The Waning Optimism Of China-Pakistan Economic Corridor

NEW DELHI, (IANS) – The China-Pakistan Economic Corridor (CPEC) has become pivotal in China-Pakistan relations in the past decade. Positioned as a focal point of President Xi Jinping’s expansive Belt and Road Initiative — a network of transcontinental connectivity projects aimed at establishing an alternative global economic framework to the Western-led order of the United States, the CPEC aims to bolster strategic cooperation between Beijing and Islamabad and open new avenues for economic collaboration between the two nations.

However, nearly a decade later, initial optimism associated with the project seems to be fading, with China expressing dissatisfaction with Pakistan’s current situation, particularly the deteriorating security situation.

Recent months have witnessed repeated targeted attacks on Chinese nationals and interests on Pakistani soil, prompting Beijing to gradually reassess its relationship with Islamabad, despite both nations characterizing themselves as ‘ironclad friends’ and ‘All-Weather Strategic Cooperative Partners’. Consequently, China has reportedly downgraded its stance towards Pakistan from “highest priority” to “priority”, reflecting Beijing’s frustration with both Pakistan’s military leadership and the civilian government.

Interestingly, Xi has not categorically dismissed the possibility of enhancing and advancing Beijing’s economic cooperation with Islamabad. However, he emphasized that China’s commitment to Pakistan depends on the Shehbaz Sharif government’s ability to implement tangible measures to establish a “secure, stable, and predictable” security environment in the country.

Although both nations have in principle agreed to commence the second phase of CPEC, Beijing has refrained from making any substantial new commitments to Islamabad, despite expressing intentions to align the project with Pakistan’s developmental priorities. A joint statement issued on June 8 indicates that, besides making minor adjustments to ongoing projects like the Karakoram Highway project, the Chinese government did not announce any fresh initiatives under the CPEC.

Regarding the $6 billion Main Line-1 railway project, while the Pakistani government anticipated signing a framework agreement for its execution, China only agreed to proceed with it in a phased manner. This cautious stance is notable, particularly considering concerns raised by Sinosure, the Chinese state-owned insurance firm overseeing CPEC insurance, regarding Pakistan’s financial instability exacerbated by mounting circular debt.

The joint statement underscores that Beijing has committed to “encouraging Chinese companies to invest in Pakistan’s Special Economic Zones based on market and commercial principles”. However, this commitment is contingent upon Islamabad’s efforts to enhance its business environment and policy framework to better facilitate Chinese investment. This approach suggests China’s emphasis on business-oriented investments in Pakistan, prioritizing sectors with potential for commercial returns in the second phase of CPEC.

Specifically, Beijing has strategically prioritized sectors such as IT, agriculture, science and technology, and industry, which also invite third-party investments. The sole sector where Beijing has made an exclusive commitment is the mining of natural resources, aiming to safeguard its commercial interests and maintain a monopoly for assured economic benefits.

Tensions in China-Pakistan relations have been simmering due to Pakistan’s struggle to curb the increasing wave of extremism and terrorism in the country, notably rising incidents of attacks on various Chinese-operated CPEC projects in the past few years. For instance, in March 2024 alone, Pakistan witnessed a series of attacks on CPEC projects in Balochistan and Khyber-Pakhtunkhwa provinces, leading to the deaths of five Chinese nationals.

On March 20, Baloch rebels launched an assault on the heavily fortified Gwadar Port Authority complex, which houses several key offices, resulting in significant structural damage. Notably, Gwadar port represents the flagship project of the CPEC, and an attack on this highly secured complex sends a clear message that no Chinese project, however fortified, is immune to risk in the country.

Subsequently, on March 25, Baloch rebels carried out another attack, this time on the Pakistan Naval Station in Turbat. The rebel group claimed that the attack epitomized protest the growing Chinese presence in the province and the joint Pakistan-China exploitation of Balochistan’s resources.

For Beijing, the inability of Pakistani security forces to protect such prominent and sensitive locations, despite its stringent security measures, raises significant doubts about Islamabad’s capability to safeguard China’s interests effectively.

China’s patience wore thin with Pakistan’s failure to prevent attacks on its interests, highlighted by a suicide bombing by terrorist group Tehreek-e-Taliban Pakistan (on March 26. The attack targeted a convoy of Chinese engineers on the Karakoram Highway in Bisham, resulting in the deaths of five engineers and their local driver. These engineers were working on a Chinese-funded Dasu hydropower project in Bisham, located in Shangla district of Khyber-Pakhtunkhwa province.

These escalating incidents prompted Beijing to publicly criticize the Pakistani government for its failure to ensure the security of Chinese nationals and projects. The Chinese Embassy in Pakistan urged the Pakistani government to “thoroughly investigate the attack and punish the perpetrators severely”.

Similarly, a statement from China’s Ministry of Foreign Affairs on March 27 called on Islamabad to promptly investigate the incident and “capture the perpetrators and bring them to justice”. This pressure compelled the Pakistani government to promptly dismiss several officials, marking a significant first, due to their negligence in securing the convoy of Chinese engineers.

It should be noted that Beijing made Shehbaz Sharif’s visit to China conditional on Pakistan committing to launch a large-scale counter-terrorism operation akin to Zarb-e-Azb in 2014 and Raddul Fasaad in 2017. According to a local news report, Chinese government officials explicitly urged Islamabad to take decisive military action to “eliminate” all terrorist groups once and for all, citing concerns over the growing threats to Chinese nationals involved in CPEC-related and other ventures in Pakistan.

Chinese government officials have consistently advocated for a comprehensive military operation against extremist groups. During his visit to Islamabad on June 21, Liu Jianchao, Minister of the International Liaison Department of the Communist Party of China, emphasized that “Pakistan’s internal security shortcomings pose a significant challenge that undermines investor confidence”, stating that “security threats are the primary risks to CPEC cooperation”.

Under pressure and influenced by Chinese demands for enhanced economic cooperation, the Pakistani government announced a large-scale military operation, named Operation Azm-i-Istehkam, on June 22, just a day after public statements by Liu Jianchao. A statement from Pakistan’s Prime Minister’s Office described this as a “revitalized and intensified national counter-terrorism campaign”, aimed at “coordinating and integrating multiple efforts to decisively combat extremism and terrorism comprehensively”.

The changing relationship dynamics between China and Pakistan underscore increasing Chinese distrust towards Pakistan, stemming from Pakistan’s persistent instability and deteriorating security scenario. While Beijing may have compelled Islamabad to declare a substantial military campaign against terrorism, prospects for improving the security scenario in Pakistan appear uncertain, given the outcomes of previous similar operations conducted by the Pak Military. Without creating a favorable security environment and addressing Beijing’s apprehensions, substantial advancement in the CPEC is likely to remain unattainable.