China wields CPEC: Pakistan buckles to trade in yuan, to treat it equal to US Dollar

Less than a month back, Pakistani finance ministry officials had termed this move against the country's interest.

China wields CPEC: Pakistan buckles to trade in yuan, to treat it equal to US Dollar
Concern is growing in Pakistan over whether CPEC is good for the country. (Picture: CPEC)

China is not used to hearing the word 'no' from countries that rely on it. And it seems to have forced its way with Pakistan. Islamabad flipped on its earlier refusal to let China trade in the yuan at the Gwadar Port and is now saying it will consider allowing it. Not just this, Pakistan has agreed to conduct bilateral trade with China in yuan, Pakistani media have reported.

Pakistan's capitulation was revealed as part of a ceremony to reveal the Long-Term Plan (LTP) of the China-Pakistan Economic Corridor (CPEC) on Monday. In fact, the concession seems to have gone further than what China had earlier asked for.

Pakistan has expressed its readiness to treat the yuan equal to the US dollar in terms of foreign exchange, and extending all the same facilities that the USD enjoys. This will effectively make the yuan the second international currency that Pakistan will trade in, apart from the USD, which is the global reserve currency.

"Pakistan shall promote the construction of Gwadar Port Free Zone and explore RMB offshore financial business in Gwadar Free Zone," the CPEC LTP said, according to Pakistani newspaper The Express Tribune.

"The use of Chinese currency in place of US dollar will benefit Pakistan… (it) will reduce our reliance on the US dollar," said Pakistan's Planning and Development Minister Ahsan Iqbal, according to reports.

However, Iqbal clarified that the yuan would not be legal tender. This means while Pakistan-China trade might happen in the yuan, it will not have any value on the streets of Pakistan.

Whether China has strong-armed Pakistan into acceding to its demand is anyone's guess. Islamabad's rollback on allowing trade in the yuan comes after the Chinese stunned Pakistani officials on November 20 that they would stop funding for three road projects under CPEC.

The Chinese stop-funding threat had come after two back-to-back refusals by Pakistan. First, it had refused Chinese CPEC funding for the Diamer-Bhasha Dam project in Pakistan-occupied Kashmir (PoK), saying the terms of the Chinese proposals were against Pakistan's interests. Next, it had refused to allow the yuan for offshore trade at Gwadar.

The apparent Chinese use of force to get Pakistan to fall in line comes even as an increasing number of questions are being raised over whether CPEC is in Pakistan's interest. And, China is just not used to dealing with governments that think for themselves.

CPEC is a high-stakes game for China. It is presently the only operational part of Chinese President Xi Jinping's ambitious Belt and Road Initiative, also known as the One Belt One Road policy. Even as Beijing tries to bring more countries aboard, it faces apprehension over expert opinion that it is a debt trap. Perhaps proof of these apprehensions came true when Sri Lanka was forced to hand over control of its Hambantota Port to China as it was unable to repay its loans.

(Also read: United States urges Pakistan to prove it's a 'responsible steward' of its nuclear missiles)