Pakistan’s ‘China Dilemma’: Is the CPEC A Boon Or A Burden?

Image of Chinese flag (R) and Pakistani flag (L) used for representational purposes.

(Photo: Arnica Kala / The Quint) 

“I do not know enough about it” – was all that Mr Imran Khan, Prime Minister of the ‘Land of the Pure’ could muster, when asked about the Chinese persecution of hundreds of thousands of Uighur Muslims in Xinjiang, by a prominent western TV channel. Pakistan indeed goes to great lengths to keep Beijing in good humour – and not without reason.

An economic basket case and a prospective pariah, Pakistan is being regularly rescued by China, but is also being entangled in a web of dependence and debt.

Cornered, it has little option but to cede control of vital assets like the Gwadar port and vast tracks of agricultural land. With the sword of FATF (Financial Action Task Force) dangling over its neck and even traditional benefactors like Saudi Arabia getting irate at Pakistan's obsession with Kashmir, the country leans on China as never before. That it entails a huge cost, is of little consequence to Pakistani rulers.

China-Pakistan ‘Collusion’

Hundreds of Pakistani girls, especially poor Christians and from minority communities, are allegedly being lured to China, often through sham marriages and against cash payments to their parents, where they are subjected to indignities. As per an AP exclusive, the investigators have been ordered to remain silent about the trafficking because the Pakistani government does not want to jeopardise its close ties with China.

Similarly, the Pakistani armed forces are under instruction not to react to assaults by Chinese ‘guests’, regardless of the reason.

A Special Security Division (SSD) comprising thousands of Pakistani army and para-military personnel has been established to protect Chinese workers and CPEC (China Pakistan Economic Corridor) projects.

A majority of workers deployed in Pakistan are drawn from Chinese forces. They know martial arts and have weapon training. They often get into altercations with their Pakistani security detail. A video went viral in 2018 of Chinese workers assaulting Pakistani policemen. Recently the protectees hit a Pakistani havildar on the head, leaving him bleeding, but the matter was hushed up.

• The Pakistani armed forces are under instruction not to react to assaults by Chinese ‘guests’, regardless of the reason.
• A majority of workers deployed in Pakistan are drawn from Chinese forces.
  
• An economic basket case and a prospective pariah, Pakistan is being regularly rescued by China, but is also being entangled in a web of dependence and debt.
  
• Ironically, the CPEC is more a burden and less a boon.
  
• Naturally, the Pakistani government is worried but feels helpless. Its expenditure outstrips its resources.
  

China’s CPEC Is More A Burden, Less A Boon

Ironically, the CPEC is more a burden and less a boon. Practically everything about CPEC and BRI (Belt & Road Initiative) is opaque, meant to further Chinese interests – strategic, political and economic. CPEC has been gift-wrapped in Christmas colours as the crown jewel of the BRI, meant to qualitatively upgrade the infrastructure of Pakistan, generate employment, and an additional 2 percent GDP growth.

CPEC is supposed to entail investments worth USD 40 to 62 billion, depending on who is doing the speaking. The blueprint includes – upgrade of Gwadar seaport and town (new airport, SEZ (Special Economic Zone), hospitals), energy projects (thermal, hydel and renewable), improved highways, railways and aviation connectivity and industrial parks.

Control of the Gwadar Port and the proposed corridor between Gwadar and Xinjiang, including a 2,700 km long highway, railway links for freight trains, oil and gas pipelines and an optical fibre link, is the pound of flesh that China seeks.

If it materialises and that is a big IF, it will solve the Chinese ‘Malacca headache’ – a narrow sea lane of the Malacca Straits – through which a bulk of its energy needs traverse. In the event of a conflict, the adversary will be tempted to blockade the channel to choke off Chinese supplies.

China’s Financial Malpractices

The growing strain with the US is aggravating Chinese concerns. The corridor is therefore of strategic importance to China, but faces considerable challenges such as, attacks by the Balochistan Liberation Army and a daunting topography.

The biggest chunk of Chinese investment (over USD 30 billion) is earmarked for new thermal (coal-fired) and hydroelectric power projects, to double Pakistan’s installed capacity to about 45 GW. But the projects are getting mired in controversy besides cost overruns.

Allegations of financial malpractices by Chinese state-owned enterprises (SOEs) are doing the rounds.

A ‘Committee for Power Sector Audit’ set up by PM Imran Khan identified widespread graft. Two Chinese SOEs – Huaneng Shandong Ruyi (Pak) Energy (HSR) and Port Qasim Electric Power Company Limited (PQEPCL) – were found to have secured excess set-up costs of USD 204 million (approx.) by inflating bills.

Speaking at Washington’s Wilson Center in November 2019, Assistant Secretary Alice Wells underlined the long-term effects in Pakistan of China’s ‘financing practices’ and cautioned it about an estimated USD 15 billion debt owed to the Chinese government and USD 6.7 billion in Chinese commercial debt. She had said: “It is clear that CPEC is not about aid. This is almost always in the form of loans.. or guaranteed profits for Chinese SOEs that are repatriated to China.”

Pakistan’s Debt Trap – It Remains Indebted To IMF, Saudi, UAE & China

Naturally, the Pakistani government is worried but feels helpless. Its expenditure outstrips its resources. Military expenditure and debt-servicing alone account for over 50 percent of the federal budget. As of May 2019, Pakistan’s foreign debt totalled USD 88.2 billion, including USD 33.50 billion added in the preceding six years (principal USD 26.19 billion plus USD 7.32 billion interest). It comprised 31 percent of the country’s GDP and 76.9 percent, if domestic debt was included.

Pakistan is indebted to the IMF, Saudi Arabia and UAE, besides China.

Pakistan also faces massive trade deficits. Typically, in 2018 it ran a deficit of USD 36.5 bn, equal to 43 percent of the total international trade of USD 84.79 bn. Its imports from China began swelling after the launch of CPEC. Its trade deficit with China stood at USD 9.7 billion in 2018 (total trade USD 13.2 bn) and USD 11.9 bn in 2019 (total trade USD 15.6 bn).

Given Pakistan’s foreign exchange constraints, it was agreed in 2018 to use Chinese currency for bilateral trade settlement. Earlier in 2006, a limited FTA was concluded, allowing duty-free exports of 724 Pakistani products to China. In April 2019, during Imran Khan’s visit to Beijing, 313 products (including 130 garment and fabric items) were added to the list, kindling hopes that China could shift production of some international clothing brands to Pakistan, as they basically used Pakistani fabric. The actual impact remains to be seen.

Why Pakistan Is Begging China For ‘Easier Terms’

In sum, Pakistan is in a fix. Its very survival would be at stake if China dilutes it support. However, there is growing realisation that CPEC may not be the promised panacea.

As per the 2018 report of Centre for Global Development, Pakistan, the biggest beneficiary of BRI, is facing a balance-of-payments crisis and has begged China for easier terms.

Pakistan is simply trying to complete about USD 20 billion worth of ongoing CPEC projects, mostly power plants, under pressure from China, says Andrew Small, a senior fellow at the Washington-based German Marshall Fund. But that too may not be easy as CPEC is part of China’s 13th five-year development plan.

What’s more, Emperor Xi Jinping is likely to visit Pakistan soon.

He was prevented from doing so earlier this year due to the pandemic. Dates and agenda are under finalisation, but it appears that the launch of Phase-III of the CPEC may be one of the big-ticket outcomes. During Xi’s’ last visit in 2015, dozens of CPEC projects were announced.

Meanwhile, Islamabad is wondering whether CPEC is a panacea or a poisoned chalice? Either way, the writing on the wall is clear – heads China wins; tails Pakistan loses.

(The writer is a former High Commissioner to Canada, Ambassador to South Korea and Official Spokesperson of the Ministry of External Affairs. He can be reached at @AmbVPrakash. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)