Morning Brief

Yes, China can change Pakistan's economy but not for the better

Why Chinese investment in Pakistan could bring political opportunity to Beijing and economic instability to Islamabad
Published by
Central Office
on September 21, 2022
on September 21, 2022
Image Source:
South China Morning Post
Image Description:
The port city of Gwadar, located on the southwestern coast of Baluchistan, Pakistan.

Nothing in life is free, at least that's what the saying goes. The financial aid coming from Beijing might look good on paper, especially in the developing world, but it brings macroeconomic and humanitarian imbalances in practice. China does not mind "helping" cash-hungry states across South to Southeast Asia as long as it receives political leverage in return as a result of investments that end up increasing the debt levels in the recipient countries. If the rapid accumulation of Sri Lankan debt to Beijing caused Colombo to lease the Hambantota port to China for a 99-year period, a similar Pakistani scenario might induce Islamabad to follow suit in giving extensive rights to China in Gwadar, a port in Pakistan's Baluchistan province through which China will gain a wide opening to the Indian Ocean, a long-time strategic desire for Beijing to circumvent any possible blockade in the future of the Malacca Strait and therefore forbid China from securing its basic imports (food and fuel), and ongoing Chinese exports to foreign markets. Gwadar port is the pearl of the $60 billion CPEC (China-Pakistan Economic Corridor) giga-project, the largest Chinese Belt and Road (BRI) investment in a single country since the announcement of the BRI in 2013. The economic deal was straightforward. China will help Pakistan develop its Gwadar port through successive loans from which both sides will benefit. Pakistan will acquire a regional maritime hub with high transit and therefore revenues, and China a strategic opening to the Arabian Sea, a safe corridor to the Middle Eastern oil, and Western markets hungry for Chinese products at low prices. But Gwadar today is far from a fulfilled dream, at least not for Islamabad. The successive Chinese loans to Pakistan, skyrocketed the external debt in the latter to 131 billion euros, a quarter of which is owned by China. Because of the importance of Chinese investments, the Pakistani government granted tax breaks to Chinese companies while the Chinese businesses and nationals gained increased momentum in Pakistani politics. The investments worsened the Pakistani trade balance with China as the overall projects (both in Gwadar and in the rest of Pakistan) required input (spare parts and machinery) imported from China. Chinese companies have had a free hand to bring their own labour force from China in the development of CPEC projects, making zero contribution to the improvement of the unemployment rate in Pakistan. In Gwadar in particular, China promised to supply the port with energy supplies and clean water, but in the end only the Chinese companies operating there were the sole beneficiaries, leaving the government in Islamabad responsible for the supply through expensive water tankers. Worse, the Chinese investments in Gwadar have damaged the local community as more fisherman complained that the Chinese projects do not take into consideration the environment and destroy the natural endowments from which the poor local communities ensure their livelihood. After being given to China for a 40-year lease in 2017, Gwadar has been administered by China Overseas Ports Holding Company-Pakistan, a Chinese state-owned company that takes 90% of the profits generated by port activities. The worst nightmare for several China-unfriendly regional states such as India, is the possibility for the Pakistani debt owed to China being translated into the acceptance of Islamabad as a result of economic pressures to allow Beijing to use the port of Gwadar for both commercial and military purposes, helping China to project power in the Indian Ocean region.

Leave a Reply

Your email address will not be published. Required fields are marked *

Short description


© Copyright 2021 |