Chinese Premier Li Qiang began a four-day visit to Pakistan on October 14, 2024, under tight security for bilateral talks and to attend the heads of government meeting of the Shanghai Cooperation Organization (SCO) hosted in Islamabad (15-16 October,2024). Pakistan is on high alert after a recent increase in deadly insurgent attacks nationwide, including a suicide car bomb attack in Karachi last week that targeted a Chinese convoy and resulted in the deaths of two Chinese engineers. The Pakistani government declared a three-day public holiday in Islamabad and the adjoining garrison city of Rawalpindi for security reasons.
Prime Minister Shehbaz Sharif received Li at a military air base outside the Pakistani capital followed by review bilateral trade and progress on the China-Pakistan Economic Corridor (CPEC), the Chinese-funded multibillion-dollar bilateral project is a key extension of Chinese President Xi Jinping’s global Belt and Road Initiative (BRI).
Virtual Inauguration: Gwadar International Airport ?
Chinese Premier Li Qiang and Sharif virtually inaugurated the CPEC-built international airport in Gwadar, a coastal city housing a Chinese-controlled deep-water port on the Arabian Sea. Premier Li said, “Under the strategic guidance of President Xi Jinping and the Pakistani leadership, our all-weather strategic cooperative partnership is constantly deepening. What we have is a unique and unbreakable iron-clad friendship that has stood the test of a changing international landscape.” However, neither side has commented on the reason for the virtual inauguration, but diplomatic sources cited heightened security concerns around Gwadar, particularly following the Karachi attack!
Separatist militant group the Baloch Liberation Army (BLA) claimed responsibility for the October 6 attack in Karachi. The group has been waging deadly attacks in Balochistan, accusing China of helping Pakistan to exploit the region’s natural resources.
Upgraded Version of CPEC: 5Es
In a Joint Statement the two sides reaffirmed their commitment to an upgraded version of CPEC by jointly building a growth corridor, a livelihood-enhancing corridor, an innovation corridor, a green corridor and an open corridor, and develop CPEC into a demonstration project of high-quality Belt and Road cooperation. The two sides agreed to further synergize China’s eight major steps for supporting BRI cooperation with Pakistan’s 5Es framework based on Exports, E-Pakistan, Environment, Energy, and Equity & Empowerment.
IMF: Urged Pakistan to halt incentives to SEZs
The International Monetary Fund (IMF) asked Pakistan to stop setting up any Special Economic Zones (SEZ) that offers incentives for investment, in a move that may undermine Islamabad’s efforts to attract more Chinese industries into the country. IMF said in its report released on Oct 10. This may impact efforts to draw Chinese industries amid ongoing development under the CPEC. This will help provide a level playing field for investment, said the report.
The IMF’s condition comes as Prime Minster Shehbaz Sharif is trying to convince Chinese to shift more industries into Pakistan. The country had planned to build at least 9 SEZs under the CPEC projects that are at various stages of development.
The Pakistan government has assured the IMF that it will not allocate an additional budget to settle the 493 billion dues of Chinese power plants. The outstanding dues of power projects of the CPEC alarmingly increased to a record USD 1.8 billion as of the end of January 2024. By 2023, Pakistan was dedicating nearly 8 per cent of its GDP just to service its debt to China.
CPEC Shifts from Large-Scale Projects to Smaller Ones
Although some energy and infrastructure projects have been completed. CPEC projects have yet to deliver meaningful benefits to the people of Balochistan, a province that makes up 44% of Pakistan’s land.
A key issue remains energy. The two energy projects under CPEC are located in Balochistan. The first 300 MW imported coal power project in Gwadar has yet to be built and the project is likely be shelved due to non-availability of finances. Meanwhile, the China Power Hub Generation Company’s 1,320MW coal-fired plant is also facing frequent problems and leading to appeals for intervention from the Chinese ambassador to the prime minister.
The BRI’s flagship project, the Gwadar port, is operational but has so far failed to attract any worthwhile trade activity envisioned to “connect South Asia to the world”.
China, meanwhile, has shifted away from large-scale infrastructure projects to smaller ones with faster results focusing on a thousand small-scale livelihood programmes, aim to address local needs through targeted, manageable projects. Chinese business leaders are believed to have revealed unofficial instructions from their government to avoid investing in long-term projects. The direction changed after the slow pace and poor returns on existing projects.
According to Isabel Hilton, founder of China Dialogue 2024 and visiting professor at King’s College London. “Large-scale BRI investments peaked around 2017, as many of the projects became problematic for a number of reasons,” she told Dialogue Earth. Chinese banks and government entities have become much more cautious in their lending and finance policies in a world of low growth and mounting levels of debt.”
However, it is to be seen whether China would be keen to expand its business investments under CPEC, citing growing security threats to Chinese workers in Pakistan, among other challenges. Security concerns of Chinese nationals could be a severe blow and could be a "Turning Point" for the “Strategic Partnership.” Shift from Large-Scale Projects to Smaller Ones, so what will happen to ongoing or earlier Large-Scale Projects? IMFs check on Pakistan to stop establishing Special Economic Zones.
So called now the “Upgraded version of CPEC” to further synergize China’s Belt and Road cooperation with Pakistan’s 5Es framework based on Exports, E-Pakistan, Environment, Energy, and Equity and Empowerment just appear to be high sounding statement of words lacking visibility on ground.
CPEC launched in 2015 was to be a “Game-Changer”!
The $62bn CPEC, formally launched in 2015 was to be a “Game-Changer” for Pakistan’s economy. It included the construction of a flagship seaport Gwadar, power plants and road networks across the country. The CPEC is a key flagship project component of China’s ambitious Belt and Road Initiative (BRI). Through this initiative Beijing hoped to recreate the ancient Silk Road trade routes linking Europe and Asia. The BRI is seen as an attempt by China to further its influence with infrastructure projects funded by Chinese across the world.
Gwadar seaport is to connect it with Xinjiang, the Uyghur Autonomous Region giving China access to the Indian Ocean warm waters for exports as well as a shorter route for imports of Middle Eastern oil. CPEC will provide for China, its 12,000-km oil transportation journey from the Gulf and is likely to get reduced to 2,395 km with a large saving. Strategically it also negates China’s Malacca dilemma and furthers its ambition to have a base in the Arabian Sea. The heart of the CPEC projects lies in Balochistan, and the persistent militant attacks have added pressure on the CPEC projects.
But as the old saying goes, "There's no such thing as a free lunch." The financing behind CPEC, while initially seen as a generous offer from China, has turned out to be more complex and potentially hazardous for Pakistan's economic health heading towards a ‘Debt Trap.’ Former US President John Adams once said:
"There are two ways to conquer and enslave a country.
One is by the Sword. The other is by Debt.
There are signs that the Chinese are becoming reluctant in bailing Pakistan out, but the dilemma facing the Chinese is that President Xi’s flagship project cannot be allowed to sink because that would have serious implications in other countries. CPEC has now been operational for a decade and doubts hover over the future of the projects. CPEC is Nowhere near being the envisioned ‘Game Changer’.