Will China bail out Pakistan amid mounting challenges?

New Delhi: Pakistan’s Prime Minister Shehbaz Sharif is set to embark on a significant four-day state visit to China in early June, tentatively scheduled from 4th to 7th of June.

The visit holds particular importance against the backdrop of Pakistan’s ongoing economic challenges, political instability, heightened security concerns, and largely unravelling regional policy.

The two countries, which describe their relationship as an ‘all-weather strategic cooperative partnership’, are anticipated to formally launch the second phase of the China-Pakistan Economic Corridor (CPEC), the flagship component of Beijing’s much ambitious expansive Belt and Road Initiative (BRI), which aims to reshape the global economic landscape with China at its core.

Yet the visit is majorly seen as a desperate bid by Islamabad to secure fresh financial assistance from China to bolster its critically dwindling sovereign reserves and support for the government’s annual budget besides debt restructuring amidst its mounting liabilities owed to China.

This will be Shehbaz Sharif’s first visit to Beijing after assuming power following Pakistan’s controversial February 8 general elections. The visit, initially scheduled for mid-May, faced successive delays despite heightened bilateral engagements throughout the month.

Notably, Ahsan Iqbal, Pakistan’s Federal Minister for Planning, Development and Special Initiatives, visited Beijing from May 8-10, followed by Deputy Prime Minister and Foreign Minister Ishaq Dar’s four-day visit from May 13-16, marking his first bilateral trip to China since assuming office in March. During the visit, Dar co-chaired the fifth round of the China-Pakistan Foreign Ministers’ Strategic Dialogue with his Chinese counterpart Wang Yi.

Islamabad maintained that these ministerial visits aimed to lay the groundwork for the Prime Minister’s trip by seeking Beijing’s commitment to expanding the scope of the CPEC project under its second phase.

While the first phase of CPEC largely focussed on infrastructure and energy projects, Pakistan is seeking to broaden the focus of CPEC-II to agriculture, industry (business-to-business), information technology and science. Besides, Pakistan is also pushing for agreements on the construction of USD 6.7 Billion Main Line-I (ML-I) of Pakistan Railways, which is a 1733km railway line from Karachi to Peshawar, along with the realignment of Karakoram Highway, among other projects.

Additionally, the ministerial visits endeavoured to convince Chinese investors to commit to cross-sectoral investments in various domains of Pakistan’s economy such as tourism and startups. These are seen as necessary to diversify their bilateral economic engagements which could provide Pakistan with a much-needed infusion of fresh capital to alleviate its distressed economy and reverse its declining trends.

However, what has headlined Shehbaz Sharif’s impending first visit to China are Beijing’s preconditions, demanding Islamabad’s express commitment to launching a second Zarb-e-Azb military campaign against militant groups like Tehreek-e-Taliban Pakistan (TTP), Islamic State-Khorasan (IS-K), and various Baloch armed groups. These groups have increasingly targeted Chinese-linked facilities in Pakistan.

According to a now-removed report in Business Recorder, Chinese government officials asked the Pakistan government to take definitive action against these militant groups and “crush them once and for all.”

It is worth recalling that Pakistan’s military launched Operation Zarb-e-Azb in 2014 against its former allies-turned-foes, including various TTP factions, Lashkar-e-Jhangvi, and Jundullah, among others, in response to a significant surge in terror violence that claimed the lives of thousands of civilians and hundreds of security forces personnel across the country’s tribal areas during the 2011-2014 period.

Beijing’s demand comes amidst an unprecedented surge in the terror attacks on Chinese-linked infrastructure projects over the last few years, which have killed dozens of Chinese nationals.

The continued rise in such attacks has raised concern in Beijing about the Pakistan government’s ability to secure its nationals and the durability of its investments and projects in the country.

For instance, Pakistan witnessed nearly 250 terror attacks in the first quarter of 2024, including three major attacks targeting Chinese interests between March 16 and March 26, which left five Chinese nationals dead.

In the first attack, Baloch militants struck the Gwadar Port Authority complex in Gwadar, Balochistan, on March 20. The port, built with Chinese funds, is the flagship component of the USD 65 billion CPEC under BRI.

This was followed by an attack on the Pakistan Naval Station (PNS) base at Turbat by Baloch militants on March 25, protesting China’s continued presence in the province.

In the third attack, on March 26, a suicide bomber from Tehreek-e-Taliban Pakistan (TTP) targeted a convoy of Chinese workers, who were working on a Chinese-funded hydropower project in Besham, Khyber-Pakhtunkhwa province, killing five engineers and their Pakistani driver.

Following these incidents, Beijing reprimanded the Pakistani government for its inability to ensure the security of Chinese nationals and facilities. A statement from China’s Ministry of Foreign Affairs on March 27 asked Islamabad “to thoroughly investigate the incident as soon as possible, hunt down the perpetrators and bring them to justice.”

It may be noted that while TTP militants view China as anti-Muslim due to its continued suppression of Uyghur Muslims in the country’s Xinjiang Province, Baloch militants consider Beijing’s role in Balochistan as imperialistic, aiming to exploit the region’s resources with the connivance of the Pakistani government at the expense of local development.

Besides seeking security guarantees, Beijing has explicitly asked Islamabad to streamline and adhere to its debt repayment schedule, especially improving its “forex reserves, clear payments of IPPs… and sort out concerns of Chinese financial institutions” before it could commit any further money to the country.

As per the estimates of the World Bank, Pakistan, reeling under a chronic debt cycle, owes USD 131 billion to external creditors, of which USD 46 billion is owed to China. This figure has been described by many as conservative with AidData, a US-based economic research lab, claiming that China committed USD 68.91 billion in long-term loans to Islamabad, often at high commercial interest rates, during the 2000-21 period, with the Pakistan government securing “at least one emergency rescue loan from Beijing each year from 2012 till 2021” to offset its balance of payments issues.

In particular, China, which retains a substantial share in Pakistan’s energy sector, has explicitly called on Islamabad to clear the payments that are due to the Independent Power Producers (IPPs) of China.

Under the CPEC arrangement, Chinese IPPs run 21 projects in Pakistan, which include eight coal projects, four hydel power projects, and eight wind power projects besides a transmission line.

As of April 2024, Pakistan’s outstanding debt of Chinese IPPs has increased to over USD 15.36 billion. It has defaulted multiple times in repaying these companies over the years and, as such, Islamabad has repeatedly sought extension in Beijing to extend the tenure of these debts.

Beijing has further demanded Pakistan provide electricity at incentivised rates in the China-operated Special Economic Zones (SEZs) under CPEC, even as common Pakistanis pay highly inflated power charges. This has become a bone of contention between the two governments and as such pushed China to ask for Pakistan’s roadmap on clearing such dues before agreeing to host Prime Minister Shehbaz Sharif.

Therefore, as Pakistan Prime Minister Shehbaz Sharif embarks on his first visit to Beijing, it is clear that China’s support will not come without significant preconditions.

Beyond the stringent financial expectations set by China regarding Pakistan’s adherence to its debt repayment schedule and clearing outstanding payments to its IPPs, the critical focus will be on Islamabad’s ability to provide a concrete roadmap for securing Chinese nationals and interests within its borders amidst an unprecedented surge in terror attacks targeting Chinese-linked projects.

Consequently, any substantial commitments from Beijing will likely hinge on Islamabad’s tangible actions to meet these security and financial stipulations.
IANS

 

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