Even after subtly entangling Pakistan in a debt-trap, China may have realized the humungous cost of colonizing Islamabad, the global terror czar, and has begun slowing down on the USD 60 billion commitment to the ongoing Belt and Road Initiative (BRI)’s flagship project called the China-Pakistan Economic Corridor (CPEC).
But this does not mean Beijing will let slip Pakistan away from its vice-like grip: for all practical purposes, Islamabad is now China’s slave.
China has already arranged to take over two Pakistani islands off Karachi—Buddhoo and Bundal— presumably for its new military and naval bases in South Asia, and pressurised Islamabad to hand-over the indirect control of the CPEC to the Chinese officials through the direct control of Pakistan Army generals.
But, for now, Beijing has slowed down on making investments for the CPEC whose “future is not only clouded by China’s apparent new, more conservative lending policy but also Pakistan’s over borrowing, which is fast driving the country toward a debt crisis. Pakistan’s debt to GDP ratio is now at a high 107% of GDP,” analyst FM Shakil wrote in Asia Times last week.
Pakistan has slipped into a debt trap due to the government’s failure to bring reforms, and also weak fiscal management, he said.
According to the Boston University researchers, the overall lending by the state-backed China Development Bank and the Export-Import Bank of China declined from a peak of USD 75 billion in 2016 to just USD 4 billion in 2019. Provisional 2020 figures show that the amount shrunk to around USD 3 billion in 2020, it said.
Several reasons are being attributed to China’s slow down on the CPEC projects. Firstly, the global epidemic of COVID-19 has overturned China’s many plans across the world. Beijing’s global prestige has nosedived and it is now seen as an international bully one would better keep at an arm’s length.
Secondly, the amount of investments in the CPEC is no longer commensurate with the profit it would likely begin paying back in the required time-frame due to plummeted demand and other market forces in the wake of the COVID-19.
Thirdly, the fast-changing geopolitical scenario, including a realignment of Arab versus non-Arab blocs in the Muslim world, led by Saudi Arabia and Turkey, respectively, have created uncertainty about the shape of things to come in terms of energy supply from the Middle East, for which the CPEC was being primarily developed.
With the CPEC becoming increasingly unviable at present, China is slowing down on the mammoth project.
Other reasons behind a rethink are Beijing’s trade war with the US and rampant corruption by the Chinese companies involved in the CPEC.
In other words, the much-trumpeted CPEC is now being seen by some as a white elephant both in China and Pakistan which may become a ticking dynamite for both the militarist and expansionst regimes.
A number of projects planned under the BRI are now stalled or are running behind schedule due to lack of financing. Of 122 announced CPEC projects, only 32 have been completed as of the third quarter of this fiscal year, the report said.
Under the CPEC, Beijing planned to build eight Special Economic Zones (SEZs) in four provinces of Pakistan. Of them, seven SEZs are either still in a pre-feasibility or post-feasibility stages with no tangible development seen on the ground.
Chinese activity is visible only in the Gwadar zone, the Allama Iqbal Industrial City in Punjab, and Rashakai Economic Zone in Khyber Pakhtunkhwa province.
Earlier, China was reluctant to invite non-Chinese companies to invest in the SEZs. But the situation has changed with finance drying up. In principle, Beijing has agreed to allow Pakistan to form a new joint venture mechanism with companies other than Chinese state-owned or private enterprises to stimulate the CPEC project progress, including on a multi-billion dollar railway upgrade, the report said.
That is why Pakistan Railways (PR) globally advertised for tender openings to modernize its rail system.
To overcome Beijing’s reluctance to fund it Pakistan recently introduced a bill in parliament to give the army to take near-total control of the CPEC.
China is also concerned about terror attacks being launched by rival factions sponsored by Islamabad but under no control of the Pakistan Army. The Baluchis have also intensified their attacks on the CPEC projects and Chinese nationals working on them, raising the security costs and political risks of the projects.
Shakil said the government’s move to give the military more control over the CPEC aims at mollifying China’s rising security concerns.
Initiated in 2013, the USD 1 trillion BRI is a gargantuan plan of President-for-Life Xi Jinping to connect Asia with Africa and Europe via land and maritime trade networks to create new routes for China’s strategically vulnerable fuel imports shipped by sea mostly from the Middle East..
But the BRI is not moving as planned and its carefully-drafted plans have gone haywire.
The other reasons for reduced investments by China on the CPEC projects are “structural weaknesses” including opacity, corruption, over-lending to poor countries which led to debt traps, and adverse social, political, economic and environmental impacts.
The much-trumpeted 1,682-km-long Main Line (ML-1) railway project between Karachi and Peshawar is moving at a snail’s pace due to China’s reluctance to fund it at a meagre 1 percent return on investment. Beijing is also unhappy with Islamabad’s decision to curtail the project cost from USD 8.2 billion to USD 6.2 billion due to its rising debt load, according to media reports.
According to media reports, Humayun Akthar Khan, a Pakistan Tehreek-e-Insaf (PTI) leader who runs the Institute of Policy Reforms (IPR), a Lahore-based think-tank, has revealed that “Pakistan has slipped into a debt trap due to the government’s failure to bring reforms and weak fiscal management.”
In a report, “Pakistan’s debt and debt servicing is the cause of concern…We are in a debt trap that is entirely of our own making. It is a risk to our national security. The government was borrowing to repay the maturing debt, which now seems to be a concern for all the political parties, businessmen and experts.”