Pakistani Prime Minister Shehbaz Sharif concluded his recent high-stakes five-day official visit to China on 8 June 2024. His delegation included the ministers for foreign affairs, defence, finance, and trade, along with over 100 Pakistani businessmen, and most importantly, the Army Chief General, Asim Munir, underscoring the visit’s strategic significance. The urgency of this trip was driven by Islamabad’s efforts to secure a new credit agreement with the International Monetary Fund (IMF), which hinges on the approval of China, Pakistan’s largest bilateral lender. Pakistan’s budget, usually presented on 10 June, was also kept on hold until Sharif’s return from Beijing. This visit highlights Islamabad’s increasing dependence on China amid a deepening debt crisis and growing international isolation.
Expectations from the visit
Islamabad had projected three key expectations leading up to the visit. Firstly, it aimed to secure a rollover of Chinese loan repayments as Pakistan wails under the burden of over US$ 27 billion in debt owed to China, teetering perilously close to default amidst an escalating debt crisis. Moreover, Sharif’s government is desperately seeking US$ 6-8 billion under a new IMF programme, with nearly empty foreign exchange reserves, catapulting prices of essential commodities like wheat, onions, milk, and meat, unrelenting bouts of power blackouts, and a generally disgruntled populace in the wake of yet another contentious election. Therefore, Islamabad’s paramount objective was to defer loan repayments for at least three more years, thereby facilitating the next round of IMF negotiations.
The second and more prominent objective was negotiating the second phase of the China-Pakistan Economic Corridor (CPEC). The first part of the US$ 62 billion CPEC, launched in 2015 under Chinese President Xi Jinping’s Belt and Road Initiative (BRI), focused on infrastructure, energy, and port development projects. And, a lot of speculation leading up to the visit hinted at the prospects of CPEC 2.0.
The third critical objective was providing assurances to the Chinese leadership regarding the safety and protection of Chinese nationals working in Pakistan—a matter of grave concern following an alarming increase in targeted attacks on Chinese engineers involved with CPEC projects (which has emerged as another major impediment stalling the project). Ahead of his visit, Sharif had also assured the Chinese that his government, particularly the military, had initiated structural reforms to root out corruption and would spare no effort in safeguarding the lives of Chinese workers. However, it remains to be seen how meaningful these assurances will be in addressing the persistent security concerns plaguing CPEC on the ground.
Outcomes of the visit
The joint statement issued after the visit, spanning 32 paragraphs, revealed little beyond the signing of 23 agreements and MoUs covering agriculture, industrial cooperation, infrastructure, market regulation, surveying and mapping, media, and film. However, what was glaringly absent from the statement is more telling. There was no mention of restructuring Islamabad’s mounting debt to China or any announcement regarding substantial new investments for CPEC 2.0.
The sluggish progress on the first phase of the CPEC does not seem to have inspired much confidence from the Chinese leadership: of the 21 proposed power projects, only 14 have been completed, two are under construction, and five are yet to start. Similarly, of the 24 proposed transport-related projects (road and rail), merely six have been completed, while no progress has occurred on 13. Only four of the nine proposed Special Economic Zones (SEZs) have witnessed any headway, but none are fully operational. While the project did bring in a direct investment of US$ 25.4 billion into Pakistan until 2022, it has confronted major obstacles, including Chinese concerns about corruption and bureaucratic red tape, compounded by the country’s persistent political instability.
The joint statement only vaguely alluded to an upgraded China-Pakistan economic cooperation deal, stating: “The two sides recognised that CPEC has been a pioneering project of the BRI…After the successful first decade of CPEC, the two sides are committed to forging an upgraded version of CPEC…”. However, the conspicuous lack of any publicly announced debt relief package or commitment to substantial new investment from China will undoubtedly be considered a major disappointment for Islamabad.
Pakistani Prime Minister Shehbaz Sharif thus departed China nearly empty-handed after his five-day official visit, with Beijing quashing Islamabad’s hopes for another major influx of investments, particularly through a revival of CPEC. However, Pakistan did secure some modest gains. China agreed to advance the US$ 6.7 billion Main-Line-1 railway project to improve railway infrastructure between Karachi and Peshawar. This limited investment appears to be Beijing’s token effort to maintain the facade that CPEC is progressing.
During the visit, Sharif and General Munir also held extensive talks with President Xi Jinping for over three hours, presumably addressing the safety of Chinese nationals in Pakistan. However, Islamabad appears to have fallen short in persuading its ‘all-weather friend’, as China does not seem eager to commit substantial financial support.
This likely underscores the grave security challenges and perceptions of economic exploitation around CPEC-related projects in Pakistan. For instance, to the marginalised Baloch population, the China-financed Gwadar Port symbolises continued economic injustice. CPEC infrastructure has failed to deliver promised jobs and economic benefits for the local populace. Despite plans for over two million CPEC-related jobs, fewer than 250,000 have materialised. Furthermore, developers from Punjab and Sindh, who profited from trading land in Balochistan, failed to construct the promised schools, hospitals, and other infrastructure. This neglect perhaps fuels the violent reprisals by Baloch separatists that have significantly dissuaded foreign investors, especially Chinese nationals, who have faced three major attacks involving over 24 suicide bombers in 2024 alone.
Another significant security concern for Beijing likely emanates from the Tehreek-e-Taliban Pakistan (TTP), which has demanded changes in regional governance in Pakistan’s northwestern tribal regions and Khyber Pakhtunkhwa Province, as well as the strict imposition of their interpretation of Islamic law. The TTP was accused of orchestrating the May 2024 Shangla suicide bombing that claimed the lives of five Chinese nationals.
Conclusion
Consequently, Beijing appears prudently cautious about further large-scale investments in Pakistan, mindful of the country’s prolonged economic fragility and precarious security situation. While some relief may yet be forthcoming, significant financial support seems unlikely under the prevailing circumstances. Sharif’s visit once again highlighted that China views Pakistan as not an equal economic partner but a strategic pawn to counterbalance and constrain India’s ascent.
All does not seem too well for Pakistan as it faces economic, political, and international isolation amid a militarily insecure climate. Its economy, valued at nearly US$ 375 billion, is buckling under the weight of a towering debt nearing US$130 billion, with over 72 percent of its external bilateral debt owed to China. Amidst all this, talks with the IMF for a crucial US$ 6-8 billion credit lifeline have also stalled over disagreements on income tax reforms. Islamabad is in dire need of securing this fresh IMF bailout loan to avert the risk of a potentially catastrophic sovereign default. Therefore, the government is keen to secure some form of economic relief before the fiscal year concludes at the end of June. Occasional Chinese clouds may provide some temporary respite, but the cash-starved Pakistan surely has some difficult times ahead.