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Sharif’s trip to Beijing: Can the China-Pakistan Economic Corridor be revived? | Business and economic news
Islamabad, Pakistan – Pakistan Prime Minister Shehbaz Sharif is scheduled to fly to China on June 4 for a five-day trip that will see him interact with Beijing’s leadership at a time when Islamabad has reached trust more and more in its alliance with the second largest economy in the world.
Sharif will visit Beijing, Xi’an and Shenzhen – the southern city that China holds up as an example of its dramatic economic rise since the 1980s. Shenzhen was handpicked by then-leader Deng Xiaoping as the country’s first special economic zone.
As Pakistan similarly seeks to lift its economy out of stagnation in the midst of high inflation and a debt crisis, a multibillion-dollar economic project is at the heart of its ambitions:
The $62 billion China-Pakistan Economic Corridor (CPEC), formally launched in 2015 by the two Asian nations, has been criticized by governments and many analysts in both countries as a “challenging player”For Pakistan’s economy. It included the construction of an iconic seaport, power plants and road networks across the South Asian country.
However, almost a decade later, doubts hover over the future of the project.
CPEC is a key component of China’s ambitious Belt and Road Initiative (BRI), a huge network of roads, bridges and ports spread across nearly 100 countries that Beijing hopes will recreate the ancient Silk Road trade routes linking Europe and Asia.
But critics say the BRI is a vehicle for China to expand its geopolitical influence and puts poorer countries, like Pakistan, under greater debt.
In Pakistan, the project included the construction of a seaport in Gwadar in the south, along with the development of the country’s energy, transport and industrial sectors. Although there were initial successes, CPEC had a difficult journey in Pakistan due to the country’s frequent political, economic and security crises and was effectively halted.
Now, a newly elected government in financially strapped Pakistan is making a renewed effort to strengthen CPEC.
Why Pakistan needs CPEC
Almost 40% of Pakistan’s 241 million people are below the poverty line, according to the World Bank. Inflation, which reached a devastating 40% a year ago, is now around 20%. An opinion poll ahead of February’s national elections suggested that nearly 70 percent of Pakistanis believe their economic condition will continue to get worse.
In 2015, when Sharif’s elder brother and three-time prime minister Nawaz Sharif entered CPEC with China, Pakistan was facing a massive electricity crisis, hampering its industrial growth. Islamabad used CPEC to develop a series of energy projects, despite warnings of accumulating more debt.
Gwadar, the coastal city in the southwestern province of Balochistan, was chosen to host CPEC’s crown jewel: a deep-water port that could transform the city into a bustling economic hub. Meanwhile, a nationwide network of highways has been announced, with the aim of providing connectivity from the city of Kashgar in southwest China to Gwadar, more than 2,000 kilometers (1,242 miles) away.
According to Ammar Malik, senior researcher at AidData, a research center at the College of William and Mary in the United States, although CPEC has undertaken some infrastructure and energy sector projects, it has struggled to deliver more tangible benefits to Pakistan’s economy.
“CPEC has certainly improved sectors such as transport or energy or provided improvements in Pakistan’s ability to produce electricity, but these benefits need to be translated into economic productivity and economic growth, which has not happened,” Malik told Al Jazeera.
Government data on the CPEC website corroborates this statement. CPEC lists 95 projects, the largest of which is around US$33 billion planned as investments in the energy sector.
Data indicates that of the 21 energy projects, 14 have been completed so far, with a combined capacity of 8,500 megawatts, while two others are under construction and five have not yet started. Likewise, of the 24 proposed transport-related projects, only six have been completed and 13 have not yet been subject to any work.
CPEC, according to the 2015 plan, was supposed to include nine Special Economic Zones (SEZs) – designated areas with lenient trade laws to promote growth. But none have been completed so far, with work ongoing on four of them.
CPEC is estimated to generate more than two million job opportunities for Pakistanis, but government data says less than 250,000 jobs have been created so far.
Meanwhile, Pakistan’s debt continued to rise, putting serious pressure on its economy. When Nawaz Sharif came to power in 2013, Pakistan’s external debt was $59.8 billion. Today, as his brother leads the nation, the same obligations have increased to $124 billion – of which $30 billion is owed to China.
The debt burden on Pakistan’s dwindling foreign exchange reserves has crippled a country heavily dependent on imports. Its central bank currently has $9 billion, enough to cover two months of imports. The currency crisis forced Islamabad to turn to close allies, including China, to bolster its economy.
Pakistan is also negotiating with the International Monetary Fund (IMF) another bailout package – the 24th since 1958.
But why is China cautious?
The Chinese have repeatedly extended repayment deadlines for Pakistani loans, including about $2 billion owed earlier this year. But China has its own concerns.
Just this yearfive Chinese nationals working on various CPEC projects were killed in attacks by armed groups, who openly admitted to targeting Chinese interests in Pakistan.
Dozens of Chinese workers have been killed across Pakistan since 2018, particularly in Balochistan, where an armed rebellion against the Pakistani state has been ongoing for several years. Baloch rebels now blame Chinese projects in the province as a theft of their resources.
Five Chinese citizens were killed in an attack on their bus in Khyber Pakhtunkhwa in March this year. [EPA]Stella Hong, a postdoctoral fellow in China public policy at the Harvard Kennedy School’s Ash Center, told Al Jazeera that Pakistan’s security situation “remains the most immediate concern” for the Chinese and could have an impact on their futures. investments in the country.
“The violent incidents are also testing the mutual trust of the two governments. There may be growing reservations from both countries about the other side’s commitment to this relationship,” she said.
Khalid Mansoor, who headed the government’s CPEC Authority for nearly nine months before being replaced in April 2022, said the main requirement of the Chinese is foolproof security.
“But despite the recent attacks, I can say this with confidence that the Chinese remain committed to the [CPEC] project,” he told Al Jazeera.
Weak governance
According to AidData’s Malik, the other big concern for the Chinese is governance – or lack thereof.
“In any good partnership, there are two partners and over the years I have heard the Chinese complain about not being facilitated in doing their jobs. The support they seek has not been given to them,” he told Al Jazeera.
Hong agreed, saying Pakistan needs to do more if it expects Chinese companies to relocate and expand operations in the country.
“Companies need to be able to run viable businesses if they want to move into Pakistani SEZs or even Pakistan in general. But many seem to have become frustrated with the difficulties of getting things done in Pakistan,” she said.
But economist Safdar Sohail, who was part of the government panel that oversaw the implementation of the CPEC project when it was launched, hoped that the creation of a Special Investment Facilitation Council (SIFC) could help resolve the governance issue.
Shehbaz Sharif formed the SIFC in his previous term as prime minister last year. The government body, represented by senior civilian and military officials, is intended to serve as the main decision-making forum to ensure the execution of economic policies.
Safdar believes that the SIFC will also be able to eliminate the bureaucratic issues that have affected the pace of CPEC projects in Pakistan.
“But I think to really harness the potential of CPEC, we need to have a forward-looking plan, rather than short-term projects that can only increase our debt burden,” he told Al Jazeera.