Why China, Pakistan want third parties in CPEC

China has been trying to woo interested third parties to join the China-Pakistan Economic Corridor (CPEC). The CPEC is the flagship project of Beijing’s Belt and Road Initiative (BRI) and it passes through Pakistan-occupied Kashmir. Hence, New Delhi considers CPEC inherently “illegal, illegitimate and unacceptable”, and as essentially provocative since it impinges on India’s sovereignty and territorial integrity. Moreover, since 2010, we have been witnessing a growing Chinese presence in the Gilgit-Baltistan region, much to India’s discomfiture. We must analyse why China and Pakistan are now striving to involve third parties in CPEC.

CPEC was meant to give a boost to Pakistan’s economy through infrastructure development and connectivity. It was also meant to harmonise inter-provincial relations. Originally valued at $46 billion in 2013, it is now said to involve $65 billion in investments. China is today Pakistan’s largest bilateral creditor and the CPEC is China’s single-largest project in any single country.

Even when the project was launched by President Xi Jinping and then Prime Minister Nawaz Sharif, it was envisioned to pull Islamabad out of its economic crisis and put it on the path of growth and development. But this has not happened. Rather, Pakistan’s economic woes have only compounded. The project faces financial pressures, and political instability and civil unrest, especially in the province of Baluchistan. Islamabad has been in the throes of a financial crisis and is struggling to repay its loans. Pakistan has outstanding loans to the tune of almost $14.5 billion to China. Most of these loans are for short-term loans with high interest rates ranging from 4.5-6%. Timelines for repayment have gone haywire.

Moreover, after former Prime Minister Imran Khan was elected, most CPEC projects slowed down. China has also been hesitating to release funds. Some projects have even been shut down and some Chinese companies have stopped generating electricity, resulting in severe shortages. Most projects are running behind schedule, and only three have been completed so far. Much of Pakistan’s revenues have gone toward repayment of the loans. Corruption and security costs have also added to China’s woes. Many in Pakistan worry that CPEC is turning out to be a massive debt behemoth, far from being a win-win partnership. Hence, it is not surprising that both China and Pakistan are now keen to welcome other countries on-board CPEC.

One of the major reasons for formally inviting third parties to join the CPEC has to do with the financial pressures facing the project. Despite being operational, meaningful business is yet to take off. There are also issues relating to operations. Pakistan has been forced to buy Chinese equipment for the CPEC projects. Loans were offered for the purchases, which further aggravated Pakistan’s debt burden. Islamabad seems to be caught in China’s debt-trap diplomacy. Almost 9.5% of all its external debt is owed to China.

All this has further depleted Islamabad’s foreign exchange reserves. The only option Islamabad has is to delay the repayment deadlines and get Chinese banks to cut interest rates. The flip side is that Beijing cannot sustain its investments in Pakistan without repayments. China too has been in the throes of a real estate crisis as well as a depositors’ crisis.

The two countries have been encouraging third parties to invest in CPEC. As a follow up to the Third Meeting of the CPEC Joint Working Group on International Cooperation and Coordination (JWG-ICC) in July, they welcomed third parties to join and benefit from CPEC. It may be recalled that earlier initiatives to invite third parties like Saudi Arabia and the UAE did not materialise. Riyadh is not keen to enter CPEC as a third-party investor since the framework is bilateral. China has also been trying to rope in Afghanistan, Turkey, Uzbekistan and some Western countries to join in by promoting CPEC as an open and inclusive platform meant to strengthen international and regional connectivity. It is also being projected as a win-win scenario for all the participants in the project.

The Chinese plan for regional and global inclusivity of the CPEC is crafted within a win-win package. Given its geopolitical significance, Pakistan is central to China’s transformation from a regional power to a global power. Despite the challenges and economic setbacks, neither Beijing nor Islamabad can afford to let CPEC fail. The CPEC is crucial to BRI’s success. However, John Adams’ prophetic words of the late 18th century come to mind: “There are two ways to conquer and enslave a country. One is by the sword, and the other is by debt.” It aptly fits the CPEC debacle Pakistan is facing.

(The writer is Professor, Dept. of International Studies, Political Science and History, Christ (Deemed-to-be) University)