Economic Complications in the Naya China-Pakistan Relationship

Imran Khan’s taking over as Prime Minister of Pakistan introduces several degrees of uncertainty in the China-Pakistan relationship given his past record of statements on the China-Pakistan Economic Corridor (CPEC).

Khan has previously criticised the CPEC, if not the Chinese themselves, for favouring the bigger Pakistani provinces and ignoring the smaller ones such as Khyber-Pakhtunkhwa where his Pakistan Tehreek-e-Insaaf (PTI) has been in power since 2013. After his July election victory however, Khan spoke specifically about learning from China’s experiences in poverty alleviation and anti-corruption besides stating that CPEC provided an economic opportunity for his country.[1] Of course, Khan was also dealing with the reality of a tougher US mood against Pakistan under the Donald Trump administration,[2] leaving him rather heavily dependent on China and Saudi Arabia to have Pakistan’s back politically and economically.

Pakistan’s Incomplete Reform Agenda

One of the objectives for Nawaz Sharif’s PML (N) as the political party in power when the CPEC was introduced in 2015 was to ensure that there was enough economic development in the country, especially an end to the chronic load-shedding,[3] to ensure reelection in 2018. In the event, the Sharif government claimed it added 13,000 MW of new capacity by 2018 – more than Pakistan had in the past 70 years put together. But soon after the government had declared an end to load-shedding, the problem returned with a vengeance on the eve of the elections with a shortfall of some 7,000 MW-8,000 MW owing to the lack of furnace oil supply to the power stations.[4] This was, in turn, due to the problem of circular debt – of the Pakistani government being unable to collect dues from its consumers, which would allow it to pay its fuel suppliers.

Despite the additional capacity, institutional reforms required to ensure both financial liquidity and fuel supply to the power sector in Pakistan remain unaddressed.[5] These are issues with implications also for the country’s ruling elite cutting across political parties and it remains to be seen if such reforms will be forthcoming. There is only so much the Chinese can do.

China’s Shortcomings

In an otherwise positively framed article on the CPEC by Ishrat Hussain, former Governor of the State Bank of Pakistan – also retweeted by the official CPEC Twitter handle – there was criticism of the ‘toxic combination of purchasing second-hand machinery and over-invoicing of imports’ clearly a reference to Chinese practices and a call for international inspection of imported machinery and equipment in CPEC projects.[6] Clearly, there is little trust of the Chinese in Pakistan in these matters.

Even after the removal of the Princeton University economist Atif Mian and the resignation of others in protest, Imran Khan’s economic advisory committee ought to have enough economists able to do the math on CPEC. It remains to be seen if they will be allowed to even as calls within Pakistan to renegotiate CPEC’s terms have grown louder.[7]

The Chinese media has indirectly criticised Pakistani authorities for their inability to control the messaging on the CPEC. Chinese Premier Li Keqiang though has acknowledged problems in the economic relationship saying China was willing to import more competitive and high-quality products from Pakistan and facilitate a balanced development of trade.[8]

Beijing has also admitted that the playing field in Pakistan was not level for non-Chinese companies in some economic sectors.[9] How the playing field will be leveled, however, needs to be seen for this would go against the grain of current Chinese business practices and undercut their advantages abroad.

India’s Opportunity

This complexity in the Sino-Pak relationship offers much opportunity for India.

The received wisdom is that till the Indian general elections next year are over, there cannot be any forward movement in bilateral relations, if at all. However, waiting that long would only give the Chinese time to undermine Imran Khan’s resistance. A smart, forward-looking Indian leadership should not pass up the opportunity to increase economic linkages with Pakistan, and provide the latter an alternative to China. Pakistani businessmen certainly have no wish to be cornered by the Chinese.

It is also important that New Delhi adopt a multi-pronged approach to talks with Pakistan, involving that country’s army headquarters at Rawalpindi and the provincial capitals.

A version of this article was published as Jabin T. Jacob, ‘Do the China-Pakistan ties offer India an opportunity?’,, 21 September 2018.











Published by Jabin T. Jacob

China analysis from an Indian perspective

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