Sino-Pakistan relations: The changing dynamics of the CPEC

Sino-Pakistan relations have grown stronger with every decade since Pakistan’s official recognition of the People’s Republic of China in 1950. In China the relationship is often called the “Iron Brothership”, and in Pakistan China is referred to as an “all-weather ally”. In 2015, the relationship entered a special phase when President Xi Jinping announced the China-Pakistan Economic Corridor (CPEC) during his state visit to Pakistan. The CPEC is the flagship project of China’s ambitious Belt and Road Initiative (BRI), aiming to connect Western China and the land route in Central Asia to Gwadar Port and the Indian Ocean. As Andrew Small, an expert on China-Pakistan relations of the German Marshall Fund suggested at the time, the announcement of CPEC demonstrated “China…finally easing into its role as a great power.”       

Six years on, however, political and economic troubles in Pakistan may lead Beijing to reconfigure its plans for CPEC and the direction of its more than USD 60 billion investment plans.

Political opposition, financial debt, corruption, an insurgency in Balochistan, and a growing resentment towards China are just a few factors that are affecting the thinking on CPEC. The countries are getting entangled in each other’s problems and the relationship is turning towards financial and military dependence instead of a true economic and political “strategic cooperative partnership”, as it was described by President Xi at the launch of the CPEC.

CPEC Roadway Network, Source: Government of Pakistan

Early Promises

In 2014, when it was announced that China would invest a whopping $62 billion in Pakistan, it was seen as an end to Pakistan’s economic woes. Former Pakistani Prime Minister Nawaz Sharif dubbed it as a “game changer” in the region, and said that the project will bring prosperity and development to the country. In October 2015, responding to Imran Khan’s criticism of the project, former federal Minister for Planning, Development and Reforms, Ahsan Iqbal said that CPEC was set to make Pakistan’s economy “invincible”.

So far, approximately USD 25 billion in investments have been completed, specifically in transport and energy infrastructure, with the latter making up the bulk of the investments and adding 14,000 Megawatts to Pakistan’s electric grid. But it seems that China is scaling back its original promise of the total investment amount due to political, strategic, and financial issues.

On the political front, China does not have as warm a relationship with the current Pakistan Tehreek-e-Insaf (PTI) government led by Imran Khan as it did with the previous government led by Nawaz Sharif. Before coming to power, Imran Khan was a staunch critic of CPEC, blaming Mr. Sharif’s government for a high level of corruption related to the project. Problematically for Beijing, despite universal consensus by major political parties and the military establishment in Pakistan to support the CPEC, opposition parties during each government have used CPEC as a political tool to score points against the government in power. In the previous government, it was Mr. Khan’s PTI party, but more recently the criticism of CPEC has come from all of the opposition parties that have formed a grand alliance under the umbrella of the Pakistani Democratic Government (PDM).

Corruption charges against the top brass of the Pakistani army who have been appointed by the current government to important positions on CPEC projects have largely been ignored. According to reports, the former head of the CPEC Authority, Lt. Gen. Asim Bajwa was accused of amassing offshore assets along with his family members. According to Prof Oliver Stuenkel of the Getulio Vargas Foundation in São Paulo, Chinese officials privately estimate that 80 percent of their investments in Pakistan will be lost as a sort of unavoidable investment “leakage.”      

Pakistan’s fiscal issues, inflation and dwindling cash reserves are another reason that a full scale CPEC does not look financially viable. From 2018 to 2020, Pakistan added USD 17 billion to its external debt, bringing its total debt to USD 113 billion by the end of the year. Pakistan is currently on its 13th IMF bailout program since 1988 which is worth USD 6 billion dollars. Inflation is the highest it has been in the last five years, while the deficit soars. CPEC is not the sole reason behind Pakistan’s fiscal troubles, but it is certainly a contributing factor.

The challenge of Gwadar and Balochistan

There is also the issue of Gwadar port. Despite being the central focus of CPEC and multibillion dollar projects, the port city lacks fundamental public goods such as clean water and electricity. This has fueled anti-Chinese sentiment in the region. In August of 2021, protests were held in Gwadar against the shortage of basic necessities; protestors included local fishers who accused Chinese trawlers of illegal fishing on the coast.

It was recently announced that the port town will be fenced off and separated from the rest of the province of Balochistan. With growing concerns that China could use Pakistan’s debt to “seize” Gwadar port, the prospect of fencing off Gwadar has only added fuel to the fire of already existing discontent in Pakistan. After much uproar and protests from Baloch nationalist groups, authorities scrapped the fencing plans.

In February 2018, the Chinese consulate in Karachi was attacked by the Baloch Liberation Army, a separatist group opposed to Chinese investment in the province. They assert that China is exploiting the resources of the province, together with the federal government in Islamabad, and sees Beijing as their “partner in crime.” Moreover, the issue of Chinese companies operating in Pakistan employing mostly Chinese workers further perpetuates the narrative that CPEC is only meant to benefit the corrupt elite of Pakistan and foreigners from China, with local citizens in impoverished regions like Balochistan seeing no real benefit from the investments.

Meanwhile, China is concerned with the growing security issues in Balochistan and is demanding a ramp up in security for Chinese nationals working on the projects. There is speculation that after the failure of the fencing project, the two countries are discussing transferring the focus of CPEC from Gwadar to Karachi port. Saudi Arabia’s recent announcement that it will move a refinery project initially planned to be built in Gwadar to Karachi represents a setback for the Gwadar project. It also demonstrates that development for Pakistan is a complex multi-actor space and not confined solely to the remit of China-Pakistan government to government collaboration. If the changes of CPEC’s central focus to Karachi come to pass, this would be seen as a massive blow to CPEC’s vision and the viability of its success.

Chinese cargo trucks awaiting Pakistan Customs clearance at Sost, Image by: Anthony Maw

The need for open stakeholder engagement

The severity of all these issues has affected the relationship between the two countries. A relationship that was supposed to tie the two neighbors with economic, cultural, and educational exchanges is turning into one of militaristic and political dependence.

It appears that China is increasing its dependence on the Pakistani army to act as a principal mediator in delivering the political and economic objectives, undermining the relationship it has enjoyed with the civilian government. The creation of the CPEC Authority, which aims to centralize the decision-making process and give the Pakistani military an upper hand over the provinces is evidence of this tendency.

China needs to understand that Pakistan is a multi-ethnic, multi-party democracy. Despite severe challenges, it has a robust civil society and an active press. Due to the history of brutal rule of the military dictatorships, it is impossible for China to successfully deal with Pakistan’s diverse and complex political geography through the military. Beijing must find a better mechanism to bring all stakeholders in CPEC to the table. While it is still early to come to conclusions, appointing a civilian, Khalid Mansoor, as head of the CPEC authority is a move in the right direction. Beijing must find a way to engage with all the political parties and stakeholders, particularly those in Balochistan and Sindh. Companies operating under CPEC must train and hire more workers from those provinces so that local people can enjoy some of the economic fruits of the projects. On the other hand, Islamabad needs to stay independent in its affairs when dealing with China. It cannot allow the lure of investment and the debt crisis to let Beijing dictate how it conducts its foreign and domestic policy.

Sheraz Aziz is an MA student at the School of International Service (SIS), American University. He grew up in Pakistan and worked in the renewable energy industry in China. He tweets at @shzblch.

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