Nothing in international political economy is without cost, a maxim that applies with particular force to contemporary development finance. Beijing’s provision of capital, often welcomed across the developing world, appears attractive in formal terms; in practice, however, it has frequently generated macroeconomic strain and humanitarian externalities. China has shown little reluctance to extend financing to liquidity-constrained states from South to Southeast Asia, provided that such assistance yields commensurate political leverage. The resulting investment patterns have, in numerous cases, contributed to rising sovereign debt burdens in recipient countries.
Sri Lanka offers a cautionary precedent: the rapid accumulation of debt to China culminated in Colombo’s decision to lease the Hambantota port to Beijing for 99 years. A parallel trajectory in Pakistan raises the prospect that Islamabad, under similar financial pressures, could grant China extensive rights over Gwadar, a strategic port in Baluchistan. Such an outcome would afford Beijing long-sought access to the Indian Ocean, mitigating its vulnerability to a potential blockade of the Malacca Strait and safeguarding the flow of essential imports, particularly energy and food, as well as exports to global markets.
Gwadar constitutes the centerpiece of the approximately $60 billion China-Pakistan Economic Corridor (CPEC), the largest single-country investment under the Belt and Road Initiative since its launch in 2013. The arrangement was, in principle, mutually beneficial: China would finance and develop Gwadar through successive loans, enabling Pakistan to emerge as a regional maritime hub with substantial transit revenues, while granting Beijing a strategic corridor to Middle Eastern energy supplies and Western consumer markets.
In practice, however, outcomes have diverged sharply from initial expectations, particularly from Islamabad’s perspective. Successive Chinese loans have contributed to a sharp increase in Pakistan’s external debt, now estimated at €131 billion, roughly a quarter of which is owed to China. In light of the scale of these investments, Pakistani authorities have extended tax concessions to Chinese firms, while Chinese companies and nationals have gained growing influence within domestic political and economic structures. At the same time, the projects have exacerbated Pakistan’s trade imbalance with China, as infrastructure development has relied heavily on imported Chinese machinery and components.
Moreover, Chinese firms have been permitted to deploy their own labor force in CPEC projects, limiting any meaningful impact on Pakistan’s unemployment levels. In Gwadar specifically, Chinese commitments to provide energy and clean water have largely materialized only for Chinese-operated facilities, leaving the Pakistani government to meet local needs through costly stopgap measures such as water tankers. The environmental and social consequences have also been significant: local fishing communities report that large-scale infrastructure projects have degraded marine ecosystems, undermining traditional livelihoods.
Since 2017, when Gwadar was leased to China Overseas Ports Holding Company-Pakistan for a 40-year term, the port has been effectively administered by a Chinese state-owned enterprise that retains 90 percent of the revenues generated by port operations. For regional actors wary of China’s strategic intentions, most notably India, the principal concern is that mounting Pakistani debt could ultimately translate into political acquiescence, enabling Beijing to utilize Gwadar for both commercial and military purposes. Such a development would mark a significant expansion of Chinese power projection capabilities in the Indian Ocean.
