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CHINA’s RAPID ECONOMIC GROWTH: COST AND
BENEFIT FOR PAKISTAN (2001-2014)
MUHAMMAD ZAHID ULLAH KHAN
Ph.D. (Scholar)
DEPARTMENT OF INTERNATIONAL RELATIONS
UNIVERSITY OF PESHAWAR
(SESSION 2011-12)
CHINA’s RAPID ECONOMIC GROWTH: COST AND
BENEFIT FOR PAKISTAN (2001-2014)
A Dissertation submitted to the Department of International Relations,
University of Peshawar in partial fulfillment of the requirements for the Degree
of
DOCTOR OF PHILOSOPHY
IN
INTERNATIONAL RELATIONS
Supervised By:
DR. MINHAS MAJEED KHAN
Assistant Professor
DEPARTMENT OF INTERNATIONAL RELATIONS
UNIVERSITY OF PESHAWAR
(SESSION 2011-12)
CERTIFICATE OF APPROVAL
The dissertation titled ‘China’s Rapid Economic Growth: Cost and Benefit for
Pakistan (2001-2014)’ Submitted by Mr. Muhammad Zahid Ullah Khan for
the Degree of Doctor of Philosophy in International Relations is accepted and
approved by the Supervisory Committee.
External Examiner:
Supervisor:
Dr. Minhas Majeed Khan
Assistant Professor,
Department of International Relations,
University of Peshawar.
Chairperson:
Prof. Dr. Hussain Shaheed Soharwardi
Department of International Relations,
University, Peshawar
Dean:
Prof. Dr. Minhaj ul Hassan
Faculty of Social Sciences,
University of Peshawar.
Dated:
DEPARTMENT OF INTERNATIONAL RELATIONS
UNIVERSITY OF PESHAWAR
(SESSION 2011-12)
CERTIFICATE OF APPROVAL
CHINA’S RAPID ECONOMIC GROWTH: COST AND BENEFIT FOR
PAKISTAN (2001-2014)
Dissertation Presented
By
MUHAMMAD ZAHID ULLAH KHAN
To the Department of International Relations
University of Peshawar,
In Partial Fulfillment of the Requirement for the Degree of Ph.D. in International
Relations
December 2017
We, the undersigned have examined the thesis entitled “China’s Rapid Economic
Growth: Cost and Benefit for Pakistan (2001-2014)” written by Muhammad
Zahid Ullah Khan, a Ph.D. scholar at the Department of International Relations,
University of Peshawar and do here by approve for the award of Ph.D. Degree.
APPROVED BY:
Supervisor:
DR. MINHAS MAJEED KHAN
Assistant Professor.
Department of International Relations
University of Peshawar.
External Examiner:
Dean:
PROF.DR. Minhaj Ul Hassan
Faculty of Social Science
University of Peshawar.
Chairperson:
PROF. DR. Husain Shaheed Soharwardi Department of International Relations
University of Peshawar.
DEDICATION
I dedicated this dissertation to my loving Parents
who have been a source of inspiration
throughout my life.
i
ABSTRACT
The study is an attempt to understand Chinese rapid economic growth and its
impact on China – Pakistan relations from 2001 to 2014. The incidents of 9/11
had severe impact on global economic scenario resulting in global recession.
Ironically, by the end of 2001 the major growth polls of the world slipped into
recession, it caused serious damage to the economies of the developing countries
particularly Pakistan as it was a front line state in war against terror. As a result
of recession, imports and exports, industrial production, tax revenue and foreign
direct investment were badly affected in Pakistan which resulted in huge
economic loss - approximately US$ 67 billion. Due to emergence of terrorism
since 9/11, foreign direct investment in Pakistan declined and thus, a large
amount of Chinese Foreign direct investment was directed towards Latin America
and Africa which affected the economy of Pakistan. The present study highlights
core areas of economic cooperation between China and Pakistan, which can
further strengthen Pakistan’s economy, resulting in a win – win situation in trade
between the two countries. The research adopts and follows the theories of
Liberalism and highlights the Flying Geese model in the economic and trade
affairs between the two countries. Further, the study seeks to find out possible
ways to overcome the weak areas of trade between China and Pakistan for better
economic relations between both the countries, in which Pakistan could also gain
more benefit. The study provides a baseline to the policy makers in Pakistan to
overcome the weaknesses due to which Pakistani exports could not find a suitable
place in the Chinese market.
ii
ACKNOWLEDGEMENT
Indeed, without the blessing of Allah (SWT) nothing can ever be achieved in life.
I am in gratitude to Allah (SWT) who gave me mental and physical strength to
complete this research on time.
First of all, I am grateful to my parents and my family members who
provided me an environment to concentrate on my research work and finish my
thesis in due time. This work would not have been possible without my parent’s
prayers and unconditional love for me.
I extend my profound gratitude to the chairperson, faculty and office staff
of Department of International Relations, University of Peshawar, for their
support and cooperation in countless ways during my stay in the department and
also during the completion of my dissertation.
I must also extend my gratitude to my course mates and friends,
particularly to Dr. Zahid Anwar and Dr. Naimat Ullah, for their comments and
suggestions to improve this study.
Lastly, I express my gratitude to my supervisor Dr. Minhas Majeed Khan,
Assistant Professor, Department of International Relations, University of
Peshawar, for her generous advice, inspiring guidance and encouragement who
very diligently checked all the chapters and guided me in the right direction to
finish my dissertation.
Muhammad Zahid Ullah Khan
iii
AUTHOR’S DECLARATION
I Muhammad Zahid Ullah Khan hereby state that my Ph.D thesis title “China’s
Rapid Economic Growth: Cost and Benefit for Pakistan (2001-2014)” is my on
work and has not been submitted previously by me for taking any Degree from
this University
University of Peshawar.
Or anywhere else in the country/world.
At any time if my statement is found to be incorrect even after my graduate in
university has the right to withdraw my Ph.D Degree
Muhammad Zahid Ullah Khan
Date:
iv
Plagiarism Undertaking
I Solemnly Declare That Research Work presented in the thesis titled “China’s
Rapid Economic Growth: Cost and Benefit for Pakistan (2001-2014)” is solely
my research work with no significant contribution from any other person.
Small Contribution/help wherever taken has been duly acknowledged and that
complete thesis has been written by me.
I understand the zero tolerance policy of the HEC and University of Peshawar
towards plagiarism. Therefore I as an Author of the above titled thesis declare that
no portion of my thesis has been plagiarized and any material used as reference is
properly Referred and Cited.
I undertake that if I am found guilty of any formal plagiarism in the above titled
thesis even after award of Ph.D Degree, the University has the right to publish my
name on the HEC/ University website on which names of students are placed who
submitted plagiarized thesis.
Student/Author signature;___________________
Name:________________________
v
Office of The Controller Examinations
Notification
No___________ Date:____________
It is notified for the information of all concerned that Mr. Muhammad Zahid
Ullah Khan Ph.D scholar of University of Peshawar has completed all the
requirements for the award of Ph.D degree in the discipline International
Relations as per detail given hereunder:
Ph.D Education Cumulative result
Registration
No.
Scholar’s Name Father’s Name Credit Hours Cumulative Grade
point average
CGPA Course
work
Research
work
Total
Research topic:________________________________________________
___________________________________________________________
Local Supervisor Name:________________________________________
Local Supervisor II Name:______________________________________
Foreign /External Examiners:
a. Name:_______________________________________________
University____________________________________________
Address______________________________________________
b. Name:_______________________________________________
University____________________________________________
Address______________________________________________
Detail of Research articles published on the basis of thesis research work
__________________________________________________________________
________________________________________________________
Note: this result to declaration as notice only. Errors and omissions, if any, are
subject to subsequent rectification
Signed by
Controller of Examinations
CC
1.
2.
vi
LIST OF TABLES
Table – 1.1: China – Pakistan Trade (2005 - 2010) .......................................7
Table – 1.2: FDI in Pakistan (2008 - 2014) ...................................................8
Table – 4.1: Trade between China and Pakistan (2001-2005) .......................93
Table – 4.2: Balance of Trade (2006-2010) ...................................................107
Table – 4.3: China – Pakistan Trade and Percentage of Increase in Trade
(2001 –2010) .................................................................................108
Table – 4.4: Balance of Trade between China and Pakistan
(2011-2014)..................................................................................118
Table – 5.1: Export of Marble, Copper and Chromium to China
(2010 to 2014) ..............................................................................129
Table – 5.2: Export of Oil Seeds and Rice to China (2010 to 2014) .............132
Table – 5.3: Import of Fertilizers from China (2010 to 2014) .......................133
Table – 5.4: Import of Home Appliances from China (2010 to 2014) ..........141
Table – 5.5: Import of Automobiles from China (2010 to 2014) ..................143
Table – 5.6: Import of Weapons from China (2010 to 2014) ........................144
Table – 6.1: Major Projects of CPEC ............................................................182
vii
LIST OF FIGURES
Figure – 4.1: Exports to China (2003 – 2005) ...............................................94
Figure – 4.2: Imports from China (2003 – 2005)...........................................94
Figure – 4.3: Exports to China (2006 – 2010) ...............................................106
Figure – 4.4: Imports from China (2006 – 2010)...........................................107
Figure – 4.5: Chinese Investment in Pakistan ................................................113
Figure – 4.6: Exports to China (2011 – 2014) ...............................................117
Figure – 4.7: Imports from China (2011 – 2014)...........................................118
Figure – 5.1: Composition of Agriculture Sector in Pakistan ........................132
Figure – 5.2: Water Crisis in Pakistan ...........................................................136
Figure – 5.3: Pakistan’s Arms Imports from China and US
(2006 to 2015) .............................................................................144
viii
LIST OF MAPS
Map – 3.1: The Ancient Silk Road ................................................................50
Map – 3.2: The Ancient Silk Road with the Present Countries and
Cities .............................................................................................51
Map – 6.1: China Proposed New Silk Roads .................................................156
Map – 6.2: Master Plan of Gwadar Port ........................................................161
Map – 6.3: Distance Reduced through Gwadar Port for
Chinese Maritime Trade ................................................................161
Map – 6.4: China – Pakistan Economic Corridor ..........................................166
Map – 6.5: Fiber Optic Project of CPEC .......................................................168
Map – 6.6: Railway Network of CPEC .........................................................170
Map – 6.7: Economic Corridor: Roads, Rails, Ports and
Specials Economics Zones .............................................................173
Map – 6.8: Highways Network of CPEC.......................................................181
ix
ABBREVIATIONS
ADB Asian Development Bank
AIIB Asian Infrastructure Investment Bank
AJ & K Azad Jammu and Kashmir
APEZ Asia Pacific Economic Zone
ASA Air Services Agreement
ASEAN Association of South East Asian Nations
CAAM China Association of Automobiles Manufacturers
CACF China Africa Cooperation Forum
CAFTA China ASEAN Free Trade Agreement
CBA Cost Benefit Analysis
CCPIT China Council for Promotion of International Trade
COPHC China Overseas Port Holding Company
CPEC China – Pakistan Economic Corridor
DFI Development Financial Institution
DVD Digital Versatile Disc
EEZ European Economic Zone
EHP Early Harvest Program
ERC Emergency Relief Cell
ETIM East Turkistan Islamic Movement
EU European Union
FDI Foreign Direct Investment
FTA Free Trade Agreement
GDP Gross Domestic Products
GEO Global Economic Order
GLP Great Leap Forward
GNP Gross National Products
x
GST General Sales Tex
ISSI Institute of Strategic Studies, Islamabad
KP Khyber Pakhtunkhwa
LCD Liquid Crystal Displays
MFN Most Favored Nation
ME Middle East
MNCs Multi – National Corporations
MOU Memoranda of Understanding
NATO North Atlantic Treaty Organization
NBS National Bureau of Statistics
NDMA National Disaster Management Authority
NDMC National Disaster Management Commission
NDMO National Disaster Management Ordinance
NIEO New International Economic Order
NSR New Silk Road
PCIC Pak – China Investment Company
PDMA Provincial Disaster Management Authority
PPP Purchasing Power parity
PBI Pakistan Board of Investment
PRC People’s Republic of China
PSA Port of Singapore Authority
PSDP Public Sector Development Program
PTA Preferential Trade Agreement
QASP Quaid-e-Azam Solar Power Park
RAW Research and Analysis Wing
SDA Swiss Development Authority
SEZ Special Economic Zone
SPA Singapore Port Authority
xi
SPGS Solar Power Generation System
TDAP Trade Development Authority of Pakistan
UN United Nations
UNCTAD United Nations Conference on Trade and Development
US United States
USAID United States Agency for International Development
WB World Bank
xii
TABLE OF CONTANTS
Abstract ..........................................................................................................i
Acknowledgement .........................................................................................ii
Author’s Declaration ......................................................................................iii
Plagiarism Undertaking .................................................................................iv
Notification of Award of Ph.D Degree ..........................................................v
List of Tables .................................................................................................vi
List of Figures ................................................................................................vii
List of Maps ...................................................................................................viii
Abbreviations .................................................................................................ix
Chapter–1 .................................................................................... 1
INTRODUCTION TO THE STUDY ............................. 1
Introduction ........................................................................................1
1.1 Aims and Objectives ....................................................................11
1.2 Significance of the Study .............................................................12
1.3 Methodology ................................................................................14
1.4 Hypotheses ...................................................................................15
1.5 Chapterization ..............................................................................15
1.6 Conclusion ...................................................................................19
References ..........................................................................................20
Chapter–2 .................................................................................... 24
THEORETICAL FRAMEWORK ................................. 24
Introduction ........................................................................................24
2.1 Liberalism ....................................................................................24
2.2 Basic Assumptions of Liberal School of Thought .......................26
2.3 Philosophical Foundation of Liberalism ......................................27
2.4 Interdependence Liberalism .........................................................32
2.5 Liberalism and International Trade ..............................................35
2.5.1 Embedded Liberalism ...................................................36
2.5.2 Neo – Liberalism...........................................................37
2.5.3 Mixed Liberalism ..........................................................38
2.6 China – Pakistan Trade in Liberal Perspective ............................39
xiii
2.7 Flying Geese Theory ....................................................................41
2.8 Conclusion ...................................................................................43
References ..........................................................................................44
Chapter–3 .................................................................................... 48
HISTORICAL BACKGROUND OF ECONOMIC
RELATIONS .................................................................... 48
Introduction ........................................................................................48
3.1 First Phase: Chinese Trade with the Indian Sub – Continent ......48
3.2 Second Phase: China – Pakistan Relations from 1947 till 1960 ..51
3.3 Third Phase: China – Pakistan Relations from 1960 till 1978 .....54
3.4 Fourth Phase: China – Pakistan Relations from 1978 till 2000 ...58
3.5 Fifth Phase: China – Pakistan Relations from 2001 till 2014 ......62
3.5.1 China – Pakistan Free Trade Agreement ......................66
3.6 Conclusion ...................................................................................74
References ..........................................................................................76
Chapter–4 .................................................................................... 82
IMPORTS AND EXPORTS BETWEEN CHINA AND
PAKISTAN ....................................................................... 82
Introduction ........................................................................................82
4.1 Trade During 2001 .......................................................................83
4.2 Trade During 2002 ...................................................................85
4.3 Trade During 2003 .....................................................................86
4.3.1 Imports from China ......................................................86
4.3.2 Exports to China ..........................................................87
4.4 Trade During 2004 .......................................................................88
4.4.1 Imports from China ......................................................89
4.4.2 Exports to China ..........................................................90
4.5 Trades During 2005 ....................................................................91
4.5.1 Imports from China ......................................................91
4.5.2 Exports to China ..........................................................92
4.6 Trade During 2006 .......................................................................95
4.6.1 Imports from China ......................................................95
4.6.2 Exports to China ..........................................................96
xiv
4.7 Trade During 2007 .......................................................................97
4.7.1 Imports from China ......................................................98
4.7.2 Exports to China ...........................................................98
4.8 Trade During 2008 .......................................................................99
4.8.1 Imports from China ......................................................100
4.8.2 Exports to China ..........................................................101
4.9 Trade During 2009 .......................................................................101
4.9.1 Imports from China ......................................................102
4.9.2 Exports to China ..........................................................103
4.10 Trade During 2010 .....................................................................103
4.10.1 Imports from China ....................................................104
4.10.2 Exports to China .........................................................105
4.11 Trade During 2011 ....................................................................109
4.11.1 Imports from China ....................................................109
4.11.2 Exports to China .........................................................110
4.12 Trade During 2012 .....................................................................111
4.12.1 Imports from China ....................................................111
4.12.2 Exports to China ........................................................112
4.13 Trade During 2013 .....................................................................113
4.13.1 Imports from China ....................................................114
4.13.2 Exports to China ........................................................114
4.14 Trade Between China and Pakistan During 2014 ......................115
4.14.1 Imports from China ....................................................115
4.14.2 Exports to China .........................................................116
4.15 Conclusion .................................................................................119
References .........................................................................................121
Chapter –5 ................................................................................... 123
AREAS OF MUTUAL COOPERATION AND
ADVANTAGES ................................................................ 123
Introduction ........................................................................................123
5.1 Cooperation in Disaster Management ..........................................124
5.2 Exploration of Energy and Minerals ............................................129
5.3 Opportunities for Pakistani Labour ..............................................131
5.4 Cooperation in Agriculture ..........................................................131
xv
5.5 Water Management ......................................................................135
5.6 Cooperation in Technology Transfer ...........................................138
5.6.1 Home Appliances Technology ......................................140
5.6.2 Automobiles Technology ..............................................141
5.6.3 Weapon Technology .....................................................143
5.6.4 Solar Energy Technology ............................................145
5.6.4.1 Solar Energy in Pakistan ................................146
5.6.4.2 Solar Energy in China ....................................148
5.7 Conclusion ..................................................................................149
References ..........................................................................................151
Chapter–6 .................................................................................... 155
CHINA PAKISTAN EONOMIC CORRIDOR ............ 155
Introduction ........................................................................................155
6.1 One Belt one Road Initiative........................................................156
6.2 China – Pakistan Strategic and Economic Cooperation ..............158
6.3 Strategic Importance of Gwadar .................................................158
6.3.1 Expansion of the Gwadar Free Trade Zone ..................162
6.4 CPEC – As A Corridor of Opportunity .......................................162
6.4.1 Major Components of CPEC ........................................165
6.4.2 Early Harvest Energy Projects ......................................167
6.5 Special Economic Zones .............................................................171
6.6 Challenges for the CPEC .............................................................173
6.6.1 Security Threats for CPEC in Pakistan .........................174
6.6.2 Indian Reservations about CPEC ..................................174
6.6.3 Political Controversies about CPEC in Pakistan .........177
6.7 Projects Under CPEC ...................................................................181
6.8 Pakistan’s Perspective ..............................................................182
6.8.1Importance of Gwadar for Pakistan ...............................183
6.8.2 Seaborne Trade and Economic Growth ............184
6.8.3 Increased Opportunity for Shipping Industry ...184
xvi
6.8.4 Security through Economic Development ........185
6.9 Conclusion ...................................................................................186
References ..........................................................................................189
Chapter –7 ................................................................................... 193
ANALYSIS AND RECOMMENDATIONS ................. 193
7.1 Critical Analysis...........................................................................196
7.2 Future Prospects ...........................................................................200
7.2.1 CPEC As A Game Changer ..........................................201
7.2.2 Threats and Challenges .................................................203
7.3 Conclusion and Recommendations ..............................................207
References ..........................................................................................215
BIBLIOGRAPHY ....................................................................... 218
GLOSSARY ................................................................................ 245
ANNEXURES ............................................................................. 250
ANNEXURE 1: Chinese FDI in Pakistan during 2001 to 2014 ....................250
ANNEXURE 2: Treaty of Friendship, Cooperation and Good
Neighborly Relations between the People’s
Republic of China and Islamic Republic of
Pakistan, April 05, 2005.....................................................251
ANNEXURE 3: Major Events in the China – Pakistan Relations
over the Past 65 Years........................................................256
ANNEXURE 4: Ten Major Imports out of All Imports from
China Presented in the Research ......................................267
ANNEXURE 5: Ten Major Exports out of All Exports to China
Presented in the Research work .........................................268
ANNEXURE 6: List of China – Pakistan MOUs ..........................................269
QUESTIONNAIRE .................................................................... 276
1
CHAPTER – 1
INTRODUCTION TO THE STUDY
Introduction
The present research examines China – Pakistan economic relations with
particular emphasis on trade relations between the two countries from the year
2001 to 2014.The era between 2001 to 2014 was very instrumental as it had
severe impacts on the economy of Pakistan. Post 9/11 war on terror in the region
badly affected Foreign Direct Investment (FDI) in Pakistan as it was the front line
state in this war. However, many analyst believe that there was no stalemate in
economic relations between Pakistan and China due war on terror. Pakistan and
China sharing a long history of time tested friendship are committed to fight
terrorism and extremism, which is necessary for peace and stability of the region.
Both countries have enjoyed strong political, defence, social and economic
relations, therefore, 9/11 has not effected their economic relations. According
Zhao the incident of 9/11 and war on terror did not affect or reduce Chinese FDI
in Pakistan (Zhao, December 01, 2015). The current research focuses on the
maximum benefits for Pakistan that can be achieved from China‟s rapid economic
growth by adopting and implementing economic and financial policies since
China is the second largest economy and is on trajectory of further economic
growth.
In 2013, China‟s Gross Domestic Product (GDP) was around US$ 8.227
trillion making it the world‟s second largest economy in terms of GDP.
Examining the Chinese Purchasing Power Parity (PPP)*
in 2012, it was estimated
at US$ 12.405 trillion, hence, China‟s economy stood second to the United States
(US) (“World‟s second largest economy,” October 01, 2013). To be able to
* PPP is a technique used to determine the relative value of different currencies.
2
understand as to how China became the world‟s second largest economy, it is
important to understand its GDP growth.
China‟s annual average GDP growth from the year 2001 to 2010 remained
10.5 percent, whereas, from the year 2007 till 2011 its economic growth was equal
to all of the G7 countries (Malik, 2013). Another key point is that China, with
membership of the World Trade Organization (WTO), was the world‟s largest
trading authority with a total value of US$ 3.87 trillions of global trade in 2012.
Correspondingly, it‟s foreign exchange reserves reached US$ 2.85 trillion by the
end of 2010, which was 18.7 percent growth than the year 2009. China is holding
around US$ 1.16 trillion in the US treasury bonds, which makes it the largest
foreign holder of US public debt. At present, China owns US$ 1.09 trillion and
wants to keep the value of the dollar higher then Yuan as that keeps its exports
affordable for the US and help its economy to grow. China replaced the United
Kingdom (UK) as the second largest foreign holder on May 31, 2007. (“Foreign
holding of US, Treasury Securities” June 15, 2017). Furthermore, China is the
world‟s third largest receiver of FDI among top ten countries which attracts most
FDI from the world. Among the ten countries to attract most FDI, US is on top of
the list followed by Germany with second position. Whereas, China holds third
position, UK is fourth, Canada holds fifth position, Japan sixth, France seventh,
India eighth, Australia ninth and Singapore is at number ten on the list (Top ten
countries projected to attract most FDI, June 13, 2017).
China is also progressively investing overseas, with a total outward FDI of
US$ 68 billion (“World‟s second largest economy”, October 01, 2013). Overseas
investment increases opportunities for China to bolster its economy further
besides increasing its influence abroad. In this regard, China in the past few years
has dynamically increased its foreign investments and has explored investment
prospects in various sectors, for example, natural resource-exploration in Africa,
3
Australia, Canada, and Latin America, which has been dominating its FDI.
Additionally, companies in China have also commenced securing strategic assets
in the high-tech sectors of the US and European. The Chinese Investment outflow
towards Latin America started growing steadily from just US$ 430 million in
2006 to US$ 4.87 billion in 2009 and reached to its peak at US$24.48 billion in
2010. Over the last decade, Australia has become second largest recipient country
of Chinese FDI after US, while China is also the nineth largest investor of FDI in
Africa (Chinese Overseas Investments, June 13, 2017). It is also noteworthy to
mention that China is expected to be the world‟s biggest FDI investor by the end
of 2020 (“China to become one of world‟s biggest overseas investors by 2020”,
June 25, 2015).
With its growing economy, it is pertinent to mention that China‟s middle
class population touched more than one hundred million by the year 2011.
According to a report, compiled by Hurun, China stands at number two in the
world with the highest number of billionaires. The number of billionaires in three
years has swelled from 130 in 2009 to 151. This indicates that China has gained
and developed its economy in a very short time period (Farndon, 2007). This is
because of the prevalence of these attitudes and the change in its economic
policies that China is able to change her economic position in short time period.
An equally significant aspect of its economic growth is the fact of
changing its economic policy, as from its creation in 1949 until late 1978 Chinese
economy was centrally planned. Economic liberalization started in 1978 under the
leadership of Deng Xiaoping (Dillion, 2012). After Chairman Mao Tse-Tung‟s
death in 1976, Deng Xiaoping and the new Chinese Government initiated the
economic reforms and moved towards a more market-oriented diverse economy
(Marti, 2002). This led to making China one of the major economies in the world.
4
Deng initiated to modernize China, for which he promoted foreign trade and more
contacts with foreign nations, particularly the non–Communist nations. The plan
mainly included modernization of agricultural sector and up-gradation of industry.
He emphasized that without improving the agriculture sector and upgrading the
industry, achieving a developed status is very difficult. He also encouraged
development in the sector of science and technology along with improving the
defense forces. At present, China is largely considered as having a market
economy based on private property possession, and is one of the examples of state
capitalism (“World‟s second largest economy”, October 01, 2013). Consequently
after introducing modernisation plan, China acknowledges the importance of
regionalism and hence, has focused on developing strong links with the regional
countries.
After the disintegration of the Soviet Union, the geo-strategic priorities
were remade, having more emphasis on geo-economic consideration, and thus,
preferring regionalism. According to Rehman (2006), Pakistan and China
realizing the need, also emphasized to increase economic cooperation in order to
enhance and develop overall relations in the rapidly changing regional and
international scenario. It was early 1950s, when China and Pakistan entered into
trade relations. The first formal Trade Agreement was signed in January 1963.
The emergence of regionalism increases the importance of expansion of economic
relations. However, defense and political relations between China and Pakistan
strengthened since the inception of both the states but economic relations did not
take off till 2001.
Expansion in China – Pakistan economic relations in particular, has been
progressing rapidly since 2001, despite the fact the region was badly affected due
to the war on terror in the region. It particularly affected the economies of the
developing countries including Pakistan. Still, both the countries focused upon
5
strengthening their economic relations, and thus the period from 2001 to 2010
institutionalized China – Pakistan economic relations. The two countries are
determined to take economic relations to a higher level that is proportionate to
both political and defence ties (Rehman, 2006). The rapid development in
economic relations, since early 2000, is also due to the efforts of public and
private sectors of both the countries which is a good sign for Pakistan. Moreover,
the two countries are working to draw out a road map for trade and to improve
investment chances in Pakistan in the future (Rehman, 2011). As a result, to
strengthen economic relations, China has supported different projects in Pakistan
such as, Gwadar Deep Seaport, Coastal Highway, up-gradation of the Karakorum
Highway, up-gradation of Pakistan railway, China-Pakistan Economic Corridor
(CPEC) and numerous other projects related with the sector (Butt, 2007). The
ground breaking ceremony of Gwadar Deep Seaport was attended by General
Musharraf and the Chinese Vice Premier, Wu Bang Guo on March 22, 2002 and
phase one of the Port was successfully completed in April 2005.
Both Pakistan and China signed six agreements and one MoU on May 12
2001. During that phase, Chinese financial assistance for the agreed projects was
estimated to be worth over US$ 01 billion. The signing of these agreements was in
fact a practical initiative for swelling economic cooperation between the two
countries. Under one agreement, China also approved a grant of fifty million Yuan
for the advancement of economic and technical cooperation between China and
Pakistan (Shabir, and Reema, September 2007, p.177).
From 2001 to 2010, trade between China and Pakistan has grown
significantly from US$ 01 billion to around US$ 07 billion, but the trade between
the two countries is not moving in the direction to create a win – win situation,
because the percentage of Pakistani exports has been decreasing annually and
imports from China have been increasing rapidly. Thus, the equilibrium of trade
6
tends to go in favour of China, leading to unequal trade balance between both the
countries. Although China – Pakistan trade grew by twenty two percent and
crossed the US$10 billion landmark in 2012, Pakistani exports to China are still
very limited. Pakistani exports during 2012 were close to only US$ 2.12 billion,
whereas imports from China were close to US$ 7.88 billion, which are very high
as compared to Pakistani exports (“Pak – China trade”, October 22, 2013).
Despite the fact that the mutual trade has grown, some concerns emerged in
Pakistan regarding the disadvantages of the trade and negative trade balance
between Pakistan and China. For example, the trade between the two has effects
on local business and producers (Six advantages and disadvantages of free trade,
June 14, 2017). Moreover, it also increases dependence on foreign goods (Nine
disadvantages of international trade, June 14, 2017).
The main concern in Pakistan about trade is that the Chinese imports have
been increasing; however, Pakistani products have not found their place into the
Chinese market at the same level resulting in the decrease of Pakistani exports,
which indicates that mutual trade is heavily in favour of China. Above all, it is
also a major concern in Pakistan that the Chinese companies control the Chinese
sponsored industries in Pakistan at financial and managerial levels, which are
sending profit to Beijing (“Pak – China trade”, February 02, 2012).
Under these circumstances, despite the fact that economic relations since
2000 have grown rapidly, Pakistan‟s share remains very low. The trade deficit
between China and Pakistan is presented in the following table, which shows trade
data from 2005 to 2010.
7
Table – 1.1
China – Pakistan Trade
(2005 - 2010)
Year 2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
Imports in US$ m. from
China
1843 3534 4688 4087 4411
Exports in US$ m. to China 354 576 685 701 1154
Source: http://www.tdap.gov.pk/china_tab.php
According to the Trade Development Authority Pakistan (TDAP), China‟s exports
are twenty percent more than its imports to Pakistan. Whereas, Pakistan‟s exports
to China constitute only 0.13 percent, as compared to its imports from China
which is very low, and need to be improved to create a win-win situation (Pak-
China trade data, January 29, 2014).
In this scenario, it is argued that the trade imbalance between Pakistan and
China can be reduced by simultaneous investment and focus on the industrial and
agricultural sector. There is great potential for investment between China and
Pakistan because the latter is fourth largest export destination of the former,
particularly in sectors like, telecommunication, infrastructure, agriculture and
energy. According to Rehman (2011), Pakistan attempted to convince the public
and private sectors of China to bring investment into Pakistan, besides
commodities for viable trade partnership, thereby creating a win-win situation.
Furthermore, besides looking at the increasing trade between China and Pakistan
it is equally significant to understand FDI in Pakistan.
Chinese Prime Minister Wen Jiabao, on his visit to Pakistan in April 2005,
in his address at the China – Pakistan Business Cooperation Conference,
emphasized to further enlarge the scope of bilateral trade and investment between
Pakistan and China. Furthermore, acknowledging that Pakistan has resources,
which needs exploration with the help of experts, and China possesses technology
8
and technical know-how, he emphasized to follow the basic principle of
equivalence, mutual benefits and shared complementary advantages. However,
when after five years the Chinese Premier again visited Pakistan in December
2010, the trade was still in favour of China due to imbalance of import and
exports, and there had been no functional growth on the investment side from
China (Rehman, 2011).
It is important to mention here that during the years 2000 to 2005, the over
all FDIs in Pakistan has increased around six hundred percent, but China‟s share
remained very little. In 2001, the inflow of Chinese FDI in Pakistan was recorded
at US$ 0.1 million and in 2002 and it reached US$, 0.3 million. In 2003 FDI was
recorded US$ 3.0 million and in 2004 it increased to US$ 14.3 million, however,
it declined again in 2005 which was recorded at US$ 0.4 million (Chinese FDI in
Pakistan during 2001 to 2014, June 01, 2017) which resulted in an increase in the
trade imbalance between the two countries (Rehman, 2011). The following table
illustrates the FDI from China and the rest of the world in Pakistan.
Table – 1.2
FDI in Pakistan (2008 - 2014)
Year
2008-
09
2009-
10
2010-
11
2011-
12
2012-
13
2013-
14
2014-
15
Total FDI in US$ m.
3,719.9
2,150.8
1,634.8
820.7
1,456.5
1,698.9
9,87.9
China‟s share in US$
m.
101.4
3.6
47.4
126.1
90.6
695.8
319.1
Source: http://boi.gov.pk/ForeignInvestmentinPakistan.aspx
As mentioned earlier, there are concerns in Pakistan about the trade deficit. The
Pakistani business community has observed that both the private and public
sectors of China show less interest in investment in those areas, which could
9
empower Pakistan to produce an export surplus for Chinese market. They argue
that Chinese industrialists are more interested in selling their products in order to
make speedy incomes (Hamid, 2012). To understand as to why Pakistan could not
achieve a win-win situation in trade with China, a detailed analysis of the facts is
important which is discussed in the subsequent paragraphs.
Pakistan has not achieved the desired outcomes in trade and investment
with China despite having a history of cordial relationship and political
interdependence. Notwithstanding the 1963 trade agreement, that granted Most
Favoured Nation (MFN) status to each other and in October 1982, China –
Pakistan Joint Committee on the Economy, Trade and Technology was set up.
However, practical trade relations could not truly develop due to which Pakistan
could not achieve the desired level of trade and business with China.
According to Shabir and Reema (2007), both the countries conducted trade
under the 1963 Trade Agreement. During that time, Pakistan had multi-modal
trade with China, that is, barter trade and cash trade. However, currently trade
with China is conducted almost entirely on a cash basis in convertible currency
(Shabir, and Reema, September, 2007, p.176). After signing the Preferential
Trade Agreement (PTA) in 2003 with China, which became operative in 2004,
both the countries established a joint group to negotiate and search out feasibility
for a Free Trade Agreement (FTA), which was signed in 2006 between the two
countries and became operative in January 2007 (Anwar, 2014).
As it is understood that FTAs are bilateral agreement between two or more
countries for the purpose of facilitating free flow of trade and investment and
creating closer economic integration among member states by eliminating tariff
and other restrictions on each other‟s commodities for mutual benefits of all the
countries involved. The purpose of these FTAs is not only to serve the economic
10
needs of member states, but also to accommodate political motivations, or in other
words, legitimatize trade between two coalition allies to facilitate and accelerate
the development process between them (Shabir, and Reema, September, 2007,
p.174). In case of China – Pakistan trade, it is important to mention here that
before the formation of the FTA, many Chinese firms were operational in
Pakistan, which demands investigation of the investment scenario in Pakistan.
Moreover, the enormous historic trade deficit with China makes it necessary to
see the impact of FTA on trade between China and Pakistan. The fact however is
that, China has signed FTA not only with Pakistan, but conceptualized FTA with
the ASEAN known as China ASEAN Free Trade Agreement (CAFTA) in 1995 as
well. However, a comparison of China FTA with Pakistan and ASEAN indicates
the concern of Pakistan.
It is also to be noted that the FTA signed with ASEAN and eight other
countries was operative from January 2010. However, ASEAN countries at
present are enjoying trade surplus with China, while Pakistan is suffering from
trade deficit and could not got the desired goals (Anwar, 2014). Consequently,
under those circumstances, it is generally questioned, whether this was a market-
forced choice or a political choice. The most compelling evidence is the big gap in
the level of industrial growth between Pakistan and China. Keeping in view the
above facts and Wen Jiabao‟s vision for a win-win situation for both countries, it
remains difficult to comprehend the trade inequity between the two countries.
Some analyst argue that among others, one of the reasons for the trade
deficit between both countries is due to the reason that Pakistan‟s exports have
been strikingly concentrated in the markets of some countries, for example, USA,
Japan, Germany, Hong Kong, Dubai and Saudi Arabia. Moreover, Pakistan‟s
exports are also limited to commodities like cotton, leather, rice, synthetic textiles,
sporting goods, etc. Also, Pakistan is exporting cotton textile material, leather,
11
chromium, mineral and crude oil, marble and aquatic products to China and these
products have been very small (Shabir, and Reema, September, 2007, p.187).
Analytically, Pakistan has a thin base* for exportable goods and, as
discussed above, more than seventy five percent of its exports originate from
marble, handmade carpet, cotton, rice, leather and sports goods. Diversifying
goods to make them appropriate and much suitable for the Chinese market, is the
kind of active export policy that could improve the capacity of exports and help to
resolve the trade inequity. Therefore, it will not be feasible for Pakistan to upturn
its exports to China without this specific step to improve the quality of its export
commodities and search out the need and demand of the Chinese market.
Moreover, Pakistan should pursue Chinese investment for schemes aimed at
export modification. If Pakistan wants a balance in trade with China, it needs to
upgrade her industries including leather, marble, textile and handmade carpets and
also focus on the export of mangoes and rice. Pakistan also needs to take measures
to eliminate the invisible trade.*. Moreover, the up-gradation of industries, which
is need of the time, will improve the quality of products. If Pakistan has quality
products to sell, the huge Chinese market would be the right destination for them
(Khan, 2013).
1.1 Aims and Objectives
Since 2001 China – Pakistan economic relations have gained some positive
momentum; but still there is trade imbalance between the two countries,
highlighting that regular trade flows have always been in favour of China and
Pakistan could not gain the desired goals from this trading relationship with
China. To understand the trade inequity between China and Pakistan as discussed
* Means Pakistan has limited exportable commodities.
*Illegal trade from China via Afghanistan to Bara market in Tribal Areas and Karkhano market in
Hayatabad. Currently, most of Pakistani markets are heavily flooded with Chinese smuggled goods
– a major part of the illegal trade in the country.
12
above this study aims to explore the areas of cooperation between Pakistan and
China, which are very vital for creating a win-win situation for both the countries.
The above aim will be accomplished by fulfilling the following research
objectives:
To explore the ways and techniques through which Pakistan can secure a
suitable place in China‟s market for its exports.
To divert the direction of trade and its outputs in favour of Pakistan, to
create balance of trade and create a win-win situation.
To pinpoint the areas of Pakistani industrial products which are the
demand of Chinese market.
1.2 Significance of the Study
This study is significant in many ways. There is abundance of scholarships
available on China – Pakistan economic relations. The present study examines
China – Pakistan economic relations with particular emphasis on trade relations
between the two countries from the year 2001 to 2014 .The era between 2001 and
2014 was very crucial because Pakistan‟s alliance in war on terror brought a war
to Pakistan which was not its own. Many terrorists inside Afghanistan fled the
country and took refuge in the adjacent tribal areas of Pakistan. The terrorist
started attacking schools, infrastructure, civilians, military and paramilitary
personnel throughout the country, which adversely affected the economy of
Pakistan and Foreign direct investment (FDI) in Pakistan. Pakistan was isolated
as many neighboring countries were blaming it for sponsoring terrorist activities
in their countries. During this time, China stood beside Pakistan, and provided
moral and material support.
13
Furthermore, the present study highlights the importance of economic and trade
relations with China keeping in view the regional set up and Pakistan‟s relations
with other regional countries, particularly Afghanistan and India. Pakistan has
been facing various challenges due to ongoing militancy and the phenomenon of
terrorism. There are chances that it might lose political support of China as the
latter itself is faced with challenges posed by East Turkestan Islamic Movement
(ETIM) in Western China.
Therefore, in this scenario, it is argued that both economic and political
relations are dependent on each other. Hence, to strengthen these relations, this
research helps to explore the ways through which Pakistan can balance its trade
with China, because equal trade between the two is vital for a win-win situation
for both. This study also focuses on China‟s huge market, and the demand of the
Chinese market which could be fulfill by Pakistani exports, because Chinese
market is the right destination for a variety of Pakistani exports. The study also
provides a thorough research on different aspects of trade of Pakistan in general
and with China in particular. In addition, it suggests viable solutions and options
for policy makers of Pakistan to overcome the weaknesses due to which Pakistani
goods cannot find the desired place in the Chinese market. Furthermore, the study
highlights the areas where both the countries can take advantages from each
other‟s expertise and technical know-how. For instance, China can facilitate
Pakistan in improving the energy sector, as Pakistan is an energy deficient
country, while Pakistan can provide them a gateway to other parts of the world
particularly to Arabian Sea, Indian Ocean and the Middle East via the Gwadar
port.
14
The expected outcomes of the study are as under:
Pakistan can secure a suitable position in trade with China to take
advantage of the latter‟s rapid economic growth.
Pakistan can get maximum advantage from China‟s huge market, by
making it the right destination for Pakistani exports.
By exploring and analyzing the weaknesses and flaws in its trade and
economic policies, Pakistan will be able to achieve the desired outcomes in
trade and investment with China.
1.3 Methodology
Methodology used to carry out this research work is “inductive as oppose to
deductive”. The three basic principles of methodology focused during the entire
research work are;
a. “Where you are”, which refers to literature review.
b. “Where you want to go”, which means Hypotheses and theoretical
framework of the study.
c. “How you want to go”, that is the type of methodology adopted to carry
out the research work (Rehman, June 05,2017).
As the research follows mixed method strategy, both qualitative and
quantitative methods are used. Primary and secondary sources are utilized for data
collection. Primary sources consist of field research, structured and unstructured
interviews with experts on the subject to substantiate research in an effective
manner. Secondary sources include books, journals, periodicals and newspapers.
Throughout the course of this research, a wide range of literature has been
consulted to obtain all the essential record of the relationship between the two
countries. Furthermore, conference papers, reports of working groups, workshops,
official documents and research studies carried out by local and international
15
scholars, research institutes and organizations have also been integrated. Online
information is also employed. The researcher also conducted survey with the
relevant authorities and personnel related to trade between the two countries. The
researcher made a number of visits to the Embassy of Peoples Republic of China
in Islamabad to collect data, and interviewed officials at the Embassy. A number
of Government offices have been visited and the concerned officials were
interviewed to collect data, such as Trade development authority of Pakistan,
Water Management Department Khyber Pakhtunkhwa, Agricultural Extension
Department, Provincial Disaster Management Authority and Peshawar Chamber
of Commerce, Khyber Pakhtunkhwa. Furthermore, markets in Hayatabad known
as Kharkhano Markets in Peshawar also visited to collect data from local
businessmen. Above all, to carry out this research work in effective manner
experts from Institute of Strategic Studies Islamabad (ISSI), Department of
Economic, Department of Political Science, Department of International
Relations, Institute of Management Studies, Collage of Home Economics and
Area Study Center in University of Peshawar were interviewed.
1.4 Hypotheses
This study seeks to test the validity of the following hypothesis:
Pakistan has not benefited from Chinese rapid economic growth.
The political interdependency will result in the improvement of the
economy of Pakistan that will create a win – win situation.
The political and economic interdependence between China and Pakistan
will increase the international standing of Pakistan.
1.5 Chapterization
The study consists of the following chapters:
16
Chapter 1: Introduction to the study
This chapter of the study highlights the background, aims and objectives, and
significance of the study. It also includes literature review and methodology used
in the research. The chapter focuses on all-weather friendship between Pakistan
and China particularly in terms of strong defense and political relations and
economic relations. Moreover, it briefly highlights the rapid economic growth of
China, which has set new trends in the global market and examines the concerns
raised by various quarters within Pakistan about the imbalance in trade with
China. Particularly export of Pakistani goods to Chinese markets and the
realization to further strengthen economic relations with China, which is vital for
the economic progress of Pakistan, is discussed.
Chapter 2: Theoretical Framework
Theory of Liberalism, its sub-theories and the theory of Flying Gees are
elaborated in this chapter. It discusses the application and relevancy of these
theories to the economic and trade relationship between China and Pakistan. The
chapter discusses that international trade has been influenced by the theory of
Liberalism and its sub-theories in different eras and particularly it has influenced
China – Pakistan trade. Traditionally, both the countries have political dependency
on one another, but in economic and trade ties China has advantage over Pakistan.
The chapter highlights the importance of trade balance between both the countries.
It also focuses on the fact as to how a push forward in China – Pakistan trade
relations on equal basis is important to create a win-win situation for the larger
benefit of both China and Pakistan. The chapter also discussed that development
is a step by step game, and Pakistan can follow the Chinese model of development
to achieve its economic development.
17
Chapter 3: Historical Background of Economic Relations
In this chapter, historical background of the economic relations of China and
Pakistan are discussed to explore and find out the possible areas of cooperation
and mutual advantage. The chapter also discusses China – Pakistan relations in
terms of the former‟s political and economic relations with other regional
countries. Furthermore, it elaborates that economic and trade relations exist
between China and Pakistan since the inception of Pakistan. However, both the
countries paid more attention to political and defence ties as compared to
emphasis on enhancing the volume of the trade between them. Nevertheless,
since 2001, China – Pakistan trade and economic relations got momentum and
have strengthened gradually. Different aspects of China – Pakistan trade,
advantages and disadvantages of trade between the two countries are also focus of
this chapter. It highlights that for long-term cooperation, the balance of trade
between the two countries is very important. Moreover, it discusses that both
China and Pakistan need to reevaluate their economic and trade policies to create
a win-win situation for themselves.
Chapter 4: Imports and Exports between China and Pakistan
This chapter enlists the yearly imports and exports of China and Pakistan. The
statistical data of trade between the two countries, since 2001 to 2014, is presented
year wise in the chapter. The chapter has been divided into fourteen different
sections, each section have two parts. Part one discusses imports from China while
part two elaborates exports to China. Furthermore, for comparison and analysis
ten major products from imported commodities are presented in all fourteen
sections with the year wise increase or decrease in imports. In the same fashion,
ten major products from export commodities are presented with annual increase or
18
decrease. It also details statistics of the trade volume of the two countries and
explains the trade deficit between the two countries.
Chapter 5: Areas of Mutual Cooperation and Advantage
This chapter assesses and analyzes the areas of cooperation and mutual advantage,
based on the history of economic and trade relations between the two countries. It
highlights the areas in which cooperation is much needed for the development and
strengthening of economic relations between the two countries. The chapter
highlights the areas in which China has tremendous expertise, while Pakistan due
to lack of technical know-how despite rich in resources, is suffering in that
particular area. The chapter also examines that agriculture sector, disaster
management, water management, exploration of energy and minerals and
cooperation in transfer of technology such as home appliances, automobiles,
weapons and hybrid seed production technology are the core and important areas
of cooperation between Pakistan and China which can empower Pakistan to
balance trade with China.
Chapter 6: China – Pakistan Economic Corridor
The chapter assesses and analyses the importance of China – Pakistan Economic
Corridor (CPEC). The chapter highlights the importance of CPEC for Pakistan
and how it will increase sea borne trade and will promote shipping industry of
Pakistan, which as a result will contribute positively in booming Pakistan‟s
economy. The chapter also analyses the importance of this project for China and
highlights as to how this project will reduce the distance for Chinese trade with
Middle East, Europe and Africa, particularly maritime route distance. Moreover,
the chapter also focuses on the challenges for the said project such as security
19
threats, regional and global reservations, and political controversies in Pakistan
about the route direction of CPEC and discusses the share of the provinces.
Chapter 7: Analysis and Recommendations
Based on analysis of the economic relations between China and Pakistan,
recommendations are put forward in this chapter. It entails suggestions for policy
makers as to how Pakistan can improve trade with China and how trade balance
can be achieved. Moreover, it looks into the future prospects of China – Pakistan
economic relations.
1.6 Conclusion
Pakistan has enjoyed very cordial relations with China since its inception. Both
the countries supported one another on different issues at several international
forums. China and Pakistan have strong defense and political relations but
economic relations could not reach the level where both the countries are at par. It
is argued in this prospect, that strengthening of economic relations with China is
vital for the economic progress of Pakistan. Pakistan can take advantage from the
Chinese rapid economic growth by enhancing economic relations with the latter.
Since 2001 China – Pakistan economic relations gained some momentum; but the
bilateral trade has remained in favour of China, and has not added much to
Pakistan economic growth. There are, however, bright prospects for a win-win
situation with the initiation of CPEC project which are discussed in detailed in the
study.
20
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CHAPTER – 2
THEORETICAL FRAMEWORK
Introduction
The chapter presents the theoretical framework within which this study has been
conducted. The theoretical framework helps in analyzing the factors influencing
China – Pakistan economic relations particularly after 2001. To understand China
– Pakistan economic relations in theoretical perspective, Liberalism and its sub
theories, such as, Sociological Liberalism, Institutional Liberalism, Republican
Liberalism, Interdependence Liberalism and the theory of Flying Geese are
examined and applied on the current study. The chapter deals with the era of
Liberalism, but the focus is more on economic Liberalism. Economic Liberalism
is about the principles of free trade symbolised by reducing tariff barriers and in
opening markets to global economic network, for example, the era of embedded
liberalism of late 1940s. Embedded Liberalism was followed by neo-Liberalism
and mixed-Liberalism. Before 1940s, classical Liberalism dealt with international
trade but at that time Pakistan had not come into existence, therefore, the study
focuses on the era of Liberalism after 1940s. To be able to understand liberal
trends in China – Pakistan economic relations, it is necessary to understand and
explore Liberalism and its sub theories with a comprehensive explanation and
analysis.
2.1 Liberalism
The scholars of international relations usually advocate one of the two main
theories – Realism or Liberalism. The classical or neo - Realist school of thought
is more skeptic about the prospects of peace, cooperation and human progress,
whereas, Liberal school of thought is more optimistic and upbeat about human
25
nature and human potentials. Liberalism is a political and economic philosophy
focusing on progress and individual freedom. In other words, it is the economic
and political concept of the government. By economic point of view, it is the
responsibility of the government to ensure equilibrium among majority of the
citizens in term of providing open competition to them. In political point of view,
Liberalism is a concept of providing liberty and freedom to the people by their
representative governments (Business Dictionary, June 23, 2017).
Koehane in one of his article quotes Michael W. Doyle as one who sees
“liberalism similar to „a family portrait of principles and institutions‟, focused on
the indispensible principle of freedom of the individual and associated with
negative freedom and positive freedom and democratic participation or
representation. Institutions are essential for exercising these rights (Robert, 2012,
p.127). By negative freedom, he means freedom from arbitrary authority and by
positive freedom, the social rights essential for promoting the capacity for
freedom. Therefore, it can be argued that Liberalism is all about protecting and
enhancing individual‟s freedom. Liberals also expect from their representative
governments to protect their liberty and freedom from being harmed by others
(Liberalism Politics, June 23, 2017).
As discussed, Liberalism usually emphasizes upon optimistic view of
human nature. The liberal school of thought relies greatly on human reason and is
convinced that rational principles can be applied to international relations.
Liberals are of the view that individuals are self – centered and competitive up to
a certain point. However, they also classify that individuals share many benefits
and are involved in supportive social actions. For example, non – government
organization working in any society, or in other words social workers in the
society and their cooperative social activities, which results in larger benefits at
local as well as global level (Jackson, Sorensen, 1999).
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Furthermore, besides being optimist, Liberal school of thought also focuses on
development. Development in the view of liberals leads to development of
individual. The key theme of liberalism is the pleasure and good will of individual
human beings. In short, liberal thinking is closely associated to and connected
with the appearance of the contemporary constitutional state, because the pre-
constitutional world was lacking liberal thoughts and the societies and individuals
were not very liberated and more so the individuals did not enjoy much
importance (Jackson, Sorensen, 1999).
The Liberal school of thought also emphasize on modernisation, by
clarifying that modernisation is a process involving development in maximum
areas of life. Furthermore, the process of modernization increases the scope for
collaboration across international boundaries. In pre-modern times, people and
scholars use deductive methods in their dealings and in research, while in modern
times inductive methods is adopted by the people, which is indeed the outcome of
Liberalism (Rehman, June 05, 2017). Liberal school of thought further elaborates
that progress means improved life with positive change for, at least, the majority
of individuals. According to this school of thought, humans possess reason, and
when they apply it to international dealings, the result will be greater cooperation
(Jackson, Sorensen, 1999, p. 110). To further exemplify Liberalism, it is vital to
understand the basic assumptions of Liberal school of thought.
2.2 Basic Assumptions of Liberal School of Thought
As discussed above, the Liberal school of thought focuses on norms, regimes,
economic interdependence and international organizations. Liberal do not see any
difference between high-politics and low-politics and believe that issues like,
terrorism, drug trafficking, human rights, environment, technology and finance are
as important as are security issues. They reject the view that the major influencing
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force of international politics is chiefly dominated by military and security related
issues. They are of the view that the agenda of international politics is varied and
all-encompassing. Hence, they put economic and social issues at the forefront of
foreign policy discussions (Devitt, September 01, 2011).
Liberalism rests on a number of assumptions. Based on the above
discussion, Jackson and Sorensen present the basic Liberal assumptions as: a)
Liberals always take optimistic view of human nature, which means positive
approach toward human dealings. b) They also emphasize upon a conviction that
international relations can be cooperative rather than conflictual. c), Finally,
liberals have strong belief in human progress. This indicates that liberals focuses
on soft power such as economic, infrastructure, media, strong educational system,
enrich culture to inspire and attract the international community rather than
through military power (Soharwardi, April 09, 2012).
Hence, Liberal assumptions emphasize upon progress and cooperation
between and among states and individuals, which ultimately leads to the
development of all stakeholders. Besides the basic Liberal assumptions, an equally
significant aspect of Liberalism is to understand the foundation that has been
provided by various philosophers to Liberal school of thought, which is discussed
in the subsequent paragraphs.
2.3 Philosophical Foundation of Liberalism
The Liberal customs and traditions in international relations are closely associated
with the appearance of the contemporary liberal state. John Locke (1632-1704)
was the principal advocate of Liberal philosophy. He saw numerous potential for
individual growth in modern civil society and capitalist economy. He highlighted
that both could do well in states that guaranteed individual freedom and liberty.
He further claimed that states are there to guarantee the freedom of their people
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and consequently, states facilitate individuals to live their lives and follow their
pleasure in daily life without interference from other individuals (Jackson,
Sorensen, 1999).
Jeremy Bentham (1748-1832), an English philosopher, who coined the
term „International Law‟, further extended this argument. He believed that it is in
the interest of states to adhere to International Law in their foreign policies as
international trade is bound by International Law. The result of this is in the
broader interests of individuals, because it will protect individual rights
internationally. Furthermore, Immanuel Kant (1724-1804) emphasized that
„Republics‟ (which are defined as constitutional and mutually respectful states)
could ultimately create harmony in the world, which is also in favour of
Individuals (Jackson, Sorensen, 1999). This mutual respect of state for each other
ultimately involves them in cooperation, which results not only in their prosperity
but also their citizens.
Thus, it can be argued that the philosophical foundation of Liberalism and
the present research are supplementary, as discussed in the subsequent paragraphs
for further clarity. To understand the association, Liberalism can further be
classified into four categories, which are the four strands of Liberal thoughts: a)
sociological Liberalism, b) institutional Liberalism, c) republican Liberalism, and
d) interdependence Liberalism.
Sociological Liberalism highlights non-governmental connections among
societies, such as communication between individuals and groups. Sociological
Liberals perceive international relations in terms of relationships between and
among people, groups and organisations in different states. They believe that
increased transnational relations could help create new forms of human society
(Jackson, Robert and Sorensen, 2006). Sociological Liberals acknowledge that
international relations is indeed relationship between and among people, groups
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and organizations. Their emphasis is again on the fact that increasing international
relations could help create new forms of society (International Relations portal,
June 13, 2017).
Indeed, one can argue that sociological Liberalism is that branch of Liberal
school of thought which emphasizes that international relations is not only state to
state relations, but it also deals with multi – dimensional relations such as relations
between people, groups and organizations belong to different parts of the world.
Institutional Liberalism underlines the significance of planned
collaboration between states or in other words, institutional Liberalism
emphasizes on the importance of cooperation between states (Lanuza, June 01,
2017). According to Devitt, Liberal institutionalism indicates that to achieve peace
in international affairs, states must cooperate with each other and in effect yield
some of their sovereignty to build „integrated community‟ for promotion of
economic growth and respond to regional and international security issues.
(Devitt, September 01, 2011). Liberal Institutionalism also means that power must
be used, though with restraint, in the interests of liberal values. That is to say,
those institutions serve a vital social purpose since they are crucial for co