The most important story in finance and global politics of the decade may have taken place two weeks ago. Global finance, already on a steady course in shifting eastward, took a large leap on April 19. By implementing a plan, several years in the making, one nation crept closer to joining the only current occupant at the superpowers' table, the United States. Recently having become the world's largest consumer of energy, China took steps to alleviate its difficulty in getting its energy and may have simultaneously changed the way global politics work.
Despite being the third largest country on earth, China is landlocked on its northern, western, and southern borders. This forces China to use its eastern border for most of its transport needs. This means the vast majority of the crude that the Chinese use travels almost 10,000 miles. China wants an alternative. Not only because it would save several billion dollars a year in transportation costs by knocking off 7,000 miles from this journey, but primarily because it would no longer need to risk its energy lifeline by having it travel through open seas and through sovereign transport corridors. Enter the China Pakistan Economic Corridor.
Chinese President Xi Jinping travelled to Pakistan marking the first state visit by that country's president to Pakistan. While in Pakistan, Xi and Pakistani Prime Minister Nawaz Sharif signed an agreement launching the Pakistan China Economic Corridor (both variations of the corridor's names are used.) The agreement calls for China to invest over $45 billion in Pakistan in the coming years with the first $26 billion being invested almost immediately. Funds will be invested mainly in developing Pakistan's transport infrastructure and its perpetually starved power grid.
Pakistan and China share a relatively small border, one that is both neither fully uncontested nor well developed. The northern Pakistani/far-western Chinese border is an unlikely location for major economic development but that is exactly what is happening. The Pakistanis have agreed to allow the Chinese to use build, maintain and operate ports in southern Pakistan. Initially Middle Eastern crude will enter Pakistan at the Gwadar Port in southwest Pakistan where it will then be transported by road and rail north to the Chinese border. In the future, a trans-Persian-Pakistani pipeline is planned for cheaper and faster transport of Middle Eastern oil to China's interior.
Most of China's largest cities largely sit in the east and south. Over the past two decades, the Chinese government has worked hard in developing a high-speed rail network making the development of the interior more feasible. In the west, the minority Turkic Uighur population makes up the majority of the inhabitants of the Xinjiang province. Numbering over 10 million, the Uighur's live in what is commonly called "East Turkistan." Developing these areas, those that border Pakistan, may both bring jobs and investment to those areas which were previously ignored by Beijing. Doing so would be a win-win for China.
The major issue here is not that two countries have signed an economic cooperation agreement, but that American ally Pakistan has entered into a multi-decade-long, multi-billion dollar agreement with China, potentially replacing the U.S. as its "most favored nation." China has recently been flexing its political and economic muscle with several spats over uninhabited islands claimed by both China and Japan. This has angered the Japanese and been met with disapproval by the United States. China has also invested billions in South America and more notably Africa. These investments while worrisome have not been cause for alarm by the United States, which has relatively little economic interest in these continents. However, Pakistan and Afghanistan are countries in which the United States has invested hundreds of billions of dollars. Allowing the Chinese to enter into these spheres of American influence may be the beginning of a new era in this part of the world.
The Chinese are, with the Japanese, the largest holders of American debt globally. They each hold nearly $1 trillion of American debt in their central banks. The world is watching China's moves and is asking itself if the United States will allow China to use its economic might in historically American spheres of influence. In the next few years, this question will be answered and the world will either enter into a new era of a U.S.-Chinese oligopoly or the United States will answer with its own renewed efforts at holding on to these spheres.