Some Consideration on Economic Relations with China for the Islamic Emirate of Afghanistan

Perspective

China has a capitalist economy politically governed by a socialist political regime. Socialism is a capitalist ideology and therefore strong linkages can be – and have been – established between socialist and market based management structures.

China – unlike Russia, North Korea and Venezuela etc. – is well entrenched in the global financial and trade system. It is seen as a rival by the United States but America is seeking to consider its rise (eventually by restricting its access to advanced technologies) and not to exclude it from the global system.

China’s challenge to the rule based international system is limited. It does not directly challenge dollar hegemony and has invested over a trillion dollars in US Treasury Bills. Very few effective financial sanctions have been imposed on China. China is well integrated into product supply chains and much of China’s exports is retained through global multinational companies.

China is a land based imperialist state having absorbed Eastern Turkistan (Xinjiang) and Tibet. It is involved in inter-imperialist conflict in South China Sea and in this respect to Taiwan. It has not opposed US occupation wars (Iraq, Afghanistan and Palestine), Cuba, Korea (1953) and Vietnam (1968-79).

Chinese Attitude to Afghanistan

China did not oppose the US operation of Afghanistan (2002-21) but its relationship with the ghaddar administration remained limited. Nor China has been the first country to establish official relations with the Islamic Emirate. Principle reasons for this are strategic and economic. Strategically China is concerned to prevent Afghan Taliban of the low key insurgency movement in Eastern Turkistan and of the security threat to the CPEC projects in Pakistan. Economically China seeks partnerships in the development of the mineral and energy sectors of Afghanistan. There is also an interest in communication and logistics development.

This paper comments solely on economic transactions which can be of mutual benefit to China and Afghanistan. It does not touch upon the strategic aspects of the China-Afghan relationship.

Trade

There is enormous scope for the growth of Afghan exports to China – especially in the face to restrictions being placed by Pakistani government on exports from Afghanistan. Exports of textiles, leather, fruit and vegetables and mineral products should be encouraged. China firms investing in Afghanistan should be encouraged to promote exports to China. No rule based trade financing schemes may be encouraged.

Most poor countries have a negative trade balance – imports from China far exceed exports to that country. Cheap Chinese imports drive out local products from the domestic market. Thus an attempt must be made to limit imports of cheap consumer goods – both locally produced goods and luxuries – from China. A customs under an even Free Trade Agreement with China is not to be considered although a Proportioned Trade Agreement concerning labor/natural resource exports from Afghanistan and machinery and chemicals not produced in Afghanistan may be envisaged.

Trade may be conducted in national currencies (not in dollars) with exchange rates being determined by government on a managed basis.

Investment and Technology Transfer

Foreign direct investment (FDI) should be welcomed from both public and private Chinese companies but only in carefully selected – mining, telecommunication (including IT), heavy chemical, construction, transport – and not in agriculture or textiles or labor intensive manufacturing. Like all FDI flows into Afghanistan Chinese FDI should complement, not compete with domestic investment. Thus there should be a strong preference for joint venturing and for BOT (Buy, Operate and Transfer) contracting.

Chinese investment based on BOT contracts can be an important source of technology transfer in the mining, telecommunication and heavy manufacturing industries – stimulating technology transfer should be a major concern of our overall FDI policy and China can be a major source of this.

In the mining sector especially we should avoid “stand alone” projects but specifically seek to link mining with local manufacturing through increasing domestic processing of mineral output. For example China, Lithium mining projects be linked to battery production in Afghanistan.

Rapid technological upgrade of national technological and technical staff is a necessary component of all BOT projects. Efforts must be made to all China FDI projects to university technical training programs. Chinese FDI in technical education must be enthusiastically encouraged.

Loan financing of Chinese joint ventures projects must be avoided as this is invariably interest based. This means we cannot participate in the Chinese Belt and Road Projects or seek loans from Chinese development finance institutions. Growing Chinese indebtedness has been a major problem for many Asia and African countries and has sometimes led to seizure of national assets by China (Sri Lanka).

We are committed to operating a non-interest based economy. This means we cannot become from government financers – including (Cuba). We can neither access loan financing from China nor envisage special loans portfolio investment from that country since a gharar and interest based stock market cannot exist in an Islamic economy.

Aid/Grants

We should accept zero interest based grants and other forms of aid (especially technical assistance from China). China aid can play an important role in these crucial areas. )a) disaster management where China has excellent record in mitigating droughts through intervention of disaster resistant crops and reforestation, (b) IT security management and establishment of national server platform, (c) construction and logistics management involving the construction of rad network and transportation system. Chinese aid can serve as a substitute for UN Humanitarian assistance which is being used to promote anti-Islamic secular social tendencies in Afghanistan. We can benefit from China’s explicit commitment to respect national sovereignty and avoidance of interference in the domestic affairs of partner countries.

Summary

DAIMG recommends:

Increased trade investment, technology transfer and aid from China,
Export growth should be focused on agriculture and light manufacturing products, non-interest based export financing institution may be envisaged.
A proportioned trade agreement (not a Free Trade Agrement) may be entered into giving preferential treatment to China imports in selected sectors (mining equipment, heavy machinery and chemicals).
China imports which compete with local products (agricultural products and textiles) may be prohibited.
Trade to be financed through local currency (not in dollars) at government determined managed exchange rates.
China FDI to be encouraged in selected sectors (mining, IT, energy and construction) and not in sectors competing with national investors (agriculture and textiles).
Acquiring technical know-how and knowledge should be principle area of our FDI policy. All FDI projects to be structured according to BOT contracts and preference to be given to joint ventures.
FDI in mining to be linked to manufacturing – national processing of mineral products to be used as manufacturing sectors inputs to be encouraged.
Chinese investment in technical education to be promoted. Technical upgrade of national workforce to be mandated. Links between universities and FDI projects to be established.
We should not participate in the Belt and Road projects or seek loans from Chinese development finance institutions as this is interest based and growing indebtedness may lead to a surrendering of national assets to foreigners.
Chinese not interest based grants/aid to be encouraged especially in the form of technical assistance and in the implementation of disaster management, IT sectors security and surveillance management and logistics management programs.
Chinese financial aid may serve to substitute for UN Humanitarian assistance.