China and Pakistan have just laid down the foundation of an economic deal to rival that of the European Union. What effects will that have on businesses engaging in International trade?
China has been looking for a critical new trade route for some time. With manufacturing at home dropping and GDP growth stalling, a deal with Pakistan is a huge win, even as it comes with a promise from China of $46 billion in energy and infrastructure investment.
The trade deal will enable profitable access to the distribution and import potential of the Arabian Sea via Gwadar Port. This does not, however, come without its risks: Pakistan remains a relatively unpredictable country, home to extremism and subject to intense scrutiny, particularly from the US.
This uncertainty is why this deal has been decades in the making and will not be easily implemented. China has seems to have decided that benefits outweighs the possible risks. This certainly isn't the first time we've seen such tactics: China's investments in Africa have been highly risky, deals themselves which have been subject to intense scrutiny.
For Pakistan, being a partner in China’s strategic ambitions is highly appealing. The promise of investment is extraordinarily timely, especially with their recent crippling electricity shortages. Having a guaranteed destination for their exports may be even more lucrative than the investments, with China's appetite for resources seemingly infinite at the moment.
Meanwhile, a stable Asia has given European businesses a reason to be optimistic over Asia-EU trade. The predicted stability in previously-deemed no-go zones of Pakistan will be the result of the de-escalation of several militarised areas. This is likely to entice business to invest in what may be a bountiful market.
The news that China plans to secure much of this market is therefore likely not to be the most welcome of news for those in the EU. Competition from China is likely to lock out a lot of potential trade.