Promising transformational benefits for its all-weather friend, Pakistan, the China-Pakistan Economic Corridor (CPEC) is one of the biggest foreign investments that China has made under its ‘One Belt, One Road’ initiative comprising the Silk Road Economic Belt (SREB) and the Maritime Silk Road. Launched in April 2015 at an original estimate of $46 billion, it is the “flagship project” of the BRI and has been seen as a crucial point in the politics of the region. The CPEC is to be China’s short-cut to Africa, Europe and the Gulf via the Suez Canal. It is a part of the Chinese grand BRI strategy to establish highways, roadways, pipelines, ports, railways, fibre optic cables, SEZs, and electrical power grids and is the fulcrum of Beijing’s domestic and foreign policy. The CPEC strategically connects Kashgar town in Xinjiang province, China to Balochistan and Pakistan’s Gwadar Port. It aims to improve Pakistan’s transport and communication infrastructure and enhance its energy generation capability. This is bound to increase the bilateral relationship between China and Pakistan increasing their inter-trading capabilities and their strong nexus, while implicitly fulfilling China’s belligerent and hegemonic posturing in the South Asian region and fulfilling its ambition of the “string of pearls”.
While it has been regarded as a continuum of economic and developmental prospects for Pakistan, it has also, significantly, given birth to a series of domestic economic and political issues in Pakistan. It is an instrument whereby China seeks to establish its hegemony through the combined use of hard and soft power, relying greatly on its “debt-trap diplomacy”. The debt outcome of the CPEC project is already about $80 billion, with 90% of it to be paid for by Islamabad in the form of the national debt. Even though Islamabad is still presenting a rosy picture of CPEC and its developmental prospects for Pakistan, it is well known that it will not be able to pay China back and will eventually lose its sovereignty and become another linchpin in the Chinese debt trap strategy. Experts and media reports have already been referring to it as a “Trillion Dollar Blunder”.
This mega billion dollar project has turned out to be more of a Non-Performing Asset (NPA) for China than a boon, especially when the world has been badly hit by the pandemic. The CPEC has proven to be more of a bogus project that hardly offers any profits with lagging industrialisation efforts and only a quarter of the decided projects completed over the last five years. With China facing an economic slowdown and depleting dollar reserves, it is itself in desperate need of the USD and is trying to woo foreign investors to its financial markets. With the trade war with the US and the Chinese export market facing an all-time low due to the diplomatic distancing and the Western countries’ ire over China’s role in the spread of Coronavirus pandemic, a big blow has been landed on to the Belt and Road Initiative, especially the CPEC project that is greatly faltering and has turned out to be China’s biggest NPA. With the global supply chains being badly hit, the OBOR Initiative is no longer a marker of China’s long-term vision and magnanimity; rather it is regarded as an investment blunder of colossal scale. The CPEC, which sowed dreams of a developed Pakistan with the most profitable and developed infrastructure has and the region into a hub of trade and commerce has instead turned it into a centre of gargantuan infrastructure with negative profitability and zero utility. The Chinese banks and financial institutions have been shirking away from funding the CPEC, as it is evidently nil on profit, given Pakistan’s inability to repay the Chinese loans.
There is a huge gap in the announced projects of 2015 and completed projects of 2020, with only 32 of the 122 announced projects seeing the light of the day. The CPEC project is lagging behind as it has been facing many shortcomings like lack of funds, trade asymmetries, domestic issues, bad loans for China which does not want to fund the CPEC projects and opposition from Baloch rebels and local who will be directly impacted by this rollout. Large energy projects have been shelved as this NPA faces major bottlenecks due to unsustainable debt levels. China is reluctant to provide assistance as the venture does not provide any returns and is a fund drain. Moreover, Pakistan’s long standing challenges have been aggravated by the CPEC; it entails economic, environmental, social and political costs the state which faces an exacerbated energy deficit, creating a greater dependence for fossil fuels that are harming the environment as well. The CPEC was roped in on its premise of turning Pakistan into a higher-value manufacturing hub, however, what is seen at present is that the huge majority of special economic zones (SEZs) are empty, and the information and communication technology (ICT) projects that were to provide the backbone have been halted and limited.
Thus, the CPEC is a gamble for China and Pakistan, contrary to their narrative of completing the CPEC at all means. It has already increased Pakistan’s current account deficit and China does not want to invest more where there is no way of recouping their investment and the Return of Investment (RoI) rate shows a gloomy picture. For the Dragon, given the calamitous economic situation Pakistan is in, even the chances of recovery of principal amounts spent by the Chinese financial institutions is a far-fetched dream and thus, the “iron-brotherhood” may be in a jeopardy. The Chinese funds kept Pakistan afloat and prevented it from sinking into the economic doom, however with the funds getting halted and dried up, CPEC faces cost escalations being beneficial for none. Rather than an asset, it has become a liability and has been added to the list of China’s NPA.
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The EurAsian Times. (2020, July 4). CPEC Project A ‘Trillion-Dollar Blunder’, Pakistan Calls It ‘Outstanding Initiative’. The EurAsian Times.