China and Pakistan have agreed to accelerated progress on the China-Pakistan Economic Corridor (CPEC), a massive bilateral project to improve infrastructure within Pakistan for better trade with China and to further integrate the countries of South Asia. CPEC is part of the larger Belt and Road Initiative (BRI) to improve connectivity, trade, communication and cooperation between several countries. BRI was announced by the Chinese government in 2013, and work to achieve this goal has been in progress since then. CPEC in Pakistan includes projects such as a 3,000km road construction, water-electricity dams, building and rebuilding of sea-and-land corridors as well as work on deep water port in Gwadar in the Arabian Sea and a well built road and rail link from this port to Xinjiang region in western China. This port would be a shortcut trade route between Europe and China. In Pakistan, the CPEC will overcome electricity shortfall, infrastructural development and modernizing transportation networks. Pakistan can also move itself from an agricultural based economic structure to industrial based and CPEC is only the key project to achieve this goal.

Pakistan officials visited China to push work on CPEC

Pakistan Foreign Minister Ishaq Dar had paid a three-day official visit to China, where he met with  Minister of the International Department of the Communist Party of China, Liu Jianchao, where they discussed issues related to the CPEC.

During the meeting in the capital city, Beijing, the two sides agreed to further accelerate work on CPEC projects and they also discussed the longstanding cooperation and exchanges between the political parties of Pakistan and the Communist Party of China.

Senator Dar reaffirmed Pakistan’s firm support to China on its core issues while Minister Liu expressed China’s support for Pakistan’s sovereignty, territorial integrity and high-quality socioeconomic development, according to a statement issued by the Foreign Office.

The two leaders also reaffirmed the importance of the All-Weather Strategic Cooperative Partnership between Pakistan and China and to further reinforce mutually beneficial collaboration. “

They also expressed joint determination to accelerate progress on all CPEC projects including ML-I upgradation, Gwadar Port and KKH realignment.

CPEC security is important to Sino-Pakistani ties

China and Pakistan both are on the same page to accelerate work on CPEC, but security is the main obstacle and the important part of the project is Gwadar Port which is located in Balochistan, a state where security incidents to hamper CPEC work has been on large scale.

Indeed, CPEC projects have yielded tangible benefits for the local economy and its people, but the recent wave of attacks has been one of key challenges, which Pakistani security agencies apparently failed to overcome.

A view of hydel power project under China-Pakistan Economic Corridor (CPEC) built on Jehlum river.

Pakistani security apparatus must put security issues on their priority in the wake of recent attacks against Chinese workers.

On May 9, at least seven workers were killed in the city of Gwadar in Balochistan, while a few weeks earlier, 11 people were shot dead in two separate incidents again in Balochistan.

It is worth mentioning that all the seven victims in Gwadar and the nine bus passengers who were gunned down near Noshki were from Punjab province. These targets clearly add to the ethnic dimension of the incident and this is because the Baloch Liberation Army (BLA), has been openly said to target anyone as they want freedom of Balochistan. Targeting people from Punjab is part of their strategy to pressurize the central government in Islamabad.

BLA group would do everything to hamper CPEC proejct

Meanwhile, BLA would also not hesitate to attack Chinese sites and workers in a bid to hamper the work on CPEC and BLA will continue to target Chinese engineers to stop progress on CPEC as well as to damage China-Pakistan relations.

On March 26, five Chinese nationals and a Pakistani citizen were killed in a suicide attack targeting a vehicle carrying Chinese staff working on the Dasu Dam in the Khyber Pakhtunkhwa province.

It is important to mention that similar attacks targeting Chinese citizens happened in 2021 and 2022, leaving many people dead and wounded.

Indeed, each of these terror attacks has its own specific dynamics and the target is clear to just hamper CPEC and also to discourage China on CPEC project, but so far Beijing’s reaction to the incident has been firm, but at the same time for example after March 26 attack, Beijing called for a thorough investigation, and even called for a forming a join investigation team. China also assured that Beining and Islamabad’s cooperation can not be sabotaged by any attempt and recently both agreed to accelerate work on the CPEC.

There have been security failures on part of Pakistan

Undoubtedly, there have been security failures on the part of the security establishment of Pakistan, which failed to maintain security across the country, especially in Balochistan. The Pakistan army needs to chalk out an effective security plan to help improve security and avoid any security lapses that could affect Pakistan-China interests, and particularly to protect the lives of humans. The recent killing of seven barbers in Balochistan is unjustifiable.

Security issue has always been a headache in Pakistan, where several big incidents happened, but there could be lots of internal, regional and international reason behind that. But what is the most important is that Pakistan is also suffering from fragile economic condition and CPEC is one of the most important projects that could play an important role in improving the country’s economy.

Asian governments are increasingly intervening in the market to stem the slide in local currencies that has been driven by the strong US dollar this year.

According to the Nikke Asia report, the relative strength of the US economy and high interest rates, which are likely to remain high for an extended period, have caused Asian currencies to weaken.

Asian policymakers are responding to the dollar’s strength with varying degrees of caution, from verbal warnings to interest rate hikes. Some are even believed to be intervening by buying local currencies from the market. The move is seen as “undermining the credibility of central banks”, says the report.

Analysts will be focusing on the US Consumer Price Index for April, which will be released on Wednesday. Last month’s data caused the Japanese yen to fall sharply against the dollar. The Japanese yen is one of the Asian currencies most affected by the stronger-than-expected US economy.

Intervention continues as yen falls in Japan

Analysts say that although official data has not yet been released, the Japanese government appears to have intervened twice on 29th April and 1st May to support the yen. Prior to the first suspected intervention, the yen had fallen to its lowest level in 34 years, breaching the 160 level against the dollar.

The yen’s decline has been driven by the almost 5 percentage point difference in bond yields between the US and Japan. According to Refinitiv, the Japanese yen is hovering around 155 against the dollar, down 9.4% this year.

According to Mizuho Securities strategist Shoki Omori, further dollar selling and yen buying intervention may be difficult for Tokyo without support from Washington.

The summary of the Bank of Japan’s (BoJ) April policy meeting released last week showed that President Kazuo Ueda struck a “hawkish tone” compared to his previous public statements. While some board members felt that rate hikes could be accelerated, many said that the BoJ should reduce bond purchases.

However, Omori believes that “short” positions against the yen will continue until fundamentals change, as there is “no magic wand” to reverse the yen’s weakness.

South Korea’s central bank ‘burns dollars’

South Korea’s foreign exchange reserves fell by around $6 billion last month from March, partly due to the country’s efforts to halt the fall of the won, according to the Bank of Korea.

The country’s central bank said in a statement that the decline in foreign exchange reserves was related to several factors, including “market stabilisation measures such as currency swaps with the National Pension Service”, which were introduced in September 2022.

According to Moon Da Woon, an economist at Korea Investment & Securities in Seoul, the markets believe that the South Korean government is helping to stem the won’s rapid decline.

South Korea’s finance ministry and central bank verbally intervened in April to warn against rapid currency movements when the won hit the 1,400 level against the US dollar for the first time in almost a year and a half.

Indonesia hikes rates

In Indonesia, the central bank unexpectedly raised its benchmark interest rate by 25 basis points to 6.25% last month in a bid to strengthen the currency.

Bank Indonesia Governor Perry Warjiyo told a press conference last week that data showed no further rate hikes were needed for now and pledged to work to strengthen the currency to below 16,000 per dollar.

The rupiah has strengthened to around 16,000 to the dollar from around 16,300 before the surprise rate hike, but has yet to recover after falling to a four-year low last month.

Indian rupee and Malaysian ringgit also fall

The Indian rupee, one of Asia’s most stable currencies, fell to an all-time low of 83.739 against the dollar last month.

The rupee has been “tightly managed” by the Reserve Bank of India almost since October and has traded in a narrow range around 83, said Rob Carnell, chief Asia-Pacific economist at ING in Singapore.

Carnell said all central and regional banks in Asia, except Malaysia, have foreign exchange reserves to cover more than six months of imports, the threshold for adequate reserves.

The Malaysian ringgit is trading at 4.737 to the dollar, having fallen to a 26-year low of 4.7965 in February.

The ringgit’s weakness is due to the strengthening dollar, a decline in Malaysia’s current account surplus and the currency’s strong correlation with the weakening Chinese yuan.

China will start selling the first batch of 1 trillion yuan ($138 billion) of ultra-long term private government bonds on Friday to help revive the economy.

The central government will begin such sales this year by issuing 30-year bonds, according to a statement from the Ministry of Finance. According to Bloomberg, this ends months of speculation about when the bonds, only the fourth of their kind in 26 years, will be launched after a sweeping plan was announced in March.

According to the report, President Xi Jinping’s government is stepping up financial support to help an economy under pressure from the housing crisis and weak consumer confidence. Government spending on infrastructure, which can be financed through bonds, will play a key role in helping China achieve its annual growth target of around 5 per cent, above economists’ forecasts.

Australia & New Zealand Banking Group’s Xing Zhaopeng said the increase in gross domestic product could be as much as 1 percentage point.

“The timing of the bond issue is likely aimed at offsetting the impact of protectionist tariffs the US has threatened to impose on Chinese goods,” Zhaopeng said, noting the uncertainty ahead of a Communist Party meeting on reforms in July.

The 20-year and 50-year bonds will be sold on 24 May and 14 June respectively. Bond auctions will continue until the last batch of 30-year bonds goes on sale in November. The ministry did not disclose the amount of bonds to be sold.

Bloomberg announced the private government bond sale on Monday. The issue will include 300 billion yuan of 20-year bonds, 600 billion yuan of 30-year bonds and 100 billion yuan of 50-year bonds, according to people familiar with the matter, who requested anonymity because the information is private.