Pakistan and China agree to upgrade CPEC (2024)

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Pakistan and China agree to upgrade CPEC

June 9, 2024

Why in news?

Pakistan’s Prime Minister Shehbaz Sharif is on a five-day visit to China. During this visit, Pakistan PM and Chinese President Xi Jinping agreed on the upgradation of the China-Pakistan Economic Corridor (CPEC). Both the leaders also decided to advance high-quality development of this project in the second phase.

What’s in today’s article?

• China-Pakistan Economic Corridor (CPEC)
• Different phases of CPEC
• Reasons behind stalled projects under CPEC
• India & CPEC
• Debt burden of Pakistan and role of China

China-Pakistan Economic Corridor (CPEC)

• During an April 2015 visit to Islamabad, Chinese President Xi Jinping and then Pakistani PM Nawaz Sharif unveiled the $46 billion China-Pakistan Economic Corridor (CPEC).
  • CPEC quickly ballooned to $62 billion in pledges—one-fifth of Pakistan’s GDP—covering dozens of envisioned high-profile projects.
• The corridor links Kashgar (Xinjiang region) with Gwadar, and also passes through Pakistan-occupied Kashmir (PoK) where China is investing in a number of projects.
• Often described as a flagship project of the Belt and Road Initiative, the stated goal of CPEC is:
  • to transform Pakistan’s economy by modernizing its road, rail, air, and energy transportation systems; and
  • to connect the deep-sea Pakistani ports of Gwadar and Karachi to China’s Xinjiang province and beyond by overland routes.

Different phases of CPEC

• First Phase (infrastructure creation)
  • Various agreements such as energy, infrastructure, port development and the railway line construction have been signed under the first phase of this project.
  • However, the progress in this phase has been patchy.
    • Data from the CPEC website show that of the 21 proposed power projects, 14 have been completed, two are under construction, and five are yet to start.
    • Of the 24 proposed transport-related projects (rail and road), six have been completed, but no work has started on 13.
  • According to the official Chinese news agency Xinhua, CPEC had brought direct investment of $25.4 billion to Pakistan until 2022.
• Second Phase
  • In February 2022, during the visit of Pakistani PM to China, industrial cooperation agreement was signed. This is being dubbed as the second phase of CPEC.
  • The second phase primarily revolves around Special Economic Zones development and industrialisation.

Reasons behind the stalled project

• Chinese concerns:Over corruption, bureaucratic delays, and political instability in Pakistan.
• Security situation in Gwadar
  • The security situation in Balochistan, where Gwadar is located, is particularly problematic. Numerous Chinese nationals have been killed in terrorist attacks by Baloch militants since 2018.
  • The Baloch people view Gwadar as a symbol of economic injustice, as CPEC has not generated quality jobs or economic benefits for the local population.
  • Pakistan's security issues as a major concern for future Chinese investments.
• Chinese approach of not partnering with local companies
  • This limits job creation for Pakistani youth. While the CPEC was expected to create over 2 million jobs for Pakistanis, government data shows that fewer than 250,000 jobs have been generated so far.
  • Since Chinese companies are tax-exempt and bring their own labor from China, they do not rely on Pakistani businesses, further reducing local employment opportunities.

India & CPEC

• CPEC and the Sovereignty & territorial integrity of India
  • It passes through Gilgit-Baltistan area of Kashmir which is occupied by Pakistan.
  • The corridor enters into Gilgit-Baltistan through Khunjerab Pass.
  • This area is a part of the erstwhile princely state of Jammu and Kashmir and claimed by India.
• CPEC and Security threat to India
  • Ever since the construction of the corridor is started, the Chinese military presence in the area is also embarked.
  • In 2017, Chinese troops marched in the parade of Pakistan’s day in Islamabad.
    • This was the first time when Chinese military took part in any parade outside its country
  • Apart from the naval vessels deployed in Pakistan, eight submarines are also delivered to it by China.
  • China is planning to build its second a naval base in Gwadar port after Djibouti in 2017.
    • China is encircling India into the Indian Ocean.

Debt burden of Pakistan and role of China

• China's Growing Hold on Pakistan's Debt
  • According to IMF, China's share of Pakistan's external debt has risen from $4 billion in 2013 to roughly $30 billion of the current $126 billion.
  • Between July 2021 and March 2022, more than 80% of Pakistan's bilateral debt service payments went to Beijing.
• Concerns Over Debt Dependency
  • There are concerns both within and outside Pakistan that this debt burden is unsustainable and may turn Pakistan into a client state of China.
  • Critics link CPEC to a neo-colonial project, similar to the British East India Company’s control over the Indian Subcontinent.
• IMF’s Bailout Package and Debt Obligations
  • In March 2024, the IMF released the final $1.1 billion tranche of a $3 billion bailout package to Pakistan.
  • The government is negotiating a new package of $6-8 billion, but debt obligations to China are a major hurdle.
• Conditions for Further Assistance
  • IMF has stipulated that its resources should not be used to service Chinese debt.
  • IMF has indicated that any new agreement will require rescheduling the maturities of Chinese debt instruments due in the next three years to prevent a positive net outflow from Pakistan to China during the program period.