Islamabad, Pakistan Pakistan Prime Minister Shehbaz Sharif is due to visit China on June 4 for a five-day trip to meet with Beijing’s top leadership as Islamabad becomes increasingly reliant on its alliance with the world’s second-largest economy.
Sharif will visit Beijing, Xi’an and the southern city of Shenzhen, which China touts as a symbol of its dramatic economic growth since the 1980s and was selected by then-leader Deng Xiaoping as China’s first special economic zone.
Pakistan is similarly trying to revive its struggling economy amid high inflation and a debt crisis, with multi-billion-dollar economic projects at the heart of its ambitions.
The $62 billion China-Pakistan Economic Corridor (CPEC), formally launched by the two Asian countries in 2015, was heralded by both governments and many analysts as a “game changer” for Pakistan’s economy. The corridor included the construction of major ports, power plants and a network of roads across South Asia.
But almost a decade later, questions remain about the project’s future.
CPEC is a key element of China’s ambitious Belt and Road Initiative (BRI), a vast network of roads, bridges and ports spanning nearly 100 countries that Beijing hopes to replicate the ancient Silk Road trade route linking Europe and Asia.
But critics say the BRI is a tool for China to expand its geopolitical influence and will saddle poorer countries such as Pakistan with more debt.
In Pakistan, the project included the construction of the port of Gwadar in the south and the development of the country’s energy, transport and industrial sectors. Despite initial success, CPEC has been plagued by frequent political, economic and security crises in Pakistan, bringing it to a virtual halt.
Now, Pakistan’s recently elected government, which is strapped for cash, is making a new effort to expand CPEC.
Why Pakistan needs CPEC
Nearly 40 percent of Pakistan’s 241 million people live below the poverty line, according to the World Bank. Inflation hit a devastating 40 percent a year ago and is now hovering around 20 percent. Opinion polls ahead of February’s general elections showed nearly 70 percent of Pakistanis believe the economy will continue to get worse.
Pakistan was facing a major power crisis that was stifling industrial growth when Mr. Sharif’s brother, three-time prime minister Nawaz Sharif, signed the CPEC deal with China in 2015. Islamabad has used the deal to roll out a string of power projects despite warnings of further debt accumulation.
The coastal city of Gwadar in the southwestern province of Balochistan has been chosen to host CPEC’s centerpiece deep-sea port that could transform the city into a vibrant economic hub, while a nationwide highway network has been announced, linking the southwestern Chinese city of Kashgar to Gwadar, a distance of more than 2,000 kilometers (1,242 miles).
Amaal Malik, a senior fellow at AidData, a research centre at the College of William and Mary in the US, said that while CPEC delivered some infrastructure and energy projects, it struggled to deliver more tangible benefits to Pakistan’s economy.
“CPEC has certainly improved sectors like transport and energy and enhanced Pakistan’s power generation capacity, but these gains need to be translated into economic productivity and growth, which has not happened,” Malik told Al Jazeera.
Government data on the CPEC website itself backs up the claim: CPEC lists 95 projects, the largest of which is planned investment in the energy sector worth about $33 billion.
As per the data, of the 21 power projects, 14 have been completed so far with a total capacity of 8,500 MW. Another two are under construction and five are yet to commence construction. Similarly, of the 24 proposed transport-related projects, only six have been completed while 13 are yet to commence construction.
According to a 2015 plan, CPEC was to include nine special economic zones (SEZs) – designated areas with looser trade laws to encourage growth – but so far none have been completed, with work underway on four.
CPEC was estimated to create more than two million employment opportunities for Pakistanis, but government data shows that less than 250,000 jobs have been created so far.
Meanwhile, Pakistan’s debt continues to grow, putting a severe strain on the country’s economy. When Nawaz Sharif came to power in 2013, Pakistan’s external debt was $59.8 billion. Now, with his brother leading the country, the same debt has ballooned to $124 billion, of which $30 billion is owed to China.
Pakistan’s debt burden from dwindling foreign exchange reserves is crippling the import-dependent country — its central bank currently has $9 billion, enough to cover two months of imports. The cash crunch has forced Islamabad to reach out to pro-allies, including China, to shore up its economy.
Pakistan is also negotiating a new bailout package with the International Monetary Fund (IMF), its 24th since 1958.
But why is China wary?
China has repeatedly postponed loan repayments for Pakistan, including about $2 billion that came due earlier this year, but it also has concerns.
So far this year alone, five Chinese working on various CPEC projects have been killed in attacks by militant groups that have openly admitted to targeting Chinese interests in Pakistan.
Dozens of Chinese workers have been killed across Pakistan since 2018, but mainly in Balochistan province, where a years-long armed insurgency against the Pakistani government has raged. Insurgents in Balochistan now accuse Chinese projects there of stealing their resources.
Stella Hong, a postdoctoral researcher in Chinese public policy at the Ash Center at Harvard Kennedy School, told Al Jazeera that Pakistan’s security situation “remains its most pressing concern” for China and could affect future investment in the country.
“The violence has also tested the mutual trust between the two governments and may have raised concerns on both sides about the other’s commitment to the relationship,” she said.
Khalid Mansour, who served as head of the government’s CPEC agency for about nine months before being replaced in April 2022, said China’s number one demand was foolproof security.
“However, despite the recent attacks, China continues to [CPEC] “This project is fantastic,” he told Al Jazeera.
Weak governance
Another big concern for the Chinese is governance, or the lack of it, according to AidData’s Malik.
“Every good partnership has two partners. I have heard the Chinese complain for years that they are not being given the facilities to do their jobs. They are not being given the support they want,” he told Al Jazeera.
Hong agreed, saying Pakistan needs to do more if it wants Chinese companies to relocate and expand their operations here.
“If companies are relocating to Pakistan’s special economic zones or even within Pakistan, they need the ability to continue operating. But many seem to be frustrated by the difficulty of getting things done in Pakistan,” she said.
But Safdar Sohail, an economist who was part of the government committee that oversaw the implementation of the CPEC project at its inception, hopes that the creation of a Special Investment Promotion Council (SIFC) will help resolve governance issues.
Shehbaz Sharif set up the SIFC last year while he was the former prime minister. The government body, headed by top civilian and military officials, is meant to act as the highest decision-making forum to ensure implementation of economic policies.
Safdar believes that SIFC could also eliminate the bureaucratic problems that have affected the progress of Pakistan’s CPEC projects.
“But I think to really harness the potential of CPEC, we need a forward-looking plan, not just a short-term project that will only increase the debt burden,” he told Al Jazeera.
