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Pak-China Differences over CPEC

While CPEC can prove ‘game-changer’ for Pakistan, its opaque nature risks aggravating political tension, widening social divides, generating new sources of conflict

by Khaled Ahmed

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Writing in June 2018, the International Crisis Group warned of the potential flashpoints provoked by the China-Pakistan Economic Corridor (CPEC): “Pakistani leaders say the China-Pakistan Economic Corridor, launched in 2015, is a ‘game changer’ for the country’s ailing economy. But opaque plans for the corridor, the upheaval likely to affect locals along its route, and profits flowing mostly to outsiders could stir unrest. The government has repressed CPEC critics. CPEC could help revive Pakistan’s economy. But if it moves ahead without more thorough debate in parliament and provincial legislatures and consultation with locals, it will deepen friction between the federal center and periphery, roil provinces already long neglected, widen social divides and potentially create new sources of conflict.”

Envisaged in mid-2013 and launched in April 2015, CPEC—a set of projects under China’s Belt and Road Initiative—marks a new era of economic ties in a bilateral relationship historically defined by security cooperation. Pakistan’s economy clearly needs reform to better serve its people, and many officials say CPEC will help in this regard. But as currently rolled out, the corridor risks aggravating political tension, widening social divides and generating new sources of conflict in Pakistan.

Was the project pre-examined?

The government in power should mitigate these risks by being more transparent about CPEC plans, consulting all stakeholders, including smaller provinces, the business community and civil society, and addressing concerns that the corridor subordinates Pakistan’s interests to those of China. For its part, Beijing also should consult stakeholders in regions that will host CPEC projects it agrees upon with Islamabad. It should encourage Chinese companies to display sensitivity to residents of those areas, including by hiring local labor.

CPEC, which comprises loans, investments and grants that could grow to around $60 billion, travels a 2,700km route. It starts on the Arabian Sea port of Gwadar, in Balochistan province, climbs along the Karakoram Highway through the Khunjerab pass in Gilgit-Baltistan, before crossing into the Kashgar prefecture in China’s Xinjiang region. Within Pakistan’s territory, the economic and development project prioritizes transport infrastructure, industrial development, energy and Balochistan’s strategically located Gwadar port. Agricultural modernization and production form another critical component.

‘Leap forward’ for Pakistan

The Pakistan Muslim League (Nawaz) government, which came to power after general elections in 2013 and stepped down on May 31, 2018, depicted CPEC as a leap forward both in relations with China and for the country’s economic development. Contenders to national office from across the political spectrum have broadly endorsed this view. Yet some high-level officials and prominent voices in Pakistani business are concerned about the failure to protect local economic interests, high guaranteed returns on equity to Chinese investors and unaffordable national debt.

While it is too early to assess if CPEC can deliver the economic gains Islamabad promises, the project risks inflaming longstanding tensions between the center and smaller federal units and within provinces over inequitable economic development and resource distribution. Less-developed federal units such as Balochistan and Sindh contend that the corridor’s route, infrastructure and industrial projects will mostly benefit Punjab, already the country’s wealthiest and politically powerful province. Yet, even in Punjab, locals could forcibly resist the state’s acquisition of land for CPEC’s agricultural projects.

India bites into the argument

Indian publication India Narrative in 2021 stated: “Inflow of foreign direct investments (FDI) into Pakistan has shown signs of picking up in the last couple of months. But there is a caveat. Inflow from China, Pakistan’s all weather friend, has slowed down. Also, the cumulative FDI inflows in the first three months (July-September) of the current fiscal year 2021-22 were recorded at $439.1 million, which was 4 percent or $18.5 million, lower compared to $457.6 million in the same period of last year, the Express Tribune said. According to reports, in September FDI inflow into Pakistan jumped 16 percent to touch $236 million against $202.8 million in the corresponding month of the previous year. The chunk of the FDI inflow has come from the U.S. despite fraying relations between Washington and Islamabad.”

Daily Dawn, in a report, said that “the five-time higher FDI inflows from the U.S. in 2022 are encouraging for the country” while at the same time a significant decline of FDI from China was worrisome. “Investments towards the much talked about CPEC, the fulcrum of the Belt and Road Initiative are thinning down. Not only has the multi-billion project been hit by corruption and delays, the recent spate of attacks in Pakistan that were essentially targeted at the Chinese nationals have also had an impact. Pakistan will be worried as it has typically been relying on China for assistance, and going by data, Chinese investments are slowing down. This shows that investments into the much talked about CPEC is now thinning and there is a possibility that China which is also battling several economic challenges will be choosy in investing money,” an analyst with an industry chamber told India Narrative.

CPEC hurdles and benefits

Farooq Naeem of AFP wrote: “The timelines of CPEC … facing hurdles in Pakistan. Owing to certain differences on some of the agenda items, the unexpected deferment of the crucial 10th meeting of CPEC’s Joint Cooperation Committee (JCC) has made China halt work on some aspects of the CPEC. Co-chaired by Pakistan’s minister for planning and development and chairman of China’s National Development and Reforms Commission, the JCC is the highest decision-making body on CPEC projects. The reasons for the adjournment of the JCC meeting are believed to be disagreements between the two countries on the future roadmap for industrial cooperation and also on the Industrial Parks and Special Economic Zones (SEZs) earmarked under the CPEC.”

CPEC undeniably made significant progress in its first four years. However, after 2018, political fragility, increased insurgency in Balochistan and other areas, corruption and economic recession in Pakistan decelerated the progress on nearly all CPEC projects. Beijing sought to invest over $62 billion in infrastructure and energy projects in Pakistan through the CPEC. The Chinese Communist Party has maintained that these investments will bring political stability and economic resilience to Pakistan, and help Beijing secure its domestic energy supplies. According to Chinese officials, CPEC will create around 2.3 million jobs in Pakistan by 2030 and will provide an alternative pathway for exports and energy imports from West Asia to China, linking China’s western provinces to key global sea-lanes through Pakistan’s Gwadar port. However, political fragility, increased interference of security agencies and the Army establishment in the matters of civilian administration and even CPEC projects have made Beijing rethink on the CPEC’s outcomes.

Role of opposition parties

The role of criticizing the implementation of CPEC has been played by all major opposition parties in Pakistan. It may be recalled that before being elected to form the national government, the Imran Khan-led PTI was a staunch critic of CPEC. After the PTI came into power, this was taken up by his rivals, who claimed Khan was trying to slowdown the project.

In 2018, the World Bank had cautioned participating countries in BRI projects about the impending debt risks, stranded infrastructure, social risks, and corruption. All these risks propounded by the World Bank seem to be coming true for the CPEC, which has been marred in recent years by continuing political instability and growing interference of the military establishment, especially after the alleged rigged elections in favor of Imran Khan. The Balochistan Liberation Army (BLA) has intensified its demands for Baloch independence, blaming Beijing for exploiting and making the province more volatile. It has also accused China of being Pakistan’s “partner in crime.” Pakistan has washed its hands of the worsening security situation in Balochistan and instead accused New Delhi of sabotaging its economic partnership with China and “planned destabilization” of Pakistan.

India goes for sabotage

According to reports, Indian agencies were specifically targeting Chinese development projects of the CPEC and “sponsored” 700 people to harm CPEC projects. Such claims, made by the Pakistan Army, have made the Chinese even more cautious of their investments. Global Times, the mouthpiece of the Communist Party, wrote: “Beijing will keep a close eye on how the issue unfolds in the future.” The abovementioned factors have also forced China to halt some CPEC projects. For example, the PTI-led government on Aug. 6, 2020 cleared $ 6.8 billion for the Mainline-1 (ML-1) rail upgrade to double the speed of trains—the costliest CPEC project, with 90 percent finances made available by the Chinese.

However, Beijing had been reluctant to make progress on ML-1 rail upgrade agreement. Same is the case with industrial cooperation where the Chinese are skeptical, given the situation in Pakistan. The bonhomie between China and Pakistan would face more troubles in the coming months, especially given the bad economic situation because of the political environment in Pakistan and a looming global recession. Daily Dawn wrote on July 10, 2022: “It appears that a recent counterterrorism breakthrough has greatly helped restore Chinese confidence in Pakistan’s security apparatus and paved the way for the restoration of bilateral ties as well as CPEC-related activities, which had been on ice since late April.”

Pakistan rallies back

Work has reportedly resumed on the ML-1 upgradation project, the importance of which cannot be overstated. Beijing had all but pulled the plug on its development activities in Pakistan after a brazen terrorist attack on the grounds of Karachi University left three Chinese teachers dead. It was well known that Beijing had been quite upset for some time at the impunity with which its people were being attacked on Pakistani soil. After the KU attack, it simply suspended all work on the CPEC front till those responsible were nabbed and security for its personnel in Pakistan assured. The gravity of the situation can be judged from the fact that recently Army chief Gen. Qamar Bajwa personally traveled to Beijing with guarantees in a bid to win the Chinese over.

The recent busting of a terrorist cell linked to Baloch extremists has also thawed the ice considerably. The operation reportedly came in coordination with a group of Chinese investigators who had arrived in Pakistan and were working with the Pakistani team tasked with the case. This unusual arrangement reflects a lack of faith on the Chinese side. It would have been much better had there been more clarity about the role of this team—and similar arrangements in future—as has been rumored in some quarters.

Back on track?

It appears that Chinese authorities are for now satisfied with the progress made and wish to resume their work. It is now up to our government and security forces to make sure there is no further incident which may imperil goodwill between the two countries again. However, there also needs to be greater transparency in dealings with Beijing so that there is greater visibility of the progress being made under CPEC and how the project may affect the security of both foreigners working in Pakistan and the Pakistanis living here. It is irregular for so much to continue to be negotiated behind closed doors while such a major, transformational project is being executed on Pakistani soil. Bilateral relations between Pakistan and China are not the exclusive domain of just one branch of the state that terms continue to be negotiated by it with the exclusion of all others.

Pakistan Administration, a journal of The National School of Public Policy (December 2021) wrote: “While this could mean that Pakistan should not be bothered about the cost of CPEC, there are voices that claim financing of the CPEC projects could have dire consequences for a vulnerable economy such as Pakistan’s. Such doubts have been cast near the time CPEC began in 2015. Pakistan was among the eight focus countries in 2018. Termed ‘most vulnerable’ to Chinese loans due to debt distress. The report criticized the relatively high interest rates charged by China which in some cases exceed the 2-2.5% concessional rate of China Exim Bank, and could be as high as 5%. While quoting Pakistan’s high public debt to GDP ratio in 2018 the report feared that Pakistan may end up going to IMF again.”

U.S. joins the critics

Similarly, author Andrew Small, author of The China-Pakistan Axis argued: “Pakistan’s deteriorating economic picture had forced China to re-evaluate the feasibility of moving ahead with it in its most expensive form.” He contends that negative growth rates for 2020 “severely affected” Pakistan’s project loans repayment capacity and that its government was trying to renegotiate its energy deals.

These views match the statements given by senior U.S. government officials against CPEC, calling it a “Chinese debt trap” for Pakistan. On the other hand, economist Ishrat Husain wrote that “detractors of CPEC are also blatantly wrong when they say that Pakistan would not be able to service the loans and repatriate the profits to Chinese investors.” He is of the view that the additional burden of CPEC debt investment profits would not create any unmanageable stress on Pakistan’s economy and that peak payments would range between $2.5 and $3 billion per annum. This however requires to be examined in detail to discover the truth behind these speculations.

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