The Dragon from the Mountains: CPEC from Kashgar to Gwadar
by Prof Matthew McCartney
Cambridge University Press 2021, 274pp

Reviewed by: Dr Adnan Naseemullah, King’s College London
26 January 2024
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The China-Pakistan Economic Corridor (CPEC), a landmark set of investment projects announced by President Xi Jinping in 2015 that would link Pakistan’s Karakoram border with China to the Arabian Sea with road and rail linkages and energy projects, has dominated the discussions of Pakistan’s economy and regional relationships over the last decade. The proposed $46 billion Chinese investment, targeted toward Pakistan’s critical vulnerabilities in energy and connectivity, has been seen by some as a means to break the cycle of dependency and underinvestment plaguing Pakistan, and by others as simply dependency in a new form. A sober assessment of the nature and impact of CPEC was thus well past due.

McCartney’s new book, impressive given that it was published in the depths of the Coronavirus pandemic, offers readers an engaging set of perspectives on CPEC, broken down into its component dimensions: the forms of infrastructure development, economic spill-overs, the measurement of success, the impact of Special Economic Zones (SEZs), the impact of greater China-Pakistan trade, and the possibilities of industrial policy that can maximise the benefits from this investment.

Much like McCartney’s previous volumes, the book does not have an overall argument. Rather, separate chapters represent investigative essays on a common theme, reflecting a careful parsing of economic literature, applied to CPEC in comparative perspective. Some of the best discussions of the book situate CPEC within broader theoretical frameworks in development economics. For instance, we are exposed to the problem of endogeneity in assessing the impact of infrastructure (45-47), the critical importance of “the leading sector” in economic development (59-62) and the notion of complementarity between economies to derive benefits from closer engagement (81-83). The benefit of this essayistic approach is greater flexibility: specific discussions can be free to follow their own course without needing to fall back to an overarching theoretical premise. Readers who are solely interested in CPEC as infrastructure investment are treated to a rich discussion that brings in the impacts of railroads in colonial India and a comparison between Mexico and Brazil, but one which is not closely connected to a global overview of the distinct phenomenon of SEZs. This disparateness, in part, reflects the nature of CPEC itself as a multidimensional and complicated object of study. There are, however, some drawbacks. For instance, McCartney’s chapter on industrial policy stands apart from the others by offering a totalising, normative perspective on Pakistan’s development. While it represents a powerful argument for Pakistan to undertake a more coordinated industrial strategy, following the logic of 19th century German “national political economy” and the more contemporary instantiation of the developmental state, it could belong in any one of McCartney’s other volumes on Pakistan’s political economy. It has, moreover, only a glancing reference to CPEC. While the book’s overall argument could have been structured around this theme – that CPEC’s positive impact is contingent upon Pakistan’s capacity to shape and implement industrial policy – it was not in fact structured in this manner.

McCartney concludes the book as he begins it, by charting a course between pessimistic and optimistic appraisals: “there is little reason to think that the CPEC will turn Pakistan into a ‘Falcon Economy.’ At the same time, there is not enough evidence to justify a conclusion that the CPEC is a Chinese-dictated agenda that aims to turn Pakistan into a debt-dependent and subservient ally” (223). This is a careful, nuanced appraisal that is rare on a subject that tends to be caught up in frenzied agitation surrounding Pakistan, China, and their relationship at the dawn of a new geopolitical era. McCartney makes the most of his extensive experience teaching development studies to provide lessons from other cases and to ask hard questions in ways that make the stakes of CPEC more legible. As such, it is a noteworthy accomplishment.

At the same time, there are elisions and challenges with the book that have become more relevant now than may have been evident when it entered production. First, Pakistan’s economy as of 2023 is not the sanguine story that McCarney starts the book with: the country has suffered persistently high inflation, stagnant growth and ever-present balance-of-payments difficulties, along with the political instability associated with the rise and fall of Imran Khan’s political project. These difficulties are not recent but represent a disturbing trend; in 2006, India and Pakistan had close to the same per capita income, but fifteen years later, the latter had two-thirds that of the former. The deep difficulties with Pakistan’s economic mismanagement and low productivity, despite the extraordinary potential of the country, have deep political roots. One of these is Pakistan’s reliance on influential allies to fund persistent trade deficits, in effect leveraging its geopolitical rents to great but diminishing effect: the United States (and relatedly, the IMF), Saudi Arabia and the Gulf Countries, and of course, China. Further, the lavish spending of the US on Pakistan during the Musharraf years, followed by abrupt withdrawals of economic assistance, reoriented the economy toward consumption and away from production and investment. Looking at CPEC from this angle, then, it represents both a great opportunity to address the country’s most severe vulnerabilities – underinvestment in energy foremost among them – but perhaps also yet another example of Pakistan’s dependence on foreign financial assistance to manage its economic affairs.

China also finds itself in a much more vulnerable position after the pandemic, which has also uncovered serious vulnerabilities with its own growth model. Most seriously, massive investments in infrastructure and residential development have been financed by debt, now at 2.8 times GDP. This imbalanced growth model, following its export promotion phase (roughly 1994 until 2008), critically shapes its external political economy in ways that are not particularly emphasised by McCartney, who remains relatively sanguine about the Chinese economy and investment abroad. It does suggest that there are quite prosaic explanations behind CPEC and the rest of the Belt and Road Initiative (BRI): state-owned enterprises in construction and infrastructure have excessive overcapacity – there are few roads or rail linkages left to build – and so exporting these services to receive higher returns than in the domestic economy makes economic sense, but only that. China is also keen on projecting its soft power through providing infrastructure. Pakistan is theoretically a good target for this charm offensive, given close and constant diplomatic ties going back to the 1950s. The China-Pakistan friendship was always, from Pakistan’s side, an elite strategic proposition, grounded in the common security threat from India, however. It’s not clear whether greater Chinese penetration into Pakistani society and the economy will in the end make for joy or grievance. McCartney, trained as an economist, could hardly be expected to delve deeply into the sociology or the international politics of Pakistan-China relations, but they are quite important in determining the outcome.

The book makes one thing very clear. Over the next two decades, CPEC will be a key test of China’s proposition that infrastructure is the source of successful development. This was the mantra of the World Bank in the 1950s and 1960s, but has more recently been replaced by a faith in markets, institutions and the rule of law as necessary and sufficient for development. In a way, both are claiming to teach the lessons of the East Asian miracle. If Pakistan does succeed economically because of the CPEC investments, despite its institutional shortcomings, and further, that these investments might help the country forge an industrial policy, it would represent a perfect case for China’s approach to development. In that sense, McCartney’s book lays out an important question which may be answered in years and decades to come.

© Bloomsbury Pakistan 2024

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