A Decadal Appraisal of the $62 Billion China-Pakistan Economic Corridor

Hailed as a harbinger of common development, Islamabad and Beijing signed the China-Pakistan Economic Corridor (CPEC) agreement in 2013. China declared that Pakistan was the ‘key link’ in its multi-trillion-dollar transactional Belt and Road Initiative and CPEC was its most critical asset. The scope of the CPEC has been expansive to include developing a deep water port at Gwadar, a road and rail line from this port to Xinjiang Province in western China, to help Pakistan overcome an electricity shortfall, modernisation of its transport networks and transition it from a predominantly agrarian to industrial economy with investments in mining, agriculture, livelihood projects, science and technology, education, etc. But a decade since its blazoning launch, the elaborate 3,218 km Chinese infrastructure network project undertaken in Pakistan has remained restricted to scattered investments in energy and transport infrastructure projects, with no investment and technology transfers in either industry or agriculture to boost productivity and exports. Notwithstanding its heraldic inauguration, the result is that the sea-and-land-based CPEC corridor has failed to mitigate Pakistan’s perpetual balance-of-payments and debt crises.

Recently Pakistan’s interim Prime Minister Anwaar-ul-Haq Kakar participated at the third BRI forum and in his speech declared that the Pak-China partnership was “made in heaven.” The showcased BRI forum itself was an attempt by Beijing to reinvigorate the BRI, which finds itself mired in controversy. Beijing’s infrastructure initiative has been accused of giving out loans for unsustainable projects that became debt traps for smaller countries and driving them into a deep economic crisis.

Debt-Creating Energy and Transport Schemes:

Of the total amount committed under CPEC, the bulk of the amount was allocated to energy projects while the remaining sum was for infrastructure – roads, highways, and port and airport development, including Gwadar.  Set to be completed by 2030, loans were taken by Chinese companies, mainly from the China Development Bank and China Exim Bank, against their own balance sheets and the  implementation schedule determines the payments stream. Already into the medium-term phase (2021-25), the CPEC’s first short-term phase (2015-22) has only financial crisis, heightened insurgency, political instability, unhinged corruption to show for in its first decade. The final long term phase is from 2026-30; but given the slow pace of work, in an uncertain political environment and rising scepticism on both sides the possibility of a majority of CPEC projects remaining stalled is the likely outcome. Despite the fact that the first phase was implemented on the basis of government deals it was marked by delays over issues such outstanding dues of contractors. The second phase, initiated in August, proposes to involve the private sector via B2B investment, and there are bound to be further bureaucratic and legal formalities. Estimated to cost $46 billion over 15 years, the figure has since risen to $62 billion.

Soon after the agreement was signed, massive amounts of Chinese activity was seen in Pakistan with large amounts of machinery reaching the country. But since these are commercial projects, outflows soon began to pay their cost, and the stress on the economy manifested itself within a few years in magnified form, because payments had to be made not just for the equipment, but interest as well.

China holds roughly $30bn of Pakistan’s $126bn total external foreign debt, exceeding its borrowings from the World Bank and Asian Development Bank combined. And yet even as Pakistan sought newer loans to pay older loans, China awaited the green signal from the IMF before releasing some relief.

Has the CPEC made a noteworthy contribution to Pakistan’s economy?

Despite the use of epithets such as a “win-win initiative,” “iron brothers,” “made in heaven,” and “higher than the mountains and deeper than the oceans” used by both sides to describe the relationship, CPEC’s first phase remains over-promised and under-delivered. According to a report in the media in at the strategic decision-making body of the CPEC, the Joint Cooperation Committee (JCC) meet in October 2022, China has in fact rejected several suggestions like the inclusion of water resources management, urban infrastructure development, policy framework for coal gasification for domestic demand as well as exports, a demand for Chinese technology for joint exploration, development and marketing of metallic mineral to name just a few, put forth by the Pakistani side. The minutes of the JCC meeting stated that there were “the challenges that both the sides are facing in deepening the economic ties.”

Chinese interest in the Gwadar port springs from developing an alternate corridor that would connect the Arabian sea port to Xinjiang across Pakistan.  In 2017, the China Overseas Port Holding Company (COPHC) acquired the operations of Gwadar port on a 40-year lease which makes China both the operator and developer. While conceptually it was sound, frequent attacks by Baloch insurgents targeting the corridor infrastructure and particularly the Chinese has made completion and operation along the route an unrealistic proposition. Their resistance stems from the fact that CPEC projects have largely benefited  provinces that are already more developed. Chinese nationals working on CPEC projects have been targeted not just by Baloch insurgents in the southern provinces, Gwadar and Karachi, but also by the East Turkestan Islamic Movement (ETIM) and Tehreek-e-Taliban Pakistan (TTP) near the Dasu hydropower project in Upper Kohistan. Even at the recent BRI forum in Beijing, President Xi Jinping  called for security for Chinese interests, “we hope the Pakistani side will guarantee the safety of Chinese institutions and personnel in Pakistan.” This despite the fact that a special force of 10,000 for protecting Chinese workers was instituted in Pakistan. For now, Gwadar port remains far from evolving into a fully operational maritime. It has also failed to enhance the lives of those who have occupied the region.

Within Pakistan there have been demands from the provinces for a greater share in CPEC projects. The Chinese-funded infrastructure project has not been away from eliciting doubts within the political class either. Raising concerns regarding sovereignty Senator Tahir Mashhadi had commented that with the Chinese initiative, “another East India Company is in the offing; national interests are not being protected.” When the previous Imran Khan government attempted to evaluate the CPEC, the Pakistan Army pushed back any effort to renegotiate the agreement with the Chinese.

Claims of over two million employment generation through CPEC projects have in fact created jobs for about 1,55,000 Pakistanis. None of the energy projects that were set to be complete by the first phase, are operational; for instance Suki Kinari Hydropower Project,  Karot Hydropower project, Thar Coal Block-II and ThalNova Coal require extension. After the initial impetus under which some power plants and other infrastructure projects were developed, the momentum has considerably decelerated. Pakistan continues to have the  highest electricity tariff amongst countries in the region.

In July this year, when Chinese Vice Premier He Lifeng visited Pakistan to commemorate ten years of the CPEC, the Chinese reticence on further cooperation on projects related to energy, climate change, electricity transmission lines and tourism was reiterated. This has led to some postulation that Beijing might be viewing its commitments in Pakistan as more inconvenient than it is worth. There is palpable impatience on part of Beijing, that Islamabad resolve internal differences over CPEC and create more favourable security conditions for the project to continue.

A CPEC Authority was formed in 2019 to ensure uninterrupted investment but in fact “not a single dollar has been invested” via the mechanism. With regard to high technology there is virtual exclusion of Pakistanis at the design and engineering level from major CPEC projects executed on Pakistani soil.

Chinese and Pakistani officials frequently tout CPEC as a game-changer which is ‘progressing well,’ but on several occasions officials in private discussions point to problems in the execution of the $62 billion dollar project. There is lack of clarity about the status of projects and transparency issues like energy privatisation, expansion of coal plants, payment issues.

Vaishali Basu Sharma
Vaishali Basu Sharma
Vaishali Basu Sharma is an analyst of strategic and economic affairs. She has worked as a consultant with India’s National Security Council Secretariat (NSCS) for nearly a decade. She is presently associated with New Delhi based think tank Policy Perspectives Foundation.