KARACHI:Ten years have passed since the initiation of the China-Pakistan Economic Corridor (CPEC), the multibillion-dollar flagship endeavor under President Xi Jinping’s $1.4 trillion Belt and Road Initiative. This colossal BRI program, which surpasses the scale of the Marshall Plan that reconstructed post-World War II Europe, aims to revitalize the legendary “Silk Road” through the construction of new roads, high-speed rail networks, power plants, pipelines, ports, airports, and telecommunications links. Its objective is to enhance trade with 60 nations across Asia, Europe, the Middle East, and North Africa.
Is CPEC a ‘Debt Trap’ for Pakistan?
Is CPEC a ‘Debt Trap’ for Pakistan? Former US assistant defense secretary Chas Freeman referred to the BRI as a potentially groundbreaking engineering undertaking, capable of encompassing more than half of the world’s population and generating a GDP exceeding $21 trillion. Although the project does not include a military component, American analysts express concerns that it may disrupt global geopolitics, as well as geo-economics, and challenge the prevailing US-led global order.
These concerns have sparked fervent debates in Western media, with analysts attempting to portray the BRI as a “debt-trap” that traps developing countries in unsustainable debts through “predatory lending,” enabling China to exert undue influence over their policies.
The term “debt trap diplomacy” was initially coined by Western policymakers in 2017 to describe China’s acquisition of Sri Lanka’s Hambantota port on a 99-year lease, following the failure of the island nation to meet its debt obligations. Since then, the term has been indiscriminately applied to all BRI projects, including CPEC.
CPEC
CPEC was announced in 2013 during the visit of then-Chinese Premier Li Keqiang to Pakistan, but it gained significant momentum in April 2015 when President Xi toured the country. Pakistani officials hailed the project as a “game changer,” with expectations that it would address the persistent energy crisis, modernize aging infrastructure, establish industrial parks, and open up opportunities for transit trade with China through the Gwadar Port via a new network of roads.
The $62 billion economic corridor further solidified the longstanding strategic relationship between the two nations, which has been described using a plethora of romantic expressions. Pakistan, for its part, viewed CPEC as a path toward “economic regionalization in the globalized world” and as a means to achieve a “hopeful region with peace, development, and economic growth.”
The launch of CPEC held immense significance for Pakistan for several reasons. Firstly, it occurred during a time when the country faced a highly volatile security situation, with terrorist attacks taking place nearly every day. Secondly, Foreign Direct Investment (FDI) had dwindled due to the prevailing security concerns stemming from the wave of terrorism.
Since the exit of Pervez Musharraf from power, who attracted substantial foreign investments in the services sector through his liberalization policy in the early 2000s, Pakistan had seen little FDI.
Thirdly, Pakistan grappled with a chronic electricity crisis that hindered industrial growth and led to violent protests by domestic consumers, despite the government providing billions of rupees in subsidies to safeguard their “political capital.” Fourthly, the country faced macroeconomic instability, characterized by depleting foreign exchange reserves, currency depreciation caused by widening current account and trade deficits. Finally, executing large-scale infrastructure projects and allocating significant resources for socio-economic development proved to be challenging for the country.
Amidst this setting, CPEC, particularly its $43 billion initial accomplishments, boosted morale and hopes. Pakistan perceived CPEC as the cure for all its economic troubles, envisioning it to (a.) modernize infrastructure for long-term progress; (b.) link major economic regions to reduce gaps in regional economic development; (c.) enhance development with the assistance of Chinese support and investment; (d.) expand investment ties with China to boost exports, industry growth, and employment, as well as establish industrial clusters.
While progress on CPEC has slowed due to a severe economic crisis since 2018, this massive undertaking has still delivered numerous road and energy projects. According to China’s National Development and Reform Commission (NDRC), “Multiple highway construction programs are advancing as planned. Operational power plants now supply nearly one-third of Pakistan’s electricity needs, fundamentally altering the power shortage situation in Pakistan.
” Additionally, the NDRC reported significant advancements in the construction of the Gwadar port, jointly developed by China and Pakistan, establishing it as a regional logistics hub and industrial base. Furthermore, the first phase of the Rashakai Special Economic Zone in Pakistan has been successfully completed, yielding positive results in attracting businesses. This unprecedented economic activity has generated 236,000 jobs, with 155,000 of them benefiting Pakistani workers.
However, Western analysts argue that while Beijing and Islamabad have endeavored to control the narrative surrounding CPEC, specific details of this colossal project, including investment and loan terms, the full scope of the projects, and the overall cost to Pakistan, remain unclear.
The US Department of State has also recently criticized what it perceives as “China’s exploitative lending to Pakistan” for potential geostrategic objectives. It asserts that CPEC’s terms favor Chinese companies and workers, burdening Pakistan with unsustainable debt. As of February 2023, Pakistan’s external debt has surpassed $100 billion, with more than $30 billion owed to China.
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In reality, this analysis of the project is biased, driven by perceived fears. Viewing CPEC merely as a bilateral governmental investment to ensnare Pakistan in a debt burden oversimplifies the matter. CPEC has attracted Chinese private investments across various sectors.
For instance, a Chinese consortium has acquired a 40% stake in the Pakistan Stock Exchange, Alibaba Group has purchased a 45% share in Telenor Microfinance Bank, two Chinese companies plan to establish a smartphone manufacturing plant in Faisalabad, and China’s Hui Coastal Brewery and Distillery has commenced beer production in Hub, Balochistan.
These private Chinese investments have created employment opportunities and fostered economic growth throughout Pakistan.
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Non-interference in the internal affairs of sovereign states is a fundamental principle of China’s foreign policy. Consequently, Beijing has refrained from interfering in Pakistan’s internal politics, creating social pressure groups, or influencing its economic policies, despite being its largest creditor.
Conversely, Western multilateral financial institutions, particularly the International Monetary Fund and World Bank, have consistently sought to dictate fiscal policies in Islamabad. Moreover, the Paris Club creditors, including the United States, France, Germany, and Japan, to whom Pakistan owes $8.5 billion, have frequently utilized their influence for geopolitical and geostrategic purposes.
That being said, Pakistan’s ruling elite must ensure political stability, policy continuity, improved security, and the implementation of comprehensive economic reforms to fully reap the benefits of CPEC, which aims to transform Pakistan into a prosperous regional trade hub.