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April 23, 2024

China’s Monetary Assistance to Pakistan in the last One Decade: Geopolitical Implications

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By: Vaishnavi Verma, Research Analyst, GSDN

China and Pakistan’s flags: source Internet

The bilateral relationship between China and Pakistan was established after the 1962 border conflict between China and India. Given the limited prospects for reconciliation between China and India regarding their border dispute, India has emerged as a significant strategic consideration for both nations. In 1963, Pakistan relinquished control of the Shaksgam Valley to China, a territory that was also claimed by India. Subsequently, China extended military support, furnished the necessary resources for the establishment of Pakistan’s nuclear weapons program, and allocated substantial economic assistance to the country. However, it did not fully embrace the relationship with utmost sincerity. There existed a multitude of factors contributing to this phenomenon.

Firstly, it can be argued that China has historically not regarded India as an equal or significant strategic threat. The United States was bestowed with the dubious honor. Therefore, during the armed conflicts between India and Pakistan in 1961 and 1971, China refrained from engaging in military intervention in support of Pakistan. Although there was a public display of support for Pakistan in 1965, the same level of support was not extended in 1971, despite Pakistan’s involvement in facilitating the reconciliation between China and the United States. Moreover, China developed significant apprehension regarding Pakistan’s standing, partly due to its classification as a nuclear-outcast state following the global condemnation of AQ Khan, and primarily due to its role in providing refuge and assistance to Islamist extremists. The ethnic Uighur Muslim community resides in China’s Xinjiang province.

China has demonstrated a longstanding preoccupation with Islamist militancy within the Uighur population, with particular apprehension regarding their alleged connections to militants in Pakistan and Afghanistan. Significantly, China exhibited a degree of detachment from Pakistan both during the Kargil conflict in 1999 and the Mumbai terrorist attacks in 2008.

Nevertheless, during the mid-2000s, two significant factors emerged as crucial. One significant development was the transformation observed in the bilateral relationship between the United States and India. The United States had previously engaged in discussions regarding India as a potential counterweight to China. However, it was the subsequent advancement of their military and economic alliance following the disintegration of the Soviet Union that solidified this notion among Chinese elites. And the occurrence of the Galwan Valley clash might have been influenced by Beijing’s apprehensions regarding Delhi’s growing alliance with Washington at a time when China’s relations with the United States were deteriorating. Consequently, Beijing may have felt compelled to adopt a cautious approach toward addressing the border issue with Delhi. China’s aspirations concerning the global order constituted the second factor. In 2013, President Xi unveiled the Belt and Road Initiative (BRI), a substantial multilateral endeavor focused on infrastructure and investment, aimed at demonstrating China’s unique trajectory of growth and development.

The China-Pakistan Economic Corridor (CPEC) served as the fundamental basis of the Belt and Road Initiative (BRI). China had been providing Pakistan with assistance and support for infrastructure development for a considerable period. However, the China-Pakistan Economic Corridor (CPEC) marked a distinct departure from previous initiatives. The plan encompassed a diverse range of endeavors, such as infrastructure development, energy projects, the establishment of economic zones, and the enhancement of the strategic port, Gwadar. Its total value amounted to an impressive $62 billion. Significantly, the primary purpose of this initiative was to establish a strategic and economic linkage between the southwestern region of China and Pakistan.

The China-Pakistan Economic Corridor (CPEC) presents a viable alternative route to circumvent the Strait of Malacca, which is currently heavily influenced by American military presence and entangled with geopolitical and regional complexities. The economic corridor comprises a comprehensive infrastructure system that encompasses interconnected networks of roads, railways, gas, and oil pipelines as well as designated areas for specific economic activities. The establishment of economic zones throughout Pakistan aims to facilitate economic development. Once completed, this initiative will establish a connection between Kashgar, a city located in the Xinjiang region of China, and Gwadar, a port city situated in the Balochistan province of Pakistan. The Chinese region of Xinjiang is geographically connected to the port city of Gwadar, located in the Balochistan province of Pakistan.

The China-Pakistan Economic Corridor (CPEC) is expected to significantly reduce the transportation distance for Middle Eastern oil supplies. This development will enable China to have the most efficient shipping route available. The success and ambition of the China-Pakistan Economic Corridor (CPEC), a prominent initiative under the Belt and Road Initiative (BRI), played a crucial role in determining the overall success of the BRI. China-Pakistan Economic Corridor (CPEC), which is a component of China’s Belt and Road Initiative, was initiated during the visit of Chinese Premier Li Keqiang to Islamabad in May 2013. During that period, Pakistan was experiencing frequent bomb blasts, persistent power shortages, and sluggish economic growth. China has expressed its dedication to actively participating in Pakistan’s economy, as Li urged both nations to concentrate on implementing crucial initiatives in areas such as connectivity, energy development, power generation, and the advancement of the China-Pakistan economic corridor.

The capacity of China to exert influence on the economy of Pakistan has experienced significant growth in recent years, primarily attributable to Beijing’s status as the largest creditor to Islamabad. Based on the documentation disclosed by the finance ministry of Pakistan, the aggregate amount of Pakistan’s external debt, including both public and publicly guaranteed debt, was recorded at $44.35 billion as of June 2013. Notably, a mere 9.3 percent of this debt was attributed to China. According to the International Monetary Fund (IMF), as of April 2021, the external debt of Pakistan had increased significantly to reach $90.12 billion. Out of this total, China held a substantial portion, with Pakistan owing 27.4 percent, equivalent to $24.7 billion, of its overall external debt to China.

CPEC (China- Pakistan Economic Corridor)

The “China-Pakistan Economic Corridor” (CPEC) was formally initiated during Chinese President Xi Jinping’s visit to Pakistan in April 2015. The focal point has transitioned towards the augmentation of power generation in Pakistan, with projected expenses experiencing a significant escalation to a staggering sum of 46 billion USD. Subsequently, the two governing bodies meticulously devised a comprehensive “Long Term Plan,” commencing in the year 2017 and significantly elongating the envisaged timeframe for execution, extending it until the year 2030. The anticipated expenditures have experienced an upward trajectory, reaching a staggering sum of 62 billion USD, with Pakistani authorities subsequently alluding to even more elevated figures.

COMPONENTS OF CPEC

  1. Potential Growth Prospects in the Power Sector of Pakistan

Pakistan’s economy is confronted with a substantial obstacle in the form of a severe energy shortage. The occurrence of frequent blackouts has harmed both the domestic and industrial sectors. The crisis precipitated a significant cessation of industrial operations on a broad scale. The China-Pakistan Economic Corridor (CPEC) presents a significant opportunity to address the issue of excessive load shedding and mitigate the disparity between energy supply and demand. According to the Ministry of Planning, Development, and Reform, the energy sector is one of the corridor’s primary focuses. The early harvest program is anticipated to generate a total of 10,400 megawatts. The early harvest initiative includes nine coal, seven wind, three hydro, and one HDVC transmission line project. Timeline-wise, most early harvest initiatives are done. Electricity production and availability to households and businesses have increased.

In 2013, Pakistan experienced a daily load-shedding duration exceeding ten hours. By the year 2018, a substantial decrease had been observed in the majority of regions across the country. The Sindh province in Pakistan possesses significant coal reserves, particularly in the Thar region. Presently, there are several projects underway in Thar aimed at generating a total capacity of 4000 MW. These projects are currently in the construction phase. An additional amount of US$ 33 billion, which comprises a significant portion of the total. More than 70% of the total investment is allocated to the power sector, which includes the fuel, power, and coal sectors. An additional allocation of $2.5 billion has been made for the establishment of liquefied natural gas (LNG) pipelines to facilitate transportation from Iran to Nawabshah in Sindh and Gwadar in Baluchistan.

  • Infrastructure for transportation

The transport and communication sector of Pakistan represents a significant domain of investment. Pakistan has been allocated a substantial amount of $11 billion to enhance its transportation infrastructure. The development in question pertains to the construction of a 1,100-kilometer motorway within the urban area of Karachi, situated along the coast. The proposed transportation link from the province of Sindh to the city of Lahore in Punjab is anticipated to facilitate economic expansion and enhance internal connectivity. The implementation of contemporary transportation systems, including the renovation of existing ones such as the Karakorum Thruway connecting Rawalpindi and Kashgar, as well as the Karachi-Peshawar railroad line, is underway. 820 KM a lengthy fiber optic cable will be installed to connect Rawalpindi and Khunjerab. A dry port is planned to be established in Havelian, Khyber Pakhtunkhwa (KPK). Other transit-related CPEC initiatives include the Orange Line Lahore, the Quetta Mass Transit system, and the Karachi Circular Railway. CPEC aims to establish connectivity between Pakistan and other regions of Asia, Europe, and Africa. This initiative envisions Pakistan playing a pivotal role as a hub for service and manufacturing activities within the region.

  • Economic Zones

The expansion of territorial networks holds great significance within the overall project of the China-Pakistan Economic Corridor (CPEC). The expansion of the territorial network will be achieved through the establishment of Special Economic Zones (SEZs) aimed at fostering industrial development in key financial centers and strategically important regions in Pakistan. The initiation of work on Special Economic Zones (SEZs) is planned for the second phase of the China-Pakistan Economic Corridor (CPEC). During the initial phase of the project, a total of forty-six Special Economic Zones (SEZs) were initially planned. However, as the project progressed, the number of planned SEZs was subsequently reduced to nine. The proposed initiatives encompass the creation of the Bolan industrial zone, Allama Iqbal Industrial City M3, ICT Model Industrial Zone, and Rashakai Economic Zone.

And recently China has provided Pakistan, which is facing financial difficulties, with a significant financial support of US$700 million. This aid comes at a crucial time as Pakistan engages in negotiations with the International Monetary Fund (IMF). Additionally, there is a possibility of an additional US$ 1.3 billion in loans from China, which could serve to enhance Pakistan’s foreign exchange reserves.

BENEFITS OF CPEC TO PAKISTAN

CPEC provides the opportunity to integrate economies to end the region’s protracted conflicts. Additionally, it would provide employment and prosperity for millions of people in both nations.

  • CPEC offers a stable commercial transit route for Pakistan and China, boosts regional economic growth, and counterbalances Indian influence.
  • By becoming a transit trade route for international commerce, Pakistan would increase employment, reduce poverty, and create stability and prosperity by occupying people in economic and commercial activity.
  • Furthermore, the China-Pakistan Economic Corridor (CPEC) has the potential to attract significant foreign investment, which could contribute to the growth of Pakistan’s export sector and lead to an increase in its Gross Domestic Product (GDP). The expansion of trade and business opportunities in Pakistan will be facilitated.
  • As the corridor traverses Pakistan, the construction of CPEC offers Pakistan the opportunity for infrastructure development and economic growth throughout the entire province.
  • Khyber Pakhtunkhwa and Baluchistan, which are far behind in development, would get infrastructure and economic boosts. Pakistan’s Gilgit Baltistan province has this socio-economic development potential. Pakistan relies on marine commerce. Gwadar port development and connection will relieve Karachi and Bin Qasim ports.

GEOPOLITICAL IMPLICATIONS

The increased rift in US-Pakistan relations provides Beijing with an opportunity to promote a new model of international development to replace the predominant US model, which is founded on the “carrot and stick” doctrine. China introduced the Belt and Road Initiative (BRI), a geo-economically ambitious model, based on the principles of “wide consultation, joint development, and mutual benefits,” to promote regional development. This approach appears to be more comprehensive and inclusive. The alternative model is more practical and logical compared to the US model. CPEC has garnered widespread support across various regions of Pakistan as a component of the Belt and Road Initiative (BRI). In recent times, China has successfully organized the inaugural trilateral summit involving China, Pakistan, and Afghanistan to facilitate diplomatic discussions between Pakistan and Afghanistan. Russia is significantly concerned about the China-Pakistan Economic Corridor (CPEC) project due to its implications for China’s growing influence and presence in the Central Asian region. The region has long been considered to fall within the sphere of influence of Moscow. Presently, there is an observed escalation in the competition between Moscow and Beijing in their efforts to cultivate amicable relations with neighboring nations. Another area of concern pertains to multiple countries.

There is a sense of concern among individuals in Asia and other regions, such as the United States, regarding the geostrategic implications of the Belt and Road Initiative (BRI). Nevertheless, China has recently made efforts to address these concerns by emphasizing the “win-win” paradigm of the initiative. The endeavors of this initiative will yield noteworthy foreign policy ramifications for several prominent regional stakeholders, including India the countries of Russia, and Japan.

The rapid ascent of China is also perceived to evoke feelings of insecurity within Western nations. The Western nations persist in perceiving China through the lens of the historical “Qing Dynasty Era,” thereby demonstrating a disregard for China’s maritime capabilities. China’s foreign relations are founded upon principles of engagement, dialogue, accommodation, reconciliation, the promotion of peaceful coexistence, mutual trust, security, balance, and harmony.

The United States perceives the China-Pakistan Economic Corridor (CPEC) as a significant undertaking that will contribute to the concept of regional connectivity and collective economic growth. Additionally, the US foresees the potential for Afghanistan’s future participation in CPEC. The United States is cognizant of the ongoing progress of the China-Pakistan Economic Corridor (CPEC), which may result in China acquiring a prospective naval challenge within the Indian Ocean region. The United States is providing strategic leverage to India to enable India to uphold its regional dominance.

The United Arab Emirates (UAE) also exhibits a vested interest in the development of the China-Pakistan Economic Corridor (CPEC). Ports play a crucial role in facilitating economic growth in the United Arab Emirates (UAE). The full operationalization of the Gwadar port is expected to have a direct economic impact on the volume of business conducted at the Dubai port.

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