An Expert Explains China-Pakistan Economic Corridor: The bumpy road traveled so far

External Affairs Minister S Jaishankar told the Council of Heads of Government of the Shanghai Cooperation Organization on Tuesday that “connectivity projects should respect the sovereignty and territorial integrity of Member States and respect international law”, a reference to the so-called China-Pakistan Economic Corridor (CPEC), part of China’s Belt and Road Initiative (BRI). Pakistan’s Prime Minister Shehbaz Sharif is, meanwhile, on a visit to China — the first foreign leader to travel to the country since President Xi Jinping won a historic third term as supreme leader.

Nirupama Subramanian interviewed Andrew Small, one of the world’s most eminent scholars of Chinese foreign and economic policy, on the status of CPEC and in general, on the economic aspects of the Pakistan-China relationship.

What is the current status of the CPEC in terms of projects completed or abandoned?

China and Pakistan have been relatively careful about this — there haven’t been really major projects abandoned. There are “big ticket” projects that have moved ahead much more slowly than planned — such as a number of those at Gwadar — or still haven’t been finalized, such as the major railway line upgrade known as ML-1. In fact, the two sides have become somewhat more transparent about what has and hasn’t happened — the official number runs at around $25 billion now, and you can look up most of the progress reports on the individual projects.

The shorthand version is: a lot of the energy projects were completed; some of the road projects have been completed, others not; the special economic zones were pared down to a smaller number than originally envisaged and have moved very slowly; most of the projects around Gwadar are far from completion. In general, there’s been a backing away from the multi-stage, transformative plans — the projects originally agreed have largely been pushed forward, there’s just been nothing significantly new agreed over the last few years from the much bigger package that was under negotiation.

Although there are some paper agreements coming out of the Shehbaz Sharif visit, including most notably on ML-1, given the political and economic context in Pakistan now, there will still be questions about what these translate into on the ground.

How did the slowdown happen — Pakistan made the project proposals, China invested the money, so what happened at the Pakistan end?

Some of the energy projects were promoted very actively by the previous government and could be realized quite quickly — the coal-fired power stations, in particular. Quite a lot did move ahead — $25 billion is no small sum — but there’s just a sense of disappointment that the whole venture adds up to less than what either side had hoped.

The special economic zones ran into obstacles quite quickly from Pakistani businesses who were concerned that China would be given special benefits that would disadvantage domestic firms. There have been issues around land allocations. There have been issues around how much financing the Pakistani side would put in for certain projects, with the Chinese side often insisting that they have skin in the game.

There were uncertainties about the economic feasibility of some of the larger projects — hydro-electric dams and railways, most notably. Gwadar is just very difficult as a location, in logistical and security terms.

These are only a few items on a long list of reasons why some parts moved forward quickly and others didn’t. But Pakistan’s overall financial situation was deteriorating by 2018, and combined with the political uncertainties for China, civil-military contention over control of CPEC, and the subsequent Chinese disputes with the PTI government under Imran Khan, CPEC never really found its feet again. Now security threats are creating major problems too.

You wrote in your 2020 study of CPEC that one of the things that derailed it was a lack of political consensus in Pakistan that became quite obvious in Imran Khan’s time. What exactly was this lack of consensus about?

Imran Khan seemed to see CPEC as essentially a PML-N vehicle — the line was always that he didn’t object to it in principle, just the form it was taking. The assumption was that it was corrupt, badly negotiated, and configured entirely around PML-N political priorities. In office, it seemed they found less corruption than expected — my sense is that they had anticipated a Malaysia-style big renegotiation that would see large-scale corruption revealed and big revisions to the costs, but that didn’t happen.

There are certainly broader concerns in Pakistan about being stuck so firmly in China’s camp that there is no room for maneuver with other partners, which has somewhat played into attitudes towards CPEC. And some concerns about debt levels too — but most Pakistani officials and politicians were confident that, given the nature of their relationship with China, they weren’t at the same risk of a “trap” as some other countries might be.

I think the two sides have broadly been drawing closer since 2014 but the period since 2018 has not been anything like as enthusiastic as that earlier phase, with CPEC one of the main points of contention.

How much Chinese investment has taken place in CPEC so far? Has there been any new investment in the last five years?

The current total that both sides cite is $25 billion, and it was $19 billion five years ago. There are lots of other contexts where Chinese figures are very problematic but they haven’t been so far off official estimates from other independent sources when it comes to CPEC.

Shehbaz Sharif is considered to be an infrastructure man, also close to China. Will there be an effort to infuse more political energy and money into CPEC now?

China is certainly very positively disposed towards Shehbaz Sharif — one major CPEC project, the Lahore Orange Line, was virtually a personal favor to him. Ahsan Iqbal, who was the point-person for CPEC, is also back. There have already been attempts to deal with outstanding irritants — such as the payments to Chinese power companies — and I would expect there will be efforts from both sides to finish the projects that had been agreed.

But it’s not clear how long this government will be in office, the economic situation facing Pakistan is bleak, and China has now priced in a lot more political volatility than they had been hoping for when CPEC launched. The security situation for Chinese nationals is also far worse than it was a few years ago — with heightened threats from both the TTP and Baloch groups. So despite all that goodwill, I wouldn’t expect any dramatic new CPEC developments, just a push to fix the existing problems and see out the existing agreements.

Has the economic slowdown in China affected the enthusiasm in Beijing for CPEC and the BRI in general?

The BRI was itself originally supposed to address certain domestic economic objectives too — dealing with excess capacity in certain sectors, helping to build new markets, and so on. When it serves political, economic or security goals for China, an economic slowdown won’t inherently preclude financing projects, the capacity to do that is still there. But there was already a broader tapering back of BRI finance — not just for CPEC — and a move away from speed and scale to take better account of political and economic risk.

The consensus behind the BRI in China was never that strong — privately, there was a lot of skepticism from the financing institutions, and they are quite happy to see a less gung ho approach and a reprioritisation. Right now, of course, Beijing is also stuck dealing with a lot of debt negotiations — this was already true during Covid and now the situation across much of the developing world is far worse even than at the peak of that economic shock.

Of course, it also doesn’t help matters that China’s zero-Covid policies are making any interaction with the country for business and trade extraordinarily difficult. Chinese officials can travel, of course, but the normal commercial flows are not taking place, which acts as a serious drag.

Gwadar was going to be the showpiece of CPEC. What is happening there with the port, expressways, the power project?

The new Pakistani government has released some progress assessments, which indicate that while some of the port infrastructure and planning work has been finished, and the Eastbay expressway is largely completed, most of the rest of it is very far off. The water supply, desalination plant, power projects, hospital, airport, support to local industry and other plans are still lagging behind or in some cases barely started.

The security situation there has also deteriorated markedly. So, for now, it’s still not much of a showpiece. Every few years, there is a claim that it is only another few years away from being viable, and we’ve been hearing that virtually since it was first developed. I still expect some of this work to be completed in the end, but the difficulties at Gwadar are indicative of how unlikely it is that it will really be a functioning port, for commercial or military purposes. For the latter, China has other locations in Pakistan that it can and does use.

Andrew Small is Senior Transatlantic Fellow with the Asia Program at the German Marshall Fund of the United States. His research focuses on US-China relations, Europe-China relations, and broader developments in Chinese foreign and economic policy. He is the author of The China-Pakistan Axis: Asia’s New Geopolitics. His new book, The Rupture China and the Global Race for the Future, comes out in November.

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