China-Pakistan Economic Corridor (CPEC) promises not only unprecedented dividends for development and progress of the two partner nations, but it is destined to be the most effective instrument yet for regional connectivity and integration as well.
The corridor – while not merely a passage – assumes pivotal significance for regional connectivity and cooperation as it comes on the back of China’s mammoth – in size, scale and scope – global connectivity strategy, i.e., Belt and Road Initiative (BRI). The ‘Belt’ is Silk Road Economic Belt (SREB) which aims at building road and rail linkages from China, through Central Eurasia, towards Eastern Europe and beyond. The ‘Road’ denotes 21st Century Maritime Silk Road (MSR), starting from China’s eastern and southern coasts and economic zones and heading towards South Asia, West Asia, Africa and Europe, through South China Sea, the Malacca Strait and the so-called Indian Ocean.
CPEC links the ‘Belt’ in the north and the ‘Road’ in the south, and thus becomes the most important feature of the whole strategy, although several other corridors are also part of BRI.
It is an undeniable fact that China is now the economic powerhouse of the world, not the US and EU as was the case in the second half of 20th Century, and Beijing is looking for establishing new global value chains, searching for new avenues of investment and aiming to tap wider markets. CPEC, undoubtedly, becomes significant in this whole scheme of things.
While many countries of the region as well as many developed nations of the ‘Global North’ have expressed interest in getting involved in and becoming a part of CPEC, both Pakistan and China have also made it clear that CPEC is by no means exclusive, and the main promise of such a corridor is to create a win-win situation for the entire region.
Here is how it may happen:
Central Asian Republics: CPEC provides unparalleled opening for the landlocked Central Asian Republics (CARs). Pakistan, China, Kazakhstan and Kyrgyzstan have signed a quadrilateral ‘Traffic in Transit’ agreement since 1995 to facilitate transit traffic between these four nations, aiming at increased linkages and enhanced commercial cooperation. For past over two decades, however, the agreement is yet to see its effective implementation.
Tajikistan is presently not part of this transit traffic arrangement but Pakistan, China, Afghanistan and Tajikistan have since August 2016 initiated another four-nation cooperation mechanism – to collaborate in the fight against terrorism. The point in highlighting these arrangements is that the institutional basis for enhanced commercial cooperation through CPEC, between CARs, China and Pakistan, already exists since long which is further strengthened after Pakistan (along with India) assuming formal membership of the Shanghai Cooperation Organization (SCO). SCO is working on its own set of initiates for enhanced commercial linkages between its members, multilaterally.
Thus, CPEC provides a catalyzing force to jump-start cooperation. These CARs – especially their areas adjoining China, which incidentally happen to be major population centers in case of Kazakhstan, Kyrgyzstan and Tajikistan – can benefit from easy access to Pakistani ports through CPEC.
Afghanistan: Despite some issues in smooth flow of trade between Pakistan and Afghanistan, the former remains the largest trading partner of the latter.Sino-Afghan trade is also on the upswing and prospects for enhanced Chinese investment into the war-torn country are becoming brighter. Beijing is already a major investor in various sectors of Afghan economy, specially mining. In this background, CPEC infrastructure would only spur economic activity along Pak-Afghan border, and will provide impetus for Pak-Afghan as well as Afghan-China trade and commerce.
Besides, road linkages with China would be quite hard to be built through this peculiar terrain. A cargo train from China did reach Afghanistan after a long journey through CARs, but had to go back empty through the same route, due to security concerns of the transit providing state Uzbekistan. Hence, CPEC remains the most feasible route for China-Afghanistan trade as well. In addition, CPEC and Gwadar port provide Afghanistan easy and effective access to the rest of the world, despite the availability of India-backed Iranian Chabahar port as an alternative.
Iran: The news that President Rouhani of Iran expressed his interest to Pakistani Prime Minister Nawaz Sharif – in their meeting in New York, in September 2016, on the sidelines of the United Nations General Assembly session – to get involved in CPEC, was taken with great interest in Pakistan.Thereafter, Iranian diplomats and officials have also expressed their country’s interest. Yes American sanctions have been and remain an issue to be dealt with but a number of countries of the region have found ways to work with Iran despite these sanctions. The size and scope of Iran-China commercial and investment linkages, despite US sanctions, also necessitate cooperation in and through CPEC.
The western route of CPEC in Pakistan’s Balochistan will practically be aligned along Pak-Iran border. It is positive to note that making Gwadar and Chabahar two complementing ports is now on the agenda of both the countries. In this backdrop, Iran emerges as one of the key future partners for Pakistan and China, in CPEC. The Corridor also provides an opportunity for Iran to reach out to CARs’ eastern territories, and let us not lose sight of CPEC becoming an energy transportation route between Iran and China, a long-term goal of both the producer and the buyer.
Russia: We have also witnessed several expressions of interest by Russian leadership, officials and diplomats intending to become involved in this mega initiative, in energy and other infrastructure projects. In recent years, Pakistan and Russia have moved ahead with mutual arrangements in strategic, political and commercial arenas promising a new wave of potentially large scale collaborative projects. The opportunities for utilization of CPEC for mutual benefit are bound to increase.
GCC Countries: It is very well known fact that China imports bulk of its crude oil requirements from the countries of Gulf Cooperation Council (GCC), which have to traverse a long way through Sea Lines of Communication (SLOC), reaching China’s south and east before it is then transported through land routes to China’s central and western, relatively less developed parts. CPEC provides the shortest route to transport oil from GCC countries – as is the case with Iran’s oil – towards China’s western and center; regions.
Not only the transportation of oil (and gas), but robust trade and investment relations between China and GCC countries – which are bound to increase further in the wake of GCC countries’ maneuvers to diversify their oil-dependent economies – also enhance the potential role of CPEC as a possible avenue between these two sides.
India – the Opportunity and the Challenge: It is needless to stress that after China, India is a very fast developing large-sized economy of the world, not only this region. India also needs energy, at a fast growing demand, from Iran as well as CARs – in addition to GCC countries, which are at present the main suppliers. India is also looking for access to Afghanistan and CARs, and the fastest as well as most feasible routes pass through the territory of Pakistan.
CPEC infrastructure will provide India with potential linkages to Afghanistan, CARs, and China’s Xinjiang, much better than any other possible route. Pakistan has repeatedly signaled that CPEC provides an opportunity for Islamabad and New Delhi to join hands. Nonetheless, it also goes without saying that smooth transport linkages between Pakistan and India, and through Pakistan for India, face the obstacle of overall relationship between the two countries.
While Pakistan and India’s case is a particular one, connectivity overall in the entire region is being hampered by, and will continue to face the challenges of various forms and manifestations of instability in addition to terrain, technological and financial constraints.
However, would not be wrong to say that despite these challenges, CPEC provides a very favorable route of regional connectivity and resultantly enhanced economic cooperation as well as wide-spread people-to-people linkages in the region encompassing South, West and Central Asia.
2022: Small Medium Business & Economic Development Errors
Calling Michelangelo: would Michelangelo erect a skyscraper or can an architect liberate David from a rock of marble? When visibly damaged are the global economies, already drowning their citizenry, how can their economic development departments in hands of those who never ever created a single SME or ran a business, expect anything else from them other than lingering economic agonies?
The day pandemic ends; immediately, on the next day, the panic on the center stage would be the struggling economies across the world. On the small medium business economic fronts, despite, already accepted globally, as the largest tax contributor to any nation. Visible worldwide, already abandoned and ignored without any specific solutions, there is something strategically wrong with upskilling exporters and reskilling manufacturers or the building growth of small medium business economies. The SME sectors in most nations are in serious trouble but are their economic development rightly balanced?
Matching Mindsets: Across the world, hard working citizens across the world pursue their goals and some end up with a job seeker mindset and some job creator mindset; both are good. Here is a globally proven fact; job seekers help build enterprises but job creators are the ones who create that enterprise in the first place. Study in your neighborhoods anywhere across the world and discover the difference.
Visible on LinkedIn: Today, on the SME economic development fronts of the world, clearly visible on their LinkedIn profiles, the related Ministries, mandated government departments, trade-groups, chambers, trade associations and export promotion agencies are primarily led by job seeker mindsets and academic or bureaucratic mentality. Check all this on LinkedIn profiles of economic development teams anywhere across the world.
Will jumbo-pilots do heart transplant, after all, economic performance depends on matching right competency; Needed today, post pandemic economic recovery demands skilled warriors with mastery of national mobilization to decipher SME creation and scalability of diversified SME verticals on digital platforms of upskilling for global age exportability. This fact has hindered any serious progress on such fronts during the last decade. The absence of any significant progress on digitization, national mobilization of entrepreneurialism and upskilling of exportability are clear proofs of a tragically one-sided mindset.
Is it a cruise holiday, or what? Today, the estimated numbers of all frontline economic development team members across 200 nations are roughly enough to fill the world-largest-cruise-ship Symphony that holds 6200 guests. If 99.9% of them are job-seeker mindsets, how can the global economic development fraternity sleep tonight? As many billion people already rely on their performances, some two billion in a critical economic crisis, plus one billion starving and fighting deep poverty. If this is what is holding grassroots prosperity for the last decade, when will be the best time to push the red panic button?
The Big Fallacy of “Access to Finance” Notion: The goals of banking and every major institution on over-fanaticized notions of intricate banking, taxation are of little or no value as SME of the world are not primarily looking for “Access to Capital” they are rather seeking answers and dialogue with entrepreneurial job creator mindsets. SME management and economic development is not about fancy PDF studies of recycled data and extra rubber stamps to convince that lip service is working. No, it is not working right across the world.
SME are also not looking for government loans. They do not require expensive programs offered on Tax relief, as they make no profit, they do not require free financial audits, as they already know what their financial problems are and they also do that require mechanical surveys created by bureaucracies asking the wrong questions. This is the state of SME recovery and economic development outputs and lingering of sufferings.
SME development teams across the world now require mandatory direct SME ownership experiences
The New Hypothesis 2022: The new hypothesis challenges any program on the small medium business development fronts unless in the right hands and right mindsets they are only damaging the national economy. Upon satisfactory research and study, create right equilibrium and bring job seeker and job creator mindsets to collaborate for desired results. As a start 50-50, balances are good targets, however, anything less than 10% active participation of the job creator mindset at any frontline mandated SME Ministry, department, agency or trade groups automatically raises red flags and is deemed ineffective and irrelevant.
The accidental economists: The hypothesis, further challenges, around the world, economic institutes of sorts, already, focused on past, present and future of local and global economy. Although brilliant in their own rights and great job seekers, they too lack the entrepreneurial job creator mindsets and have no experience of creating enterprises at large. Brilliantly tabulating data creating colorful illustrative charts, but seriously void of specific solutions, justifiably as their profession rejects speculations, however, such bodies never ready to bring such disruptive issues in fear of creating conflicts amongst their own job seeker fraternities. The March of Displaced cometh, the cries of the replaced by automation get louder, the anger of talented misplaced by wrong mindsets becomes visible. Act accordingly
The trail of silence: Academia will neither, as they know well their own myopic job seeker mindset. In a world where facial recognition used to select desired groups, pronouns to right gatherings, social media to isolate voting, but on economic survival fronts where, either print currency or buy riot gears or both, a new norm; unforgiveable is the treatment of small medium business economies and mishmash support of growth. Last century, laborious and procedural skills were precious, this century surrounded by extreme automation; mindsets are now very precious.
Global-age of national mobilization: Start with a constructive open-minded collaborative narrative, demonstrate open courage to allow entrepreneurial points of views heard and critically analyze ideas on mobilization of small mid size business economies. Applying the same new hypotheses across all high potential contributors to SME growth, like national trade groups, associations and chambers as their frontline economic developers must also balance with the job creator mindset otherwise they too become irrelevant. Such ideas are not just criticism rather survival strategies. Across the world, this is a new revolution to arm SME with the right skills to become masters of trade and exports, something abandoned by their economic policies. To further discuss or debate at Cabinet Level explore how Expothon is making footprints on new SME thinking and tabling new deployment strategies. Expothon is also planning a global series of virtual events to uplift SME economies in dozens of selected nations.
Two wheels of the same cart: Silence on such matters is not a good sign. Address candidly; allow both mindsets to debate on how and why as the future becomes workless and how and why small medium business sectors can become the driving engine of new economic progress. Job seekers and job creators are two wheels of the same cart; right assembly will take us far on this economic growth passage. Face the new global age with new confidence. Let the nation witness leadership on mobilization of entrepreneurialism and see a tide of SME growth rise. The rest is easy.
Rebalancing Act: China’s 2022 Outlook
Authors: Ibrahim Chowdhury, Ekaterine T. Vashakmadze and Li Yusha
After a strong rebound last year, the world economy is entering a challenging 2022. The advanced economies have recovered rapidly thanks to big stimulus packages and rapid progress with vaccination, but many developing countries continue to struggle.
The spread of new variants amid large inequalities in vaccination rates, elevated food and commodity prices, volatile asset markets, the prospect of policy tightening in the United States and other advanced economies, and continued geopolitical tensions provide a challenging backdrop for developing countries, as the World Bank’s Global Economic Prospects report published today highlights.
The global context will also weigh on China’s outlook in 2022, by dampening export performance, a key growth driver last year. Following a strong 8 percent cyclical rebound in 2021, the World Bank expects growth in China to slow to 5.1 percent in 2022, closer to its potential — the sustainable growth rate of output at full capacity.
Indeed, growth in the second half of 2021 was below this level, and so our forecast assumes a modest amount of policy loosening. Although we expect momentum to pick up, our outlook is subject to domestic in addition to global downside risks. Renewed domestic COVID-19 outbreaks, including the new Omicron variant and other highly transmittable variants, could require more broad-based and longer-lasting restrictions, leading to larger disruptions in economic activity. A severe and prolonged downturn in the real estate sector could have significant economy-wide reverberations.
In the face of these headwinds, China’s policymakers should nonetheless keep a steady hand. Our latest China Economic Update argues that the old playbook of boosting domestic demand through investment-led stimulus will merely exacerbate risks in the real estate sector and reap increasingly lower returns as China’s stock of public infrastructure approaches its saturation point.
Instead, to achieve sustained growth, China needs to stick to the challenging path of rebalancing its economy along three dimensions: first, the shift from external demand to domestic demand and from investment and industry-led growth to greater reliance on consumption and services; second, a greater role for markets and the private sector in driving innovation and the allocation of capital and talent; and third, the transition from a high to a low-carbon economy.
None of these rebalancing acts are easy. However, as the China Economic Update points out, structural reforms could help reduce the trade-offs involved in transitioning to a new path of high-quality growth.
First, fiscal reforms could aim to create a more progressive tax system while boosting social safety nets and spending on health and education. This would help lower precautionary household savings and thereby support the rebalancing toward domestic consumption, while also reducing income inequality among households.
Second, following tightening anti-monopoly provisions aimed at digital platforms, and a range of restrictions imposed on online consumer services, the authorities could consider shifting their attention to remaining barriers to market competition more broadly to spur innovation and productivity growth.
A further opening-up of the protected services sector, for example, could improve access to high-quality services and support the rebalancing toward high-value service jobs (a special focus of the World Bank report). Eliminating remaining restrictions on labor mobility by abolishing the hukou, China’s system of household registration, for all urban areas would equally support the growth of vibrant service economies in China’s largest cities.
Third, the wider use of carbon pricing, for example, through an expansion of the scope and tightening of the emissions trading system rules, as well power sector reforms to encourage the penetration and nationwide trade and dispatch of renewables, would not only generate environmental benefits but also contribute to China’s economic transformation to a more sustainable and innovation-based growth model.
In addition, a more robust corporate and bank resolution framework would contribute to mitigating moral hazards, thereby reducing the trade-offs between monetary policy easing and financial risk management. Addressing distortions in the access to credit — reflected in persistent spreads between private and State borrowers — could support the shift to more innovation-driven, private sector-led growth.
Productivity growth in China during the past four decades of reform and opening-up has been private-sector led. The scope for future productivity gains through the diffusion of modern technologies and practices among smaller private companies remains large. Realizing these gains will require a level playing field with State-owned enterprises.
While the latter have played an instrumental role during the pandemic to stabilize employment, deliver key services and, in some cases, close local government budget gaps, their ability to drive the next phase of growth is questionable given lower profits and productivity growth rates in the past.
In 2022, the authorities will face a significantly more challenging policy environment. They will need to remain vigilant and ready to recalibrate financial and monetary policies to ensure the difficulties in the real estate sector don’t spill over into broader economic distress. Recent policy loosening suggests the policymakers are well aware of these risks.
However, in aiming to keep growth on a steady path close to potential, they will need to be similarly alert to the risk of accumulating ever greater levels of corporate and local government debt. The transition to high-quality growth will require economic rebalancing toward consumption, services, and green investments. If the past is any guide to the future, the reliance on markets and private sector initiative is China’s best bet to achieve the required structural change swiftly and at minimum cost.
First published on China Daily, via World Bank
The US Economic Uncertainty: Bitcoin Faces a Test of Resilience?
Is inflation harmful? Is inflation here to stay? And are people really at a loss? These and countless other questions along the same lines dominated the first half of 2021. Many looked for alternative investments in the national bourse, while others adopted unorthodox streams. Yes, I’m talking about bitcoin. The crypto giant hit records after records since the pandemic made us question the fundamentals of our conventional economic policies. And while inflation was never far behind in registering its own mark in history, the volatility in the crypto stream was hard to deny: swiping billions of dollars in mere days in April 2021. The surge came again, however. And it will keep on coming; I have no doubt. But whether it is the end of the pandemic or the early hues of a new shade, the tumultuous relationship between traditional economic metrics and the championed cryptocurrency is about to get more interesting.
The job market is at the most confusing crossroads in recent times. The hiring rate in the US has slowed down in the past two months, with employers adding only 199,000 jobs in December. The numbers reveal that this is the second month of depressing job additions compared to an average of more than 500,000 jobs added each month throughout 2021. More concerning is that economists had predicted an estimated 400,000 jobs additions last month. Nonetheless, according to the US Bureau of Labour Statistics, the unemployment rate has ticked down to 3.9% – the first time since the pre-pandemic level of 3.5% reported in February 2020. Analytically speaking, US employment has returned to pre-pandemic levels, yet businesses are still looking for more employees. The leverage, therefore, lies with the labor: reportedly (on average) every two employees have three positions available.
The ‘Great Resignation,’ a coinage for the new phenomenon, underscores this unique leverage of job selection. Sectors with low-wage positions like retail and hospitality face a labor shortage as people are better-positioned to bargain for higher wages. Thus, while wages are rising, quitting rates are record high simultaneously. According to recent job reports, an estimated 4.5 million workers quit their jobs in November alone. Given that this data got collected before the surge of the Omicron variant, the picture is about to worsen.
While wages are rising, employment is no longer in the dumps. People are quitting but not to invest stimulus cheques. Instead, they are resigning to negotiate better-paying jobs: forcing the businesses to hike prices and fueling inflation. Thus, despite high earnings, the budget for consumption [represented by the Consumer Price Index (CPI)] is rising at a rate of 6.8% (reported in November 2021). Naturally, bitcoin investment is not likely to bloom at levels rivaling the last two years. However, a downfall is imminent if inflation persists.
The US Federal Reserve sweats caution about searing gains in prices and soaring wage figures. And it appears that the fed is weighing its options to wind up its asset purchase program and hike interest rates. In March 2020, the fed started buying $40 billion worth of Mortgage-backed securities and $80 billion worth of government bonds (T-bills). However, a 19% increase in average house prices and a four-decade-high level of inflation is more than they bargained. Thus, the fed officials have been rooting for an expedited normalization of the monetary policy: further bolstered by the job reports indicating falling unemployment and rising wages. In recent months, the fed purview has dramatically shifted from its dovish sentiments: expecting no rate hike till 2023 to taper talks alongside three rate hikes in 2022.
Bitcoin now faces a volatile passage in the forthcoming months. While the disappointing job data and Omicron concerns could nudge the ball in its favor, the chances are that a depressive phase is yet to ensue. According to crypto-analysts, the bitcoin is technically oversold i.e. mostly devoid of impulsive investors and dominated by long-term holders. Since November, the bitcoin has dropped from the record high of $69,000 by almost 40%: moving in the $40,000-$41,000 range. Analysts believe that since bitcoin acts as a proxy for liquidity, any liquidity shortage could push the market into a mass sellout. Mr. Alex Krüger, the founder of Aike Capital, a New York-based asset management firm, stated: “Crypto assets are at the furthest end of the risk curve.” He further added: “[Therefore] since they had benefited from the Fed’s “extraordinarily lax monetary policy,” it should suffice to say that they would [also] suffer as an “unexpectedly tighter” policy shifts money into safer asset classes.” In simpler terms, a loose monetary policy and a deluge of stimulus payments cushioned the meteoric rise in bitcoin valuation as a hedge against inflation. That mechanism would also plummet the market with a sudden hawkish shift.
The situation is dire for most industries. Job participation levels are still low as workers are on the sidelines either because of the Omicron concern or lack of child support. In case of a rate hike, businesses would be forced to push against the wages to accommodate affordability in consumer prices. For bitcoin, the investment would stay dormant. However, any inflationary surprises could bring about an early tightening of the policy: spelling doom for the crypto market. The market now expects the job data to worsen while inflation to rise at 7.1% through December in the US inflation data (to be reported on Wednesday). Any higher than the forecasted figure alongside uncertainty imbued by the new variant could spark a downward spiral in bitcoin – probably pushing the asset below the $25000 mark.
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