The Failing China Pakistan Economic Corridor

In April of 2015, Chinese President Xi Jinping and then Pakistan Prime Minister Nawaz Sharif signed a bilateral project named China Pakistan Economic Corridor (CPEC) worth $46 billion.

Dubbed ‘The project of the century’ by President Jinping, for Nawaz Sharif CPEC project was to propel Pakistan into an unprecedented era of growth and development by modernizing industries, infrastructure, transportation systems and energy generation sectors.

In addition to that, Pakistan also gained by developing its deep sea ports of Gwadar and Karachi and linking it with China’s Xinjiang province and beyond with its overland route.

For China, CPEC was a critical component of XI Jinping’s flagship project BELT and Road Initiative (BRI) which forms the backbone of China’s global economic policy as it’s through CPEC that China eyes the vast markets of the Middle East and Eurasia.

Originally valued at $46 billion, it is now a $70 billion project which has gone haywire between the two countries. With $28 billion worth of investments already biting the dust due to delays in the execution of projects, CPEC has crumpled into a mountain of non-performing loans and has turned into an unsustainable project for both countries.

China has severely criticised Pakistan for its inordinate failure as the project has faced financial pressure, political instability, institutionalised corruption, and civil unrest, especially in Baluchistan and Gilgit-Baltistan. Furthermore, China is increasingly frustrated at Pakistan’s failure to protect the Chinese citizens working on the project, as attacks on them by the guerrillas have been mounting steadily.

New investments under BRI have dropped significantly as Chinese economic growth has slowed down to just 0.4 per cent in the second quarter of 2022, putting this year’s set yearly target of 5.5 per cent growth in serious jeopardy. This has made China revisit the BRI project and revise its funding.

On the other hand, Pakistan’s economic meltdown has led to defaults in repayments of the debt instalments to its Chinese creditors. As Pakistan is looking toward restructuring its debt repayments and is trying to renegotiate the high-interest rates with the Chinese creditors, the defaults ultimately exacerbate China’s financial stability risks.

This doesn’t augur well for both nations as CPEC’s financially unsustainable model has forced China to cut down the funding by 56 per cent. Pakistan lacks the funds to even pay Chinese workers for the operation and maintenance of CPEC. It doesn’t even have the required funds to buy coal for the CPEC-led power projects.

Its outstanding debt towards the Chinese power companies is to the tune of PKR 300 billion, prompting the Chinese companies to shut down the power projects. As a result, 37 per cent of the instilled capacity of CPEC power projects, which is around 1980 MW, has been shut down, pushing Pakistan deep into an energy crisis.

Chinese assistance to Pakistan exceeds both the World Bank and Asian Development Bank combined and it is three times higher than IMF assistance. Pakistan has outstanding loans of more than $30 billion towards China amounting to nearly 30 per cent of its total outgoing debt as per the IMF report.

Furthermore, Pakistan was forced into buying equipment from China for the execution of CPEC projects, thus aggravating its debt burden. The short-term loans to the tune of billions of dollars with high-interest rates of between 4 per cent to 6.5 per cent have added considerably to the Pakistani economic woes.

Though Pakistan has recently secured another IMF bailout of $1.2 billion, which is aimed at keeping its sinking economy somewhat afloat, it’s the Chinese debt trap diplomacy that Pakistan is rapidly sinking into.

The recent floods have ravaged the economy, and the resulting loss incurred due to the floods is to the tune of $5 billion. Most of the infrastructure loss incurred to the ongoing CPEC project due to floods has further escalated the rebuilding costs.

Surprisingly, the much-important port of Gwadar, which falls under the Baluchistan province, has not even seen a single completion of the project. It is even sans basic facilities like drinking water and electricity.

The promise of providing jobs to the locals has fallen flat as Chinese real estate companies are building huge townships to house more than half a million Chinese families. This has considerably irked the local Baluchi populace, who accuse Pakistan of handing their land illegally to the Chinese and triggering a demographic change.

It is pertinent to mention that Baluchis claim to be indigenous and have been fighting Pakistan for the illegal occupation of Baluchistan. This has further created security concerns for the Chinese as the Baluchistan Liberation Army (BLA) has attacked Chinese citizens in Pakistan.

There are significant reports that China is developing Gwadar into a forward naval base for the PLA’s navy to pan out its operations further into the Indian Ocean as no commercial port activity has taken place in Gwadar.

Furthermore, the discontent within Pakistan in other regions is also growing against the CPEC. It is evident with the abolishment of the CPEC authority; a body formed under the Imran Khan-led previous government with the objective of overseeing the overall development of CPEC.

But the people of Gilgit-Baltistan have accused the Pakistani army of large-scale land grabbing in the garb of the CPEC project. They have also accused Pakistan of handing over the region to the Chinese for the next five decades, thus violating their sovereign rights.

CPEC also promised millions of jobs for the Pakistani poor, but eight years later, while the poor in Pakistan are still jobless, thousands of Chinese have found jobs in CPEC projects. This has also triggered a mass resentment among the Pakistani people, who accuse the Chinese of taking their jobs away.

As the other Asian countries have fallen into the debt trap diplomacy of China’s sinister BRI project plan, it’s Pakistan which is the most vulnerable to extreme destabilisation. Owing to its geopolitical sensitivity in the region, any economic misadventure with the Chinese will cost Pakistan its volatile sovereignty dearly.

Though there have been efforts both from China and Pakistan to open CPEC for investments globally, the response has been mute. Saudi Arabia, Qatar, Turkey, Kyrgyzstan and Russia have all steered clear of making any investments in CPEC for now, and in the near future, also the chance of investments remains bleak.

The focus of the upcoming SCO summit for both Pakistan and China would be to woo some partners for CPEC investments, but it’s unlikely to materialise owing to the debt-trapping Chinese policy.

Both China and Pakistan would have to scale down their expectations from CPEC and it is imperative that China realises the futility of its over-ambitious BRI project, which is based on providing attractive economic loans to poor and developing nations with the intent to compromise their sovereignty.

Such ambitious models are bound to fail as they create global economic and political instability rather than economic prosperity in the long term. Pakistan is on the brink of both as CPEC is failing to deliver the promised benefits.

Raja Muneeb is a freelance columnist
Disclaimer: Views expressed above are the author’s own