Returning to the Shadows: China, Pakistan, and the Fate of CPEC

The troubles faced by the China Pakistan Economic Corridor (CPEC)—the flagship of China’s Belt and Road Initiative (BRI)—are perhaps the most conclusive demonstration that the BRI model that has been in place for the last few years is no longer sustainable. Even before the coronavirus pandemic, CPEC had stalled. Not only are the figures commonly cited for the total package of projects under this framework since its launch in 2015—which run as high as $62 billion—no longer accurate, investments of that magnitude are not under consideration either. The projects that are already underway or that have been completed are far from negligible, however. CPEC represents a marked expansion of China’s economic presence in Pakistan, with approximately $25 billion in investments to date—but this is already pushing close to the framework’s limits rather than the foundations of a more ambitious plan. 

Ahead of a visit by the Chinese leader, Xi Jinping, CPEC has ostensibly been going through a modest revival. This will see the addition of a couple of hydro-electric power plants and the upgrading of the ML-1 railway line between Karachi and Peshawar. But the pandemic has further weakened Pakistan’s already poor economic situation. Islamabad is embroiled in renegotiations with China over doubling the payback period on the existing CPEC energy projects and addressing its worsening debts. While CPEC may be a partial beneficiary of the immediate need for spending to revive the struggling economy, the government’s financing capacity has diminished significantly. 

In the coming years, the CPEC agenda will therefore largely be focused on completing investments that have already been agreed (including around Gwadar port), moving ahead with considerably slimmed-down plans for special economic zones, and identifying small additions that fit the current Pakistani government’s agenda, such as socioeconomic projects. This is a change in scale from the aspirations that once characterized the scheme, which one Chinese official characterized as moving from “mega projects” to “peanut projects.” 

Some elements of this rebalancing of CPEC had always been envisaged. The shift away from heavy capital investment in a second phase was a feature of the original plans. Yet, up until late 2017, it was anticipated that a far more expansive array of projects would be in motion, and that industrial cooperation between the two sides would also have taken off. Without the latter in particular, CPEC will fall far short of its transformative intentions.

CPEC’s Troubles 

Several factors contributed to the downgrading of ambitions for CPEC by Pakistan and China. It has been hit on three fronts—economic, political, and strategic. 

Economic considerations are primary. Pakistan’s fiscal and balance-of-payments situation means that the fullscale version of CPEC is not financially viable. 

Political factors have also contributed to CPEC’s fading fortunes. As has been the case in other BRI countries, when CPEC was initiated it was perceived to be closely tied to the agenda of the government of the day— led by Prime Minister Nawaz Sharif of the Pakistani Muslim League—rather than being rooted in a broader national consensus. Opposition parties, swathes of the business community, and—critically—the army had reservations about how CPEC was being conducted, even if they supported the general concept.

For its part, China has been skeptical about the Pakistan Tehreek-e-Insaf government led by Prime Minister Imran Khan that took office in 2018, compared to the warm relationship it enjoyed with Sharif. But Chinese concerns go further. Beijing has been burned by the politicization of its presence in Pakistan that CPEC induced, having previously sat seemingly untouchable above the country’s political fray. Even as the two countries find their way to a better footing for the relationship again, Beijing is unlikely to repeat the experiment of the vastly expanded level of economic and political engagement that characterized CPEC’s early years. 

The strategic context has also shifted. As a result of its worsening relations with the United States and the shock of the 2017 Doklam crisis, China sought to stabilize ties with India, which necessitated a discreet backing away from the comprehensive upgrade in its relationship with Pakistan that was evident from 2015 to mid-2017. CPEC has also become a factor in the wider rivalry between Beijing and Washington, with the United States taking a far more critical approach to the initiative in the last year. At every turn, CPEC has been bound up in geopolitical tensions rather than functioning as a “neutral” economic and developmental initiative. With the Sino-Indian relationship heading in a far more adversarial direction after the recent Ladakh clash, this is only likely to accelerate.

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