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Saturday, September 10

China in Pakistan and Afghanistan

The Good News from Afghanistan:

'Real New Silk Road’ to turn Afghanistan into major regional transit hub
September 10 2016

Optimisms are on the rise with the opening of the New Silk Road connecting China with the Eurasian landmass as two trains carrying dozens of containers bound for Afghanistan left China with the first consignment arriving in Hairatan port of Afghanistan earlier this month.

The initiative by China is considered is a major turnover in Afghanistan’s efforts to turn the country into a regional transit as it has been dubbed as Real New Silk Road following attempts by the then-US Secretary of State, Hillary Clinton, to start the operations of the road in 2011 but subsequently flopped before it even got started.

According to an article published in Forbes by the magazine’s contributor Wade Shepard China is making good on this ambition by integrating Afghanistan with their Belt and Road initiative — a major part of what could be called the real New Silk Road.

At least 85 containers were transported in the first Afghanistan-bound train that ceremoniously departed from Nantong in China’s eastern Jiangsu province on 25th August.

The second train bound for Afghanistan is expected to arrive today after covering 7,500 kilometer of journey from eastern Chinese city of Yiwu to Mazar-e-Sharif city of Afghanistan, carrying over 100 containers worth of $4 million cargo.

The latest developments came as the Afghan government has been attempting to turn the country into a major regional transit hub by taking advantage of the geographical position of the country.

President Mohammad Ashraf Ghani during his speech at a gathering in Kabul said Afghanistan will continue to emerge as a key player to link the region, insisting that the country will no more remain dependent on a single port, gesturing towards the Pakistani ports on which the Afghan traders have long been counting on.

The Bad News from Pakistan:

China Won't Solve Pakistan's Biggest Problem
By Panos Mourdoukoutas 
September 8, 2016

China’s purchase of Pakistani assets, like the K-Electric Company, may cheer investors for a month or two, but it won’t solve the country’s biggest problem – corruption. On the other hand, purchase of those assets by Finland, Hong Kong, America, or even India would.

Why? Because they don’t have China’s severe corruption problem. 

K-Electric has come a long way from being a government monopoly to being a private monopoly, already changing management a few times in the process. But judging from the plethora of the comments in a previous piece I posted here, new management teams haven’t solved an old problem that is the source of inefficiencies of the company: a combination of corruption, mismanagement and poor services.

In fact, corruption isn’t confined to K-Electric. It extends throughout the Pakistani economy, as evidenced by the country’s rankings by Transparency International.

CountryCorruption Index in 2010Corruption Index in 2015
Hong Kong1317
Pakistan’s Economy At A Glance
GDP$270 billion
GDP Growth yoy4.24%
Capital flows-$1882 million
Government Debt to GDP64.8%
Source: Tradingeconomics.com
Corruption cannot be solved by corruption, but with transparency. And China has long way to go before it brings transparency to its own economy, and then brings it to other countries. China ranks 83 in the 2015 Corruption Index, not too far behind Pakistan, which ranks 117.
Worse, China’s ranking in the Corruption Index has worsened in the last five years, as Pakistan’s ranking has improved!

By contrast, there’s Finland (as one of my renters pointed out), which ranks number 2; America, which ranks number 16; Hong Kong, which ranks 17; and even India, which ranks 76.

Simply put, handing the elecrical switch of a soundly managed electric company to a foreign owner isn’t a problem by itself. In fact it has become a common practice in a globalized world. And it can be a positive thing for all stakeholders – stockholders, labor, customers, and the society at large — provided that the new owner brings in modern management and logistics that fight bureaucracy and corruption.

But handing the electrical switch of an already badly managed like K-Electric to a state-owned company from China isn’t a positive development for all stakeholders.

Moreover, it may be a negative factor for the long-term performance of the Pakistan Exchange, as corruption is listed among the most serious constraints that holds frontier markets back.

I don't think corruption is the whole problem. Afghanistan also has a lot of corruption but Afghanis aren't lazy as sin as a matter of cultural preference; the Pakistanis who don't have to do hard labor are. It's partly the caste mentality and partly the princeling ideal.

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