China in Pakistan. The failure explained

China in Pakistan is a failure, what went wrong?

In 2015 the “flagship” of Xi Jinping’s Belt and Road Initiative was announced, the China-Pakistan Economic Corridor (CPEC), its epicenter is a massive project linking China’s western Xinjiang region with Gwadar and its port in the Pakistan Balochistan province.

This gives China valuable access to the Arabian Sea.

The agreement called for Pakistan to develop 46 “Special Economic Zones” (SEZs) to be jointly managed by the “Pakistan-China Joint Cooperation Committee” and a panel of “experts” convened by Pakistan

The most promising SEZ and large infrastructure projects are in various stages of (mostly) (in)completion:

Additionally, China will also spend $5.5 billion for a significant upgrade of Pakistan’s rail system.

In Pakistan criticism of the CPEC was not tolerated.

In China, criticism by officials and analysts was countered by arguing closer relations, although economic in nature, would also deal with many of China’s military security concerns, helping to stabilize and de-radicalize Pakistan, necessary for the success of the economic project. 

The Pakistan Army was doing its bit to also give confidence to the Chinese by forcing China’s antagonists, the Uighur militants of North Waziristan, into Afghanistan in the military’s long running Zarb-e-Azb campaign.

Fast Forward to 2018

Pakistan had its presidential election, the new Prime Minster was Imran Khan of the Pakistan Tehreek-e-Insaf party (PTI)

The Chinese had favored a second term for the incumbent party, the Pakistan Muslim League-Nawaz (PML-N) led by Nawaz Sharif and, after he was disqualified due to corruption charges discovered within the Panama Papers, the party was led briefly by Shahid Khaqan Abbasi

CPEC was evidencing a slow down in developments of the Special Economic Zones as allegations of corruption were toppling political dominos Fraud was rampant. 

China changed its schedule for making money available:

  • Prior China would release loan payments before work on a CPEC project began
  • Now, China waits for project work to commence before releasing funds. Given that the Pakistani government does not have the funds to begin, the projects stall.

In 2019 Pakistan got +/-$2b in Chinese loans as a bridge while negotiating a +$7 billion loan from the IMF to settle Pakistan’s then urgent finance crisis. There is no transparency to the terms.

Pakistan has felt the tide turn as China further retreats from CPEC.

In 2019, at the international “Financial Action Taskforce” meeting in February, China supported grey-listing Pakistan for failing to do enough to curb anti-terror financing.

“I think we should put everything on hold for a year, so we can get our act together” “Perhaps we can stretch CPEC out over another five years or so.”  Abdul Razak Dawood, minister for commerce, industry and investment, 2018

In 2019 July

The International Monetary Fund approved a $6 billion bailout package to help “return sustainable growth” to Pakistan’s economy.

  • Progress will be reviewed on a quarterly basis for 39 months
  • Agreed to increase taxation in order to repay external debt
  • Increase the foreign exchange reserves from current $6b to $11b next year
  • Pakistan must pay the $37 billion in external debt within the duration of the IMF bailout deal Pakistan owes $14 billion to Beijing, largely due to the China-Pakistan Economic Corridor

That same month the Pakistani government convened an 11-member Commission of Inquiry to determine if increase in public debt between 2008 and 2018 was justified by infrastructure development program or misused by public office-holders

The Terrors of CPEC

Due to terror concerns, the Pakistan military presence was enhanced in Gwadar, making the entire town a military cantonment.

Baloch nationalists are a separatist movement from Pakistan’s Balochistan province, the home of the Gwadar port

The Balochs have been adversarial to CPEC vowing to carry out attacks against projects as they perceive it as a threat to Baloch identity.

  • 2014 Taliban gunmen killed 145 people at a school in Peshawar (non Balochistan attack)
  • 2018  the Balochistan Liberation Army carried out an assault on the Chinese consulate in Karachi
  • 2018 149 people were killed, 180 injured by a suicide bomber in Mastung, a province of Balochistan
  • 2019, 14 bus passengers in Balochistan were killed
  • 2019, Baloch militants killed 5 people at the Pearl Continental hotel in Gwadar

And here we are…

End