Rusty road ahead for “iron brothers”?

Last month, an official spokesperson for the Chinese Defense Ministry, Ren Guoqiang, described China and Pakistan as “strategic partners and iron brothers.” Earlier in the same month, Prime Minister Imran Khan had remarked that China and Pakistan continued to closely “consult and coordinate” with each other, not only on bilateral matters, but also for “stability in the region and maintenance of strategic balance.” However, despite such words of confidence and convergence, the $62 billion China-Pakistan Economic Corridor (CPEC), a key segment of the Chinese Belt and Road Initiative (BRI), seems to be slowing down. 

CPEC, which was established in February 2015, has grown in project valuation from about $40 billion to over $60 billion. The initiative has been described by the Chinese foreign ministry as a “symbol of practical cooperation” between the two countries. A large number of infrastructure and industrial projects have been undertaken in what has been described as the Phase 1 of the initiative. However, the more recent set of projects that fall under Phase 2 of the initiative focus on things such as socioeconomic development, poverty alleviation and agricultural and industrial cooperation. Regardless, projects falling under both phases have come to a halt over the last year for several reasons.

For one, the macroeconomic situation in Pakistan has worsened to such an extent that the country needed a $6 billion International Monetary Fund bailout that imposed fiscal controls, particularly with respect to managing the country’s significant debt. According to an IMF report published in July earlier this year, Pakistan's total public external liabilities were about $85.4 billion, of which about a quarter was owed to a single country- China. Kaiser Bengali, an economist and former policy adviser to the Sindh provincial government, asserts that the IMF conditions might be motivated as much by pure fiscal math as they are by geopolitical compulsions of promoting American interests in the region.

Secondly, PM Khan’s own cabinet has expressed reservations about the project, particularly the benefits (or lack thereof) that it promises to the Pakistani people. Even the military establishment in Pakistan has begun to question the project. In a recent speech,Southern Army Commander Lt.Gen. Aamer Riaz decried the lack of proper agreements between the two countries vis-a-vis CPEC. He further asserted that CPEC brought precious few gains for Pakistan, while filling the Chinese coffers. Ayesha Siddiqa, a political commentator and research associate at the School of Oriental and African Studies (SOAS), also noted that the Pakistan military wants to “push back” against CPEC.

Sector-specific issues have also resulted in the slowdown, particularly in the energy sector where crucial tariff issues remain, including for the Port Qasim and Gwadar 300MW coal project. In a recent meeting to review the progress of CPEC projects, chaired by the Planning and Development Minister Makhdum Khusro Bakhtiar, it was resolved that an appellate tribunal would be expeditiously established to resolve future such tariff issues. Corruption and diversion of funds away from CPEC projects has also occasionally caused friction between Pakistan and China, and forced the latter to suspend funding. In fact, Pakistan’s failure to pay dues has also caused some eight Phase-I energy projects to be halted.

Most importantly, significant resistance seems to be emerging from different sections within the Pakistani society. A prominent industrialist remarked that, “Pakistan's business community is not fully involved in joint venturing with Chinese investors." Nor is the bureaucracy eager to expedite projects, thanks to the increased scrutiny from the National Accountability Bureau. Provincial leaders have expressed significant concerns about CPEC’s unequal distribution of benefits and costs within Pakistan. Can the “Pakistan-China All-Weather Strategic Cooperative Partnership,” as PM Khan recently described the two countries’ relationship to be, survive the murky waters that lay ahead of CPEC? Only time will tell.