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TematicheCina e Indo-PacificoThe China Pakistan economic corridor facing serious difficulties

The China Pakistan economic corridor facing serious difficulties

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The China Pakistan Economic Corridor (CPEC) is facing serious difficulties, with numerous projects experiencing delays or being halted entirely. Chinese investors are hesitant to finance new projects in Pakistan.

As a matter of fact, Islamabad, which is burdened with unprecedented debt pressure and is on the verge of a financial default. Moreover, Beijing is not happy with the strict conditions of the International Monetary Fund (IMF) for the resumption of the USD 6 billion bailout package program, which may exacerbate Pakistan’s economic troubles and draw scrutiny to Chinese loans. According to IMF data, China holds approximately USD 30 billion of Pakistan’s total external foreign debt of USD 126 billion. Despite making several attempts to complete delayed projects and initiate new ones, CPEC’s future looks bleak due to Pakistan’s struggling economy and China’s apparent reluctance to provide new financial assistance.


The CPEC was initiated in 2013 with an initial budget of USD 62 billion. However, over the past decade, China has reportedly ceased to provide Pakistan with a steady stream of funds due to delays in CPEC projects caused by Islamabad’s bureaucratic corruption, internal politicking, and heightened security threats in Balochistan and Sindh provinces. Consequently, the longstanding friendship between Pakistan and China is now under significant strain. The regular delays in CPEC projects and resulting financial losses for Chinese investors have not been well received in Beijing. The Gwadar Port, considered as the “crown jewel” of the CPEC, is not fully operational even after a decade. By the same token, Chinese workers and CPEC-related activities in Gwadar have become extremely unpopular among the local Baloch population. Several violent street protests have occurred in the last two years in response to the growing Chinese (“outside”) presence in the region.

Chinese companies, whether state-owned or private, are profit-oriented just like any other businesses. Despite the “strategic” relationship between China and Pakistan, Beijing has certain limitations when it comes to managing the financial losses associated with CPEC projects. Several analysts argue that the premise of CPEC was fundamentally flawed, assuming that infrastructure – such as roads, bridges, and electricity – alone would generate growth and employment in Pakistan. It is noteworthy that Pakistani workers have been deliberately excluded from the design and engineering levels of major CPEC projects. What could have been an opportunity for Pakistanis to learn became a one-sided affair, as Beijing followed its “imperialistic” tendencies and sent its domestic workforce to Pakistan. Most importantly, China has not allowed full transparency on its financial loans to Pakistan, as there is no open-source data available on the terms and conditions of CPEC loans. Global financial institutions like the IMF and countries like the United States have tried umpteen times to pressure Pakistan on the same. Beijing has told Islamabad to remain tight-lipped on this matter as it may generate serious opposition against CPEC within Pakistan and may jeopardize its future. 
China has faced accusations of engaging in unethical practices with Pakistan, including short-selling to most independent power producers (IPP) deals, which are believed to be fraudulent, as well as receiving tax exemptions. Last year, over 30 Chinese companies operating under CPEC, such as those involved in energy, communication, and railways, threatened to shut down their operations unless payments totalling around PKR 300 billion were made immediately. To address concerns of Chinese lenders of CPEC IPPs with respect to future payments, the Pakistan government has expressed willingness to amend the Pakistan Energy Revolving Account (PERA). Moreover, duty-free imports from China have adversely impacted many local manufacturers in Pakistan, driving them to bankruptcy under Beijing’s “debt-trap” strategy. In a public address in 2019, former US principal deputy assistant secretary of state for South and Central Asia, Alice Wells, criticized CPEC for its “high costs and lack of transparency, for burdening Pakistan with high debt, and for not bringing the types of economic benefits to Pakistan—such as jobs.”
Despite these issues, policymakers in Pakistan have continued to present a rosy picture of CPEC to local businesses and the general population. In April 2022, Shehbaz Sharif, who assumed office as the country’s new prime minister, praised China’s contributions to Pakistan’s economy and “expressed gratitude to President Xi Jinping for launching it as a game-changer for the country.” Interestingly, in November Sharif travelled to Beijing to explain delays and was pressured to “revitalize” CPEC. Except for putting the blame on the former government for the CPEC slowdown, Sharif and his ministers have not taken any action to resume work on several stalled projects. Given Pakistan’s dire economic situation, it appears unlikely that CPEC projects will be completed on schedule, and a failure of this magnitude could put the whole China’s Belt and Road Initiative at risk.

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