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Why is China Missing from Pakistan’s Foreign Investment Plans?

Oct 03, 2023
  • Adnan Aamir

    Journalist and Researcher, Islamabad, Pakistan

Pakistan – a country of 241 million – narrowly survived economic default in June. The $350 billion economy of the South Asian country is barely surviving with the help of a $3 billion bailout program by the International Monetary Fund (IMF). In order to survive and get out of the economic predicament, Pakistan is making ambitious plans to attract over $50 billion in foreign investment. However, Pakistan’s so-called Iron Brother China is completely missing from the proposed investment plans in Pakistan. 

In June, Pakistan formed the Special Investment Facilitation Council (SIFC) – a civil-military body – to attract and facilitate foreign investment in Pakistan.SIFC aims to bring in investments in the energy, IT, minerals, defense, and agriculture sectors, mainly from the Gulf countries. 

Pakistan looking toward the Gulf

Anwaar ul Haq Kakar, Pakistan’s Prime Minister, has said that Saudi Arabia and the United Arab Emirates (UAE) wouldinvest $25 billion each in Pakistan in the next five years. 

There is a long list of projects, which Pakistan is pitching for foreign investment to Gulf countries.These projects include Saudi Aramco Refinery in Gwadar, TAPI Gas Pipeline, Thar Coal Rail Connectivity, hydropower projects of 245 MW in Gilgit-Baltistan, handing over of 85,000 acres of land, the establishment of cloud infrastructure, and telecom infrastructure deployment. 

Moreover, themedia in Pakistan has claimed that Saudi Arabia has agreed to invest $25 billion in Pakistan and set aside an additional $10 billion for the foreign exchange crisis of Pakistan. The reports also claim that the UAE has also agreed to the exact same amounts for investment and forex support to Pakistan.

Pakistan has pinned all hopes for its economic survival on Saudi Arabia and the UAE. However, potential investments from China are completely missing from Pakistan’s plans. This is strange given the fact that China has been the largest source of foreign investment in Pakistan during the last 10 years. 

In 2015, Pakistan and China signed agreements to begin the $50 billion China-Pakistan Economic Corridor (CPEC). Termed as the flagship project of the Belt and Road Initiative (BRI), CPEC has attracted $25.4 billion Chinese investment to Pakistan to date. It has also created 192,000 jobs, generated 6,000 MW of electricity, and built 510 kilometers of highway,as per the claims of the Chinese Foreign Ministry

China was the only country that came to Pakistan’s economic rescue during the last 10 years. Now, it's not even an option for Pakistan to get immediate economic help in the form of investment. Pakistan would not have turned down Chinese economic help if it was available. Signs point toward a change of heart in Beijing, which is reluctant to help Pakistan in the form of massive investments and loans in the near future. 

What has changed that now gives China pause when it comes to supporting Pakistan’s economy? The following are the likely reasons: 

1) Internal political problems of Pakistan

Since April 2022, Pakistan has been trapped in a lingering political crisis. It all started when Imran Khan was removed as Prime Minister through a no-confidence motion. Since then, the country has entered a downward spiral of political chaos and uncertainty. Pakistan has witnessed the premature dissolution of provincial assemblies, the former government violating the supreme court’s decision to hold timely elections, a crackdown against the popular party Pakistan Tehreek i Insaf (PTI), and the arrest of Imran Khan, who is themost popular political leader in the country

These political problems have paralyzed the functioning of the government and rendered it ineffective to take any decision of consequence. Therefore, it's futile for China to invest any substantial amount in Pakistan under the current prevailing circumstances. China could be waiting for normalcy to return to Pakistan after the next general elections, expected next year, to even consider investment in Pakistan. Therefore, China does not want to jeopardize its investment in Pakistan when political uncertainty is at its peak. 

2) China is not happy with Pakistan’s governance system

China has been dealing with Pakistan and its governance system for the last 8 years under CPEC. It would be an understatement to say that China has been disappointed with the governance system of Pakistan. Official documentation takes ages to complete due to bureaucratic red tape. The central decision-making authority cannot implement its decisions quickly and firmly. The rent-seeking behavior of many government departments has made it extremely difficult to progress on any project. 

In addition to that, the local grievances of the people of Pakistan have directly affected CPEC projects. Gwadar, the center stage of CPEC, is the home to the Chinese-built and operated Gwadar port. Yet, the port operations have faced disruption multiple times due toprotests by the locals of Gwadar for their basic rights such as the provision of water, and electricity and stopping exploitative fishing. All the demands of the locals are directed towards the government of Pakistan but Chinese interests in Gwadar have been affected due to the protests. 

Moreover, Chinese companies have made significant investments in Pakistan’s energy sector under CPEC. Yet, they are facing problems in the timely receipt of their revenue from the government of Pakistan, failing to clear all thepending dues of Chinese power producers. This has naturally increased the frustration of Chinese companies and also affected Beijing's decision to avoid additional investments in Pakistan. 

3) Security concerns of China

In the last five years, Chinese personnel and interests in Pakistan have come under repeated attacks by militants.Islamist militants killed nine Chinese engineers working on the Dasu dam in Northwest of Pakistan, in 2021. In the South, Baloch separatist militants have attacked the Chinese Consulate in Karachi, Chinese engineers working on the Saindak gold mine in Balochistan, Chinese personnel working on highways and port in Gwadar, and Chinese teachers at Confucius Institutes. Due to these frequent attacks,China has asked to bring its own security personnel to Pakistan, a demand which was rejected. 

Still, China presses for an increase in security arrangements for its personnel in Pakistan at all high-level meetings between leaders of both countries. Clearly, China is not happy with Pakistan, which has failed to completely stop attacks on Chinese interests. Therefore, as a pressure tactic, China has withheld any further investments in Pakistan as long as the security problem for Chinese personnel in Pakistan is not resolved. 

4) China does not see the benefit of bailing out Pakistan

Notwithstanding all the three aforementioned reasons, China does not see any benefit in bailing out Pakistan’s economy in the form of a major investment package. China understands that any such deal will only be a temporary respite for Pakistan, which will need a similar package again in the future. 

Moreover, Pakistan has not completely joined China’s “new order” and still maintains relations with the U.S.-led West. Therefore, Beijing does not consider Pakistan a client state, which needs to be protected at all costs. That's why Beijing is allowing Pakistan to survive this economic crisis on its own, and only then can China do business with Pakistan on a purely transactional basis.

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