Chinese Security concerns cast shadow over Pak-China projects

Recent years have witnessed the much touted economic partnership between China and Pakistan hitting some roadblocks. The trend is evident from the slowdown in Chinese-backed infrastructure projects in the country. While the two countries continue to publically express intentions of revitalizing the China-Pakistan Economic Corridor (CPEC) under the Belt and Road Initiative, economic constraints and China’s own economic slowdown have impeded progress. Pakistan’s ongoing economic crisis and inability to afford infrastructure loans, along with China’s concerns about security risks due to increased terrorism in Pakistan, have also contributed to the challenges.

The grand infrastructure initiative called CPEC was launched by the two countries in 2015. The scheme of the project umbrella was claimed to be dedicated towards boosting infrastructure, energy, and economic development in Pakistan. CPEC had two phases, with Phase-I focusing on energy and infrastructure, while Phase-II targeted Special Economic Zones (SEZs) and socioeconomic development. With expansion in the list of intended projects, projected outlay of CPEC also kept increasing over the years. The initial outlay which was $46 billion, eventually increased to $69 billion as per some accounts available in media. The projection however never seem to move in tandem with the actual development on ground. Progress was markedly slow after the beginning of CPEC’s second phase in 2018. While some SEZs were identified, only four have seen development so far, and other areas, like agriculture, have made little progress. Other factors hindering CPEC include a lack of a streamlined business setup process for Chinese investors, visa and security obstacles faced by Chinese professionals.

Problems in CPEC’s energy sector including the rising circular debt have delayed the implementation of existing commitments while discouraging further investments. Apart from it, the lack of support for the Chinese currency, RMB, has resulted in financial losses for Chinese companies operating in Pakistan. Analysts see these setbacks in Pak-China relationship as a manifestation of Chinese concerns around Pakistan’s stability and security situation. Some observers even interpret it as China’s reduced reliance on Pakistan’s government and other institutions. Notably, China has continued to be evasive on Pakistan’s request regarding rolling over of $6.3 billion of its debt.

At micro level, Chinese officials and workers appear worried about security risks in Pakistan. Recent attacks have targeted Chinese investments and nationals in Pakistan including at a Confucius Institute in Karachi in 2022 and a hotel hosting a senior Chinese delegation in 2021 in Baluchistan. After Pak Prime Minister Shehbaz Sharif’s visit to China in November 2022, an official statement from Beijing noted that Xi had “expressed his great concern about the safety of Chinese nationals in Pakistan.”

Meanwhile, the business environment and coordination problems continue to plague the operations of Chinese companies in Pakistan. Among the firms facing such issues are some large ones working on SEZ development under CPEC. The China Rail & Bridge Corporation (CRBC) which is the contractor for the recently inaugurated Rashakai Special Economic Zone (RSEZ) has repeatedly raised the issue of provision of electricity and gas supplies to the zone. Another major Chinese firm, Three Gorges Corporation which is constructing the 720 MW Karot Hydropower Project in PoJK, has reportedly raised the issue of repatriation of profits. Similarly, some Chinese companies have been seen complaining about facing cash flow problems due to not being able to open letters of Credit for suppliers outside Pakistan.

An overview of the nature of problems affecting the flow of Chinese investments into Pakistan indicates a decline in Beijing’s confidence in Pakistan. The minor nature of most of these issues also reflects the China’s conscious choice of playing a wait game before making further commitments.