US Warning Over CPEC: What’s the Reality of China-Pakistan Ties?

China-Pakistan Economic Corridor was never meant to be an ‘aid’ project, something Pakistan has overlooked for long.

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

(Photo: Arnica Kala / The Quint

Alice G Wells, Principal Deputy Assistant Secretary for South Asia and Central Asia, is nothing if not forthright in her statements, both private and public. At a Washington think-tank recently, she was at her acerbic best, tearing into the China Pakistan Economic Corridor (CPEC) to shreds with strong data, and even stronger statements. The points made were hard-hitting, but what was even more interesting is why she chose to make it at all.

China Accounts for 75% of Pakistani Debt: What This Means

First, Wells’ point that CPEC was not, and was never meant to be an aid project, may be old news, but is a point consistently overlooked by the Pakistanis, long fed on the public rhetoric of a friendship ‘higher than the mountains and deeper than the sea’. The point was actually made brutally clear by a Chinese Professor from Beijing University more than a year ago, when she warned that ‘CPEC is not a gift’. The reality is apparent in the budget figures, if anyone cares to look.

Chinese ‘grant’ aid this year is PKR 350 million for a vocational institute, and a rather larger slice for infrastructure in Gwadar, the raison d’etre for China being there at all. The rest of the PKR 226,726.77 is all loans. Which brings in the second point.

No one really knows at what rate these loans have been negotiated. After some arm-twisting by the International Monetary Fund (IMF), some data is now available in the public domain, which indicates that China remains the lead debtor accounting for 75 percent of Pakistani debt.

Now, take a look at the State Bank of Pakistan's quarterly report which baldly states that “the debt-servicing ability has deteriorated sharply, and the country would be requiring more debt to service its current debt”. That’s a text-book case of a debt trap. The reason for that is clarity itself.

Beijing is ‘Milking’ Pakistan Dry

The third point is, as Wells points out, the Chinese take up projects, and then import the machinery, materials, the expertise and the labour, which means that all those vaunted billions are flowing effortlessly back to China. One project Wells cites is at Port Qasim, which has a 90 percent ‘Made in China’ stamp. Worse, the data cited indicates that China charges exactly double the rate for each megawatt produced by CPEC power plants, than that by a non-CPEC project.

Put simply, Beijing is milking Pakistan dry, both coming and going. The ultimate irony is that for years Pakistan managed to pay its bills to China with US money. An earlier State Bank report actually acknowledges it.

That stopped when the present US Administration took a good hard look at Pakistan, and found it wanting. President Trump’s ‘South Asia and Afghanistan strategy’ called out Pakistan as a sponsor of terrorism, and promised to use ‘all levers’ of power to end that. And that’s exactly what he did. Pakistan had to face IMF questioning, a cut back in aid, and a grilling from the Financial Action Task Force, the likes of which it has probably never seen.

Islamabad’s Washington embassy reacted by offering to be a ‘bridge’ to China, while a host of professionals and officials were sent to criticise China and its aid in very ‘private’ meetings. This was Pakistan getting ready to do its usual strategy of running with the hare, and hunting with the hounds. Well’s tongue-lashing is another indicator that this strategy has been gamed out.

China Is Well Aware of US Ambitions in the Region

Goaded further by an administration that wants to see trade figures improve and is not hot on freebies, a State Department already tired of Islamabad’s Afghan shenanigans, is leaning heavily on Islamabad to get the Chinese to pack their bags — and hand over the game to the hands of private US entrepreneurs. The prize? Not just the CPEC. Wells estimates the potential worth of infrastructure in the Asia Pacific to be 27 trillion by 2030. Besides being a conservative estimate, that’s a figure that only covers the Asia Pacific.

China is well aware of this and other US ambitions in the area.

Wells’ lecture in Washington resonated in Beijing with the Foreign Ministry spokesman accusing the US of being "malicious and ill intentioned" .

The Chinese Ambassador in Islamabad responded likewise, to a chorus of denials from Pakistani officials. Planning Minister Asad Umar even denied that Pakistan’s debt had anything at all to do with China. While Twitterati in all three capitals traded charges, nothing much emanated from India. Delhi is undoubtedly accustomed to the vagaries of US-Pakistan, accepting that this relationship will continue for multiple reasons, including the mess that is Afghanistan.

Yet, Wells’ estimate of the trillions in infrastructure is one that Delhi needs to be factored in on, as the economy struggles to get back to the high table.

Would Cross-Pakistan Trade Links Stabilise Bilateral Ties?

Delhi’s outreach to Central Asia, as well as its connectivity ambitions to Russia and beyond, would certainly receive a boost if there is a non-CPEC US-backed infrastructure in place.

The fact that cross-Pakistan trade links would stabilise bilateral relations may not be a priority at present, perhaps even the reverse. But while a Kartarpur Corridor may score politically, a cross-South Asia infrastructure could be an engine for growth, and even more, a good way to break away from that ‘India-Pakistan’ twinning for everything and anything, that has annoyed South Block for decades.

That doesn’t mean we have to be married to the mob. Strong economic ties to a highly unstable neighbour may well erode the reigning mafias, and bring in less unsavoury persons to power. Besides, everyone looks so much better in business suits, rather than khaki.

(Dr Tara Kartha was Director, National Security Council Secretariat. She is now a Distinguished Fellow at IPCS. She tweets at @kartha_tara. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses, nor is responsible for them.)