NEW DELHI: China has held back its CPEC investment in Pakistan by 74% in 2023, compared to 2022.
Lack of return on investments, delays in project completion and security issues have led to China pulling back its investment in Pakistan by as much as 74% in 2023, when compared to 2022 as part of its China-Pakistan Economic Corridor (CPEC), which is a part of the much larger Belt and Road Initiative (BRI).
As of today, 151 countries are a part of the BRI, with Pakistan being among the first seven countries that had joined this grouping when it was launched in 2013.
As per a recent report published by the Green Finance & Development Center, Fanhai International School of Finance (FISF), Fudan University, Shanghai, China, which provides independent research, advisory and capacity building on green finance and investments with a focus on China, the cumulative BRI engagement since the announcement of the BRI in 2013 breached the US $1 trillion mark to reach US $1.053 trillion in 2023, out of which about US $634 billion was in construction contracts and US $419 billion in non-financial investments.
Breaking it down, the report has said that China’s financing and investment are now spread across 61 BRI countries in 2023, with 37 countries receiving investments and 45 countries getting construction related engagement.
The country with the highest construction volume in 2023 was Saudi Arabia, with about US $5.6 billion (up from $2.6 billion in 2022), followed by Sri Lanka (US $4.5 billion), Tanzania (about US $3.1 billion) and UAE (US $2 billion).
Regarding BRI investments, Indonesia was the single largest recipient with about US $7.3 billion in investments, followed by Hungary (US $4.5 billion) and Peru (US $2.9 billion).
19 countries saw a 100% drop in BRI engagement compared to 2022, including Kenya, Myanmar, Turkey.
The most notable among this list is Pakistan, whose engagement dropped by about 74%. Pakistan has so far received US $28 billion through investment and construction contracts, most of which were in hydropower and coal projects.
The only agreement that China and Pakistan entered in 2023 was a January 2023 contract to construct a 300 MW coal-fired power plant in Gwadar. However, no financial details of the project have been made public, raising questions on whether the project has actually started or not.
The countries with the largest growth of BRI engagement were South Korea (577%), Bolivia (493%), Namibia (457%), Tanzania (415%), and Uzbekistan (375%) in the same period, indicating that Beijing’s decision to stop investing in Pakistan was conscious rather than dictated by economic slowdown due to the Covid-19 pandemic.
CHINA’S ULTIMATUM
This recent decline in engagement and initiation of any new projects indicates a potential shift in the China-Pakistan economic relationship within the BRI framework.
A desperate China, reeling under the non-performing investments that it made under the BRI head in Pakistan and the assassination of its citizens, has given an ultimatum to Pakistan to eliminate every credible threat that the BRI is facing from armed resistance groups.
During his five-day visit to China earlier this month, Pakistani Prime Minister Shahbaz Sharif faced a rebuke from the Chinese President Xi Jinping for failing to secure Chinese interests in Pakistan and asked him to initiate a military operation against the armed groups, notably the Tehreek-E-Taliban (Pakistan) and Baloch groups.
As a follow-up, on 22 June, senior Chinese official Liu Jianchao, who is the minister of the International Department of the CPC Central Committee, while addressing the Pakistan-China Joint Consultative Mechanism meeting in Islamabad, publicly rebuked Pakistan and said that its internal security deficit was a major challenge that was undermining investor confidence.
Liu raised concerns over Pakistan’s internal security situation, targeting Chinese nationals working on various CPEC projects while stating that, “Security threats are the main hazards to CPEC cooperation. As people often say, confidence is more precious than gold. In the case of Pakistan, the primary factor shaking the confidence of Chinese investors is the security situation. Without security, the business environment cannot really improve,” he continued, adding this may undermine development in the longer run.
After his address, Liu met Pakistan Army Chief, General Syed Asim Munir at the General Headquarters (GHQ), Rawalpindi.
Immediately after this meet, Pakistan army announced the launch of a military operation named, “Azm-e-Istehkam” (Strong Commitment for Stability) to assuage China’s anger.
More than 15 such operations have been launched historically by the Pakistan army in the last two decades, without any long term success.
ISLAMABAD USING WASHINGTON
Interestingly, just days before the announcement, Islamabad’s envoy to Washington, Masood Khan said that the US should urgently provide Pakistan with additional military equipment to counter the surge in attacks by the TTP, while attributing the same to the US withdrawal from Afghanistan in 2021.
Washington, in a covert manner, has been helping Pakistan in its military operations on its western border along Afghanistan. US military strategists have been forced to help the Pakistan army after they were detailed about why Washington needed GHQ’s help to control and stop Islamic groups from repeating a 9/11-like attack on the US in wake of the Taliban takeover of Afghanistan. GHQ also told Washington that if military help did not come from the US, Islamabad would seek it from Beijing.
Apart from the concerns in Washington about increasing Chinese investments in Pakistan that ultimately affect Pakistan’s ability to take strategic autonomous decisions, certain sections in Islamabad too have reservations about the huge obligations that Pakistan has come under because of CPEC.
The fact that Chinese investments ultimately turn into a tool to coerce the host country has become a topic of discussion in closed quarters comprising scholars, journalists and diplomats in Islamabad.
This section believes that sooner rather than later, China will have its military base and armed personnel in Islamabad, ostensibly to protect its investments.
Under its military-civil fusion program and China Standards 2035 initiative, China is aggressively promoting civilian and military interoperability.
China Merchants Bank signed the initial commercial lease for property in Djibouti. The same property was then used by China to develop a military base.
Similarly, the Sam Enterprise Group, a firm with close ties to China’s military, bought land in Vanuatu and the Solomon Islands.
Likewise, as has been the case with Pakistan, China’s state banks, state firms, and government funds have financed a large share of Chinese overseas lending and investment. As a modus operandi, the Chinese government pays its firms in China for projects they implement, while host governments pay China for these projects.
As per an assessment by Congressional Research Service (CRS), which provides inputs to US Congress members, these projects are neither assistance—as they are not interest-free and tend to be issued at or near market terms—nor truly commercial, because repayments are often backed by collateral commitments made to Beijing. Recipients of collateral may include state firms not party to the original transaction that are designated by the Chinese government.
In 2017, when the Sri Lankan government was unable to repay its loans, China Merchants Port Holdings Company, Ltd. acquired a majority stake in the firm that operates Sri Lanka’s Hambantota port and the right to operate the port for 99 years.
The CRS analysis says that PRC strategic investments are typically state-sponsored and aim to advance national economic and foreign policy goals. A handful of state firms operate most projects. These firms are funded by and report directly to the central government, and include China Harbor, CRRC, State Grid, China Three Gorges, and COSCO. China’s projects also strategically position national champions—such as Huawei, ZTE, and Alibaba—by establishing technology and infrastructure platforms, architecture, and systems built to PRC standards.
“Alibaba’s internet project in Malaysia, for example, provides a foundation for PRC data/cloud, e-commerce, and financial services. Projects appear to seek interconnection and interoperability in transportation (e.g., rail gauges), energy (e.g., power grid), and communications (e.g., 5G), allowing potential PRC control of sensitive infrastructure and related services. Projects in cobalt, lithium, and nickel support PRC battery and electric vehicle industrial policies,” a recent analysis on the subject by CRS said.
“Some observers note the economic benefits of China’s investments in developing countries while others argue that China is introducing unsustainable debt obligations and opportunities to gain concessions. China tends to extend the duration of its loans, rather than forgive debt repayment, which can create long-term financial dependencies. China’s opacity in lending came to a head in 2019 when the U.S. government questioned whether International Monetary Fund relief for Pakistan might also be used to repay China. The PRC government insists that most state banks and state firms are not subject to sovereign lending terms adopted by the United States and other major creditors in the Paris Club. PRC loans often forbid multilateral debt restructuring.”
“PRC entities are expanding overseas in many sectors that the PRC restricts to foreign investors in China (e.g., construction, transportation, finance, and communications). The PRC does not offer reciprocal market access for the rights it secures in other countries, challenging a core tenet of the global trading system and giving PRC firms asymmetric advantages over competitors. The PRC instead creates openings in foreign markets through ‘deal-ready’ state financing and integrated project delivery,” the CRS stated.