strategic ties. One important instance is the China Pakistan Economic Corridor which envisages jumpstarting Pakistan’s economic development while strategically enmeshing the two countries. A number of strategic projects come under this corridor including coal power projects, transport infrastructure (with potential to expand regional economic cooperation), hydro power projects, railway tracks, etc. These projects of national importance will come at an estimated cost of around $40 bn. In addition, China has committed $6.5 bn to finance a major nuclear power project in Pakistan’s Karachi which would have an installed capacity of 2,200 MW straddling two nuclear reactors.

Seen together, the multiple layers in which China and Pakistan interact today, including in the economic, defence, nuclear and strategic domains, make it a relationship not worth ignoring. It is a bilateral that will play a sizeable role in the reshaping of the regional order in this part of the world. So long as India Pakistan ties remain on the edge, and China continues with its aggressive stance, China and Pakistan will need each other. Finally, the way Japan and India seems to view their friendship as a hedge against China, China and Pakistan might be viewing their relationship as a hedge against India and the broader so-called liberal worldview represented by the Indo-US relationship.

Abhirup Bhunia and Pravakar Sahoo are both based at the Institute of Economic Growth, New Delhi.