In 2014, when Pakistan and China launched the multibillion-dollar flagship program of President Xi's Belt and Road Initiative (BRI), Islamabad hailed the development as a game changer. The then PML-N government said the China-Pakistan Economic Corridor (CPEC) would change the country's economic fortunes. There was much drum beating about CPEC, however, that was not what China wanted as Beijing has a different philosophy. When China's economy had been growing at a record pace, its leadership seldom spoke about the miracle. For three decades, China's economy grew by 10 per cent with the outside world having little knowledge about it. Unlike Pakistan, China believes in working under the radar. China advised the same to Pakistan when it pumped billions of dollars under the CPEC initiative. Beijing knew that publicity of Chinese investment would invite unnecessary scrutiny from its adversaries. China has a simple template—work quietly and let the world know through actions.
But successive governments paid little heed to the Chinese advice and kept boasting about CPEC. The recent visit of the prime minister to China was no different. There was much hype about the premier’s visit as this was the first visit by Shehbaz Sharif to Beijing since he was re-elected following the February 8 elections. The delegation included Deputy Prime Minister and Foreign Minister Ishaq Dar, Finance Minister Muhammad Aurangzeb, Army Chief General Asim Munir and others. Separately, dozens of businessmen from Pakistan travelled to China to explore new avenues of cooperation with Chinese companies. The government machinery went overboard to promote the prime minister's visit.
The optics were positive. The red carpet was rolled out for Prime Minister Shehbaz. He held talks with the Chinese president, the prime minister and participated in the China-Pakistan business forum. But did the visit achieve its objectives?
When Prime Minister Shehbaz's government returned to power after the elections, the Foreign Office gave him an elaborate briefing. In one of the closed-door briefings, the government was told about why China matters to Pakistan. The foreign secretary informed the newly appointed foreign minister that China had always helped Pakistan in times of crisis. And it was true. There were many instances in which China rescued Pakistan from precarious situations. The most recent example was China's timely rollover of commercial loans in July last year. Without the timely rollover, Pakistan could have potentially defaulted on its fiscal commitments.
Against this backdrop, Shehbaz went to Beijing with a long wish list. Although the economy has stabilised in recent months, it is not out of the woods yet. While Pakistan is negotiating another IMF programme, it desperately needs assistance from its friends to tackle the economic challenge.
Pakistan is trying to woo Gulf countries including Saudi Arabia and the United Arab Emirates (UAE) to invest billions of dollars. China is Pakistan's closest ally and Islamabad wants Beijing's helping hand. Under CPEC, China has already invested $28 billion. Most of the investment has gone into the power sector and infrastructure projects.
The CPEC initiative started with much fanfare but has slowed down since 2019. There were multiple factors behind the delay, including the Covid-19 pandemic. But importantly, Pakistan tried to maintain a balance in its ties with China and its Western adversaries. The mixed signals given by Pakistan could delay the second phase of CPEC. The access power produced by Chinese power plants was meant to be given to special economic zones - to be set up in the second phase of CPEC.
China had relocated many sunset industries to developing countries and some of those industries were to be relocated to Pakistan. However, Islamabad could not lay the necessary infrastructure. China was not happy with Pakistan withholding billions of rupees from its power companies.
The prime minister was aware of it. On the eve of his departure to Beijing, Pakistan decided to make a bullet payment to Chinese power plants to reduce their outstanding dues in a bid to break the ice to secure further financing for infrastructure projects and a $600 million commercial loan.
The energy ministry was processing Rs70 billion in payments to the Chinese power plants, although the Prime Minister’s Office desired to clear at least Rs150 billion in payments. The Ministry of Finance released Rs225 billion to the energy ministry out of the budgeted subsidies aimed at providing maximum room for making payments to Chinese power plants.
As of the end of April, the outstanding dues of the Chinese power plants set up under CPEC amounted to Rs506 billion or $1.8 billion. After he visited Beijing, Foreign Minister Ishaq Dar advised the premier to clear at least Rs200 billion in dues of Chinese IPPs from now till July. The funds were being released on the intervention of Dar and Shehbaz. The release of dues ahead of the visit was meant to avoid distraction from the agenda the prime minister wanted to pursue in Beijing.
The premier had set certain benchmarks for the success of his visit to China. He was keen to make tangible progress on the Mainline-1 (ML-1) project of CPEC, the Kohala hydropower project, the Azad Pattan hydropower project and the expansion of the Karakoram Highway. Due to significant outstanding liabilities, Chinese insurance company M/s Sinosure is also not providing any fresh lending to power sector projects in Pakistan. This has affected the Kohala hydropower and Azad Pattan hydropower projects.
Shehbaz also wanted to sign an agreement for the construction of the $6.7 billion ML-1 project – which will run for 1,726 kilometres from Karachi to Peshawar. However, sources said that the Chinese authorities advised Pakistan to first begin construction on the 182km-long Karachi-Hyderabad section of the track. The revised cost of the Karachi-Hyderabad section is now $1.1 billion, which both China and Pakistan can afford to finance.
The Karachi-Hyderabad section will be constructed as per the original design i.e. speed of 160kph with complete fencing, unlike the rest of the track where the speed has been reduced to 120kph and the fencing has been eliminated to save cost.
China, in the past, raised the issue of Pakistan’s overall public debt unsustainability and the implications of obtaining a $6 billion loan for the ML-1 railway project.
The Pakistani authorities also wish to achieve some progress on the $2 billion Karakoram Highway section of Raikot-Thakot, however, the Chinese authorities have sought some time to work out the modalities of the project.
During the visit, Pakistan and China signed 23 agreements and MoUs. Out of the four projects the prime minister listed before the visit as the benchmark of his success, there was only one project - Karakoram Highway expansion - that got the green light. There was no mention of ML-1 and the two hydropower projects that the premier was keen to see progress on.
Security was another issue that dominated discussions between the two sides. Chinese nationals working on CPEC and other projects have come under repeated attacks in recent years. The most recent attack took place in March in which five Chinese engineers working on the Dasu Hydropower project were killed. Shehbaz promised foolproof security for Chinese nationals.
Publically, the Chinese leadership insisted that such attacks will not undermine its ties with Pakistan, but privately it is increasingly worried. Once a senior official aptly said about the Pakistan-China relationship: “Don’t overstretch your friends”.