Mounting external debts and crippling security situation in Pakistan make China hesitant in pumping more money into CPEC projects

On January 19, Chinese Ambassador to Pakistan Nong Rong met Pakistan Army Chief Qamar Javed Bajwa and discussed the China-Pakistan Economic Corridor (CPEC) which is in the midst of huge financial and security-related problems.

As per the Pakistani daily, Dawn, on account of non-extension of “the multi-billion dollar economic cooperation (from China) over the last three years to maintain the impetus that delivered a series of power plants and other infrastructure projects in the first phase of the CPEC implementation” several projects are facing delay in their execution in the second phase.

While China is yet to commit a loan for the Karachi-Peshawar railway line (ML-1) upgrade project because, as per Chinese foreign ministry spokesperson Zhao Lijian, “it involves a large amount of investment” and the two countries are still in consultations over technical issues, the Middle Kingdom is finding it difficult to execute power and infrastructure projects in Pakistan.

Four energy related projects such as 884 MW Sukki-Kinari Hydropower project, 720 MW Karot Hydropower project, 330 MW Thar thermal power project-I, 1320 MW Thar thermal power project-II--are almost 60 percent complete. But since China has put a break on further financing of projects under CPEC, uncertainty looms over their fate. Similarly, Thakot-Raikot road and Zhob-Quetta road—are awaiting for years their clearance for construction. Despite several meetings between officials of the two countries, stalemate continues on these projects.

Moreover, projects under the Gwadar Smart City Master plan have not been started. According to a report in The Express Tribune, a Pakistani daily, Chinese authorities are wary of Pakistan’s ability to service its debt. During the week ending January 14, Pakistan’s central bank reserves decreased by US $562 million to US $ 17,035.7 million due to exorbitant external debt and other payments.

In December 2021, Pakistan received US $3,000 million from Saudi Fund for Development. As per Reuters, this funding from Riyadh is for one year and has been provided at a 4 percent interest rate. This has further added to

Last year, after the State Bank of Pakistan released debt figures till September 2021, which had jumped to record PRK 50.5 trillion, exasperated Pakistan Prime Minister Imran Khan described the increasing debt as “national security issue.” China fears that further international loans to Pakistan will aggravate the country’s financial situation and will force it to dishonor repayments on external debts—sovereign or commercial. This is seen as the key reason why Beijing has not allocated any new funds to Pakistan for CPEC projects.

In 2015, the CPEC was launched when Chinese President Xi Jinping visited Pakistan. It envisages investment of US $62 billion in different projects in Pakistan. But security is another reason why China is reluctant to finance projects under the CPEC. China has repeatedly expressed its unhappiness with Pakistan over lax security. An attack on a bus carrying engineers to the Dasu hydropower plant at Khyber Pakhtunkhwa in July 2021 killed nine Chinese nationals.

In another attack, Baloch nationalists targeted a hotel in Quetta in April 2021, where Chinese ambassador to Pakistan Nong Rong was staying. However, these are not only incidents of attack on Chinese nationals. There have been several incidents of attack on Chinese nationals since the CPEC projects were launched in Pakistan. It was in this background, the Chinese ambassador had last week called on the Pakistan Army Chief.

To save the CPEC from meeting its premature death, Pakistan Prime Minister Imran Khan is likely to raise issues on installed investment to the ambitious energy and infra projects with the Chinese leadership during his visit to China in the first week of February to attend the opening ceremony of the Beijing Winter Olympics. But overall, as the ground reality suggests, Pakistan's insurmountable indebtedness and lack of foolproof security to Chinese interests in the country, have made Beijing hesitant in going forward with CPEC projects.