China is fast losing its patience over Pakistan’s lackadaisical attitude to finish projects under the China Pakistan Economic Corridor (CPEC), which was ‘officially’ launched in 2015. According to the recent CPEC Authority report, Pakistan could complete only three CPEC projects in Gwadar, Balochistan – which is the focal point of CPEC – having value of over USD 300 million, as “one-dozen projects costing nearly USD 2 billion remain unfinished including water supply and electricity provision.” This has irked Chinese government, which is reconsidering the future of its financial and
manpower investments in Pakistan.

China’s worries

What is more worrying for China is the recent uptick in terror attacks targeted against its nationals, mostly workers and engineers, in different parts of Pakistan. Chinese officials in Pakistan have expressed serious concerns and questioned Islamabad’s inability to protect their nationals after the recent killing of three Chinese language teachers in Karachi. The Karachi University attack was the third terrorist attack on Chinese citizens on Pakistani soil in a year. Senator Mushahid Hussain, Chairman of Pakistan’s Senate Defence Committee recently remarked, “The Chinese confidence in Pakistan’s security system’s ability to protect their citizens and their projects is seriously shaken.”

Adding more to the CPEC conundrum, over two dozen Chinese firms operating in Pakistan have recently warned “that they would be forced to shut down their power plants in May unless payments of PKR 300 billion were made upfront.” More than 30 Chinese companies operating CPEC, including 25 representatives from Chinese independent power producers (IPPs), in various areas including energy, communication, railways and others, recently met Pakistan’s Minister for Planning and Development Ahsan Iqbal to
lodge their complaints over the non-payment of dues. The Shehbaz Sharif-led coalition government is in a crisis mode after these developments and is trying hard to win back Beijing’s trust. Several ministers and government representatives have recently met Chinese officials to reaffirm Islamabad’s commitment to complete delayed CPEC projects and simultaneously expedite development of the second phase.

Pakistan’s new Foreign Minister Bilawal Bhutto Zardari has sought to further strengthen “all weather strategic partnership” with China, including through the “rapid implementation” of CPEC. Prime Minister Sharif has blamed former PM Imran Khan for ruining the CPEC project and assured the Parliament to prioritise the CPEC. These remarks suggest that the new government in Pakistan will enhance ties with China and may come up with a fresh roadmap on the CPEC. However, it will not be an easy task considering most CPEC projects were almost stalled in the last three and half years. Restarting incomplete projects will require more capital, time and manpower, which China seems reluctant to provide anytime soon.

Key factors

Several factors have contributed to the delay in CPEC projects in the last three and half
years. It has been majorly hit on three fronts—economic, political and strategic. Pakistan’s economy is in deep trouble with the US dollar reaching 190 Pakistani rupees, inflation in double figures, rising energy prices, low growth rates and the federal budget trade-deficit crossed PKR 4 trillion in March this year, first time ever in the country’s history. All this is happening when the International Monetary Fund (IMF) has put on hold its USD 6 billion bailout programme to Pakistan for not meeting its conditions. Under these circumstances, China fears that its investments in Pakistan will not result in any profits because Islamabad will not be able to return Chinese financial loans and interests anytime soon. Consequently, CPEC projects are likely to face more delays and extended deadlines in the future.

Politically, Pakistan is in a deep mess after the Imran Khan government was ousted from
power last month. The 11-party coalition government is standing on a weak plank because it is a conglomeration of divergent political ideologies and not really a united force. It may fall anytime, even before the 2023 General Elections in Pakistan. Therefore, the Sharif-led government is not in a position to take big policy measures to sort out CPEC-related issues, besides a few small steps, but mostly empty rhetoric. On the strategic front, Pakistan fears that its burgeoning bilateral ties with China have raised eyebrows in the US. More importantly, both Beijing and Islamabad are feeling insecure over Washington’s emerging role in the Indo-Pacific region. As a result, Pakistan may consider improving its ties with the United States after the three horrible years of US-Pak relations under the PTI government. China will be alarmed in case Pakistan tilts more towards the US as that might impact CPEC progress and other Chinese investments in Pakistan.

Beijing is facing an uphill task to revive the CPEC project in Pakistan because its failure, as the ‘flagship’ project of the BRI, is not an option for the Chinese authorities since it will directly impact President Xi Jinping’s international image. Therefore, China will pressure Pakistan to resume the work on incomplete CPEC projects or pay penalties. Pakistan has
already fallen too deep into the Chinese “debt-trap,” and its economy is in a deep mess. According to the IMF, Pakistan owes USD 18.4 billion or one-fifth of its external public debt to China. Consequently, the Sharif-led government will fail to provide any solution to Pakistan’s economic turmoil and may end up increasing dependency on China.

L'articolo Growing frustration in China over Pakistan’s failure to complete CPEC projects proviene da InsideOver.

Pakistan under the Prime Minister Imran Khan is becoming increasingly assertive in its foreign policy ambitions. The Khan-led team has made some significant inroads in expanding Pakistan’s influence in the region, from becoming part of the US-led Afghan Peace Process to mediating between the regional arch-rivals Saudi Arabia and Iran.

The new-found vigour and Khan’s celebrity status has helped him form a narrative against India in the wake of New Delhi’s move to strip away Kashmir’s special status. After making a widely-acclaimed speech at the United Nations General Assembly last month lambasting the Indian atrocities against Kashmir’s citizens, Khan left for Beijing earlier this week to meet Chinese President Xi Jinping to discuss the regional situation and the stalled China-Pakistan Economic Corridor.

Although the visit was meant to be for two days, a large entourage of foreign ministers, economic advisers, army chief and director-general of the country’s spy agency accompanied Khan to Beijing to discuss the entire spectrum of bilateral relations, security cooperation and the CPEC. The visit also came at an opportune moment, just as PM Narendra Modi was preparing to host Xi for a summit in India.

Subsequent to the Xi-Khan meeting, the two sides issued a joint statement which read that, “China is paying close attention to the current situation in Jammu & Kashmir and … is a dispute left from history, and should be properly and peacefully resolved based on the United Nations Charter, relevant UN Security Council resolutions and bilateral agreements.”

In addition, President Xi Jinping said that he is watching the situation in Kashmir and would support Pakistan in issues related to its core interests, the Chinese state news agency Xinhua reported. Xi further told Khan that, to China, the rights and wrongs of the situation in Kashmir were clear while adding that, “China supports Pakistan to safeguard its own legitimate rights and hopes that the relevant parties can solve their disputes through peaceful dialogue.”

The statements, despite being vaguely worded, were not received well in India, which was irked by China’s stance on the issue. Just a day before Xi’s scheduled arrival in Chennai, the Indian foreign spokesperson, in an answer to his statement said that, “China is well aware of our position. It is not for other countries to comment on the internal affairs of India.”

Although, Kashmir was a top-priority item on the agenda for the meeting, Khan was also in Beijing to discuss the stalled $60-billion China-Pakistan Economic Corridor investment project. The two sides were set to discuss ways to begin Phase II of the CPEC investment project.

The work on the corridor, which aims to link Pakistan’s Gwadar Port with China’s Kashgar province, has slowed down in the last 12 months. The project stalled after Pakistan found itself in the midst of a balance of payments crisis after it went on a borrowing spree to finance its imports. The investments under the project, which were meant to help Pakistan build a network of roads and railways, ended up inflating imports bill and weakened its currency by almost 50 per cent.

As Pakistan’s imports, under the Belt and Road Initiative announced in 2014, increased so did its reliance on ‘friendly nations’ for loans. The machinery and construction-related imports to install optic fibre lines, build rail networks, motorways and improve Pakistan’s infrastructure capabilities ended up widening the country’s account deficit to $18.13bn in 2018 from $3bn in 2014, when the project was announced.

The unravelling resulted in massive slide in rupee’s value and forced Islamabad to call on the doors of the International Monetary for a bailout. Under the IMF’s extended fund facility, Pakistan cut development spending to avert a crisis and put CPEC projects on the back burner.

Although both Beijing and Islamabad remain committed to the CPEC, the fate of the project relies upon Pakistan’s success in achieving macroeconomic stability. Commenting on the project, both sides in the joint statement said “the two sides expressed determination to speedily execute CPEC so that its growth potential can be fully realized making it a high-quality demonstration project for BRI.” PM Khan also announced to set up a CPEC Authority to expedite projects and make arrangements for the Gwadar Port.

Although he did not elaborate on the scope of the authority, but reports suggest that the authority will likely be added to Khan’s already-bloated portfolio. Later, Pakistan’s maritime minister announced that the China Overseas Port Holding Company will get a 23-year tax exemption for carrying out development works at the Gwadar Port.

Despite facing delays in kick starting the second phase of the project which entails setting up Chinese industries in the CPEC special economic zones, Pakistan has completed much of the early harvest projects including power projects, transmission lines, motorways, airports, optic fibre network and special economic zones.

Although, much of the groundwork for the economic corridor has already been laid, the future of the project relies entirely upon Pakistan’s ability to implement economic reforms. Until then, however, the CPEC is on hold.

L'articolo Xi Jinping and Imran Khan Discuss CPEC and Kashmir proviene da InsideOver.