Indian Defence Review

China Pakistan Economic Corridor (CPEC) a collection of infrastructure projects, is the flagship project of China’s Belt Road Initiative (BRI), inked in 2013 with an original outlay of $ 46 Billion. A path breaking economic project between two important strategic partners, both aligned against India, aimed to propel economic growth and prosperity of Pakistan by developing road, rail surface and digital communications, Gwadar port, power generation and Special Economic Zones (SEZs). It went partially on steam when goods were transported overland from China and exported from Gwadar port to Africa and West Asia in November 2016.

Mired in troubles, cost overruns, corruption and delay, CPEC is perhaps the most convincing demonstration that the aims and aspirations of Beijing through its BRI are no longer sustainable, more so after this worldwide pandemic.

CPEC stalled even before COVID 19 hit the world. From the initial estimate of $ 46 Billion, today its estimated to be $ 62 Billion, though some put its value at $ 87 billion. Such estimates are no more reliable and a review reveals that investment of such magnitude is not under consideration either. Projects completed are worth far less at approximately $ 25 Billion but what China has achieved is a marked expansion of its footprint in South Asia.

Chinese leader Xi Jinping was scheduled to visit Pakistan in September 2020 but Indian offensive action in end August 2020 in Eastern Ladakh probably has resulted in postponement. Xi’s visit, the first visit by a Chinese leader to Islamabad in over nine years, was expected to see the signing of several agreements in the area of trade, infrastructure, energy, finance, science and technology.

Spurred by Xi Jinping’s proposed visit, CPEC is seeing a modest revival. The major projects to be undertaken in Phase 2 are two hydroelectricity project, upgradation of the Karachi – Peshawar rail link, upgradation of digital communication infrastructure and development of the much-delayed airport and SEZs at Gwadar.

This all is unfolding when Pakistan is in the throes of an unprecedented economic crisis when year on year, not only its economy has contracted over 2 % but it is now further exacerbated by the pandemic. Its debt servicing capacity is vastly reduced and debt repayment renegotiation is high on cards for discussions with China.

Decreasing Government revenues is also greatly reducing Pakistan’s capacity to fulfil its financial obligations in the various projects under CPEC.

In CPEC, it’s the technological upgradation of the Digital communication which will have lasting effect. It includes “national” fibre optics highway,5G, safe city projects with a new monitoring and surveillance system meant to oversee law and order in Pakistani cities, remote sensing and access to Beidou Sat Navsystem.

It can be argued that some scale down was on the cards in the second phase. Yet till as late as 2017, Pakistan was a buzz with anticipation of the industrial cooperation under CPEC, without which CPEC is bound to fall short of its objectives. This hasnot commenced and the resulting generation of 2.3 million jobs seems less likely and an increase in yearly economic growth by 2-2.5 % due to CPEC, now a distant dream. This has come in for sharp criticism from the people of Pakistan, who, in CPEC, see the loss of independence of Pakistan and loss of individual privacy and freedom. This new reality is a far cry from the dream of achievement and prosperity initially envisaged.

This reduction in the ambition of the “Project of the Century” is due to numerous economic, political and strategic factors.

In this, economics reign supreme with Pakistan’s capability to inability to meet its financial obligation in each project and its ever-reducing capability to repay the debt taken from Beijing, the main economic factor. CPEC debt now amounts to a 10th of Pakistan’s total debt.

In mid-2019 Pakistan’s public debt stood at a mammoth 86.5 percent of GDP—a 13.5 percentage increase from the previous year. Part of it can be attributed to the domestic debt of Pakistan’s struggling public companies. The borrowings of these  increased by nearly 250 percent between 2013 and 2018.

IMF, in sanctioning the latest tranche of loans to Pakistan has advised it to maintain strict austerity, practise of which is threatening the very tenability of PM Imran Khan’s rule.

Political factors too have forced the scale down (and also in BRI projects in other nations). Under BRI, Beijing has negotiated opaque deals with the Government of the “Day”, which in its eagerness to develop the much-needed infrastructure, has decided on terms, untenable in future. This has seen renegotiations and scaling down in of projects in many BRI nations.

In CPEC, the project was undertaken by the then PM Nawaz Sharif, now on the run due to graft. The terms of the deal were not made public, neither the main power in Pakistan, its military kept in the loop of decision making. Though Pakistan welcomed investment from its only permanent strategic partner, but many political voices and civil organisations raised questions on the terms of the deal.

In this, Tehreek e Insaaf, the present PM Imran Khan’s party, was a leading voice of dissent against CPEC, demanding transparency. It formed the major plank of its election campaign in 2018.

Previously, China had assumed itself to be held too high in Pakistan public esteem, to be ever questioned. In the run up to the 2018elections, it found itself to be the major bone of contention between Pakistan Muslim League and Tehreek e Insaaf and its impeccable reputation lay in tatters. Imran questioned the opacity of the deal, its high cost and promised re negotiations. On assuming office, initially he did try to delve into the terms of the opaque deal and tried to reduce Government budget for it, but slowly realisation dawned that “beggars cannot be choosers”.

This politicisation of CPEC has left China shaken and stymied its appetite to increase its commitments in the project.

Strategically too, the scenario has changed for China. The ongoing Trade war with US, the shock of India’s resolute stand during Doklam crisis in 2017 and thereon the accelerated Indian tilt towards the anti-China block in the world, necessitated a subtle retreat from upgrading its strategic relations with Pakistan.

Pakistan has been an US satellite nation for decades, since it joined SEATO and CENTO in the 1950s. It was the bulwark of West against expansion of Soviet Communism and for undertaking this role, Pakistan was handsomely rewarded with financial and military aid. Today too, it receives substantial aid from US for aiding it in its fight against “terrorism”.

Infringement of CPEC in the sphere of influence of US and its allies has made CPEC (and the rest of BRI), a bone of contention between US and China. CPEC has raised geo strategic tensions in US and India due to the envisaged use of Gwadar port and land-based infrastructure for Chinese military influence on the Arabian Sea, Indian Ocean and on South Asia.

The ongoing eye ball to eye ball confrontation between India and China since May 2020 in Eastern Ladakh, the undertaking of development of two hydro electric projects in Pakistan Occupied Kashmir and the ongoing infrastructure development and presence of Chinese nationals in Gilgit and Baltistan has only deepened India’s security concerns over CPEC. Due to these, the downward spiral in India – China relation is likely to accelerate.

Xi Jinping’s BRI global initiative, to link the world with China, is with the view to reclaim its lost status as the “middle kingdom”. China has promised to spend over one trillion dollars for new ports, railways, fibre-optic cables, power plants, and other infrastructure. The plan has expanded into the Arctic, cyberspace, and even outer space. Beijing says that it is promoting global development, but the world stays wary that it is charting a path to global dominance. But Xi may be overreaching for  all roads do not, yet, lead to Beijing.

This has made it imperative to see that its BRI flagship -CPEC, is a success. Reputation of CPEC and its success is seen not only as a litmus test of China – Pakistan strategic relationship but its success will also be harbinger of similar successes in its other BRI projects.

Slowing down and downsizing of CPEC has confirmed to China that though the vast majority of the developing nations, which make up the  bulk of its 130 member BRI, may readily welcome development of its infrastructure through loans but as the initial euphoria of the nation wanes and reality of debt repayment, opaque terms, curtailment of nation’s and its citizens freedom become clear, there is bound to be a backlash which will lead to renegotiations and downsizing and even cancellation. This necessitates a change in Beijing’s further dealings with its BRI members, one on more equal, transparent and respectable terms.

In Pakistan, domestic and international fallout of CPEC has tested the limits of its strategic relationship with China. The realisation that trying too much economically, on opaque loans, in CPEC, may lead to curtailments of its independence and that of its citizens, has made it cautious. Possibility of internal dissent hurting the strategic ties has made both nations to scale back in their ambition. For both, more than economics, strategic reliability matters.

To ensure the completion of the scaled down CPEC, the reins of CPEC has been handed over to Pakistan military and retired Lt Gen Asim Bajwa, though mired in corruption charges, heads it. This has given confidence to China as Pakistan military has been its time-tested ally.

For both nations, now on, the relationship, which had the overriding CPEC quotient in 2015-2018, will see it fall back to its strategic security relationship. More so now that India- China relationship is in an acrimonious downturn.

Since inception, India has been stung by CPEC. Pakistan’s permission to China to use Gilgit Baltistan in Pakistan Occupied Kashmir for development of surface transport infrastructure and to station Chinese nationals there has been an affront India’s territorial integrity. It’s development of two hydro electricity project in Pakistan Occupied Kashmir has rubbed salt to the wounds. The development of Gwadar port in Balochistan region of Pakistan by the Chinese threatens India’s security. The current incursion in Eastern Ladakh by the Chinese and presence of its forces in Gilgit- Baltistan portray its evil design of wresting Ladakh from India.

In Pakistan, in Balochistan and Sindh, CPEC is seen as an expansionist and oppressive resolve of China and Pakistan to break the will of the Baloch’s and the Sindhi’s, in their fight for freedom. They fear that China aims to subjugate Sindh and Balochistan and occupy the coasts and resources from “Badin to Gwadar.”

Baloch Raji Ajoi Sangar (a conglomeration of many Balochi anti Pakistan parties) and Sindudesh Revolutionary Army have till now sporadically targeted the CPEC. To India, they offer a chance to promote them for subversion. But since inception, exporting terror or sponsoring terrorism on foreign soil has been against the founding principles of India.