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Pakistan: Persistent Differences in China-Pakistan Bilateral Relations Despite Recent Efforts at Improvement
  • Pakistani Prime Minister Shehbaz Sharif and Chinese President Xi Jinping
    Pakistani Prime Minister Shehbaz Sharif and Chinese President Xi Jinping
Prime Minister of Pakistan, Shehbaz Sharif, visited China from June 4-8 with a large ministerial delegation in a desperate attempt to revive bilateral ties with their “all-weather” ally. The two countries have experienced a troubled phase, with differences emerging over Pakistan’s growing closeness to Western countries, the apparent failure of the China Pakistan Economic Corridor (CPEC), Islamabad’s inability to repay Chinese debts, and terror attacks on Chinese nationals in Pakistan. Consequently, this is Sharif’s first extended visit to China since his election in February, with the support of Pakistan’s military establishment. During his visit, Sharif reportedly sought fresh loans from Beijing and requested more time to repay outstanding debts. China has been seriously wary of Pakistan’s dire economic situation and fears that its investments will not yield positive returns in the future. Notably, a third of Pakistan’s total external debt is owed to China.

According to sources, China has recently asked Pakistan to clear pending payments amounting to USD 1.8 billion owed to Chinese Independent Power Producers (IPPs), take active measures to streamline future payments, and allow investors to repatriate profits on their investments to China. Furthermore, reports indicate that despite recently held high-level talks between the two countries, China is currently in a ‘holding mode’ regarding new investments in Pakistan. This stance is primarily because of growing concerns over the safety and security of Chinese nationals, apprehensions regarding the sustainability of Pakistan’s debt burden, and its inability to settle long-standing payments to Chinese IPPs.

Nevertheless, due to Pakistan’s strategic importance for China’s geopolitical and security interests, particularly in the Indian Ocean Region (IOR) and in counterbalancing India, Beijing will continue to provide limited financial support to Islamabad. On the other hand, Pakistan has become adept at misleading China on matters related to financial investments, economic corridors, and providing land connectivity to the Indian Ocean. It is noteworthy that Shehbaz Sharif and his elder brother, Nawaz Sharif, have frequently claimed credit for initiating CPEC in Pakistan. Consequently, Beijing is more comfortable dealing with the Sharifs and their political loyalists, such as Foreign Minister Ishaq Dar and Minister for Planning, Development, and Reforms Ahsan Iqbal, on all matters related to CPEC. Dar and Iqbal visited China in May to lay the groundwork for Prime Minister Shehbaz Sharif’s visit in June.

Interestingly, both countries announced the second phase of the CPEC during the official visit of Chinese Vice Premier He Lifeng to Pakistan in August 2023. However, a formal agreement has yet to be reached, indicating a lack of confidence in the project’s future. Beijing has demanded the clearance of outstanding payments before commencing new projects in Pakistan. Through Sharif’s high-profile visit to China, Pakistan hopes to attract Chinese companies to invest in sectors such as agriculture, information and communications technology, mineral and energy resources, and exclusive economic zones. Additionally, the Sharif government seeks greater access for Pakistani products in Chinese markets and has reportedly requested that Chinese automobile companies establish assembly plants in Pakistan. These are desperate attempts by Islamabad to address the massive trade imbalance between the two countries.

According to data from the Observatory of Economic Complexity (OEC), Chinese exports to Pakistan increased at an annualized rate of 95.6% between 2017 and 2022, rising from USD 616 million in 2017 to USD 17.7 billion in 2022. This data highlights the clear one-sided economic advantage for China, which became more pronounced following the announcement of the first phase of CPEC projects between 2013 and 2015. It is expected that Pakistan’s economic dependency on China will increase substantially with the commencement of the second phase of CPEC, further entangling Pakistan in Beijing’s ‘debt-trap’ policy and forcing Islamabad to compromise its territorial integrity and sovereignty.

China and Pakistan are reportedly making efforts to start afresh under the new coalition government in Islamabad to enhance bilateral cooperation in multiple sectors, including nuclear and infrastructure projects like power plants in Gwadar and Pakistan Occupied Kashmir (PoK). Notably, both countries have consistently exaggerated their bilateral economic cooperation, including on CPEC projects. The situation on the ground is significantly different from the claims made by the officials from both sides over the years, with several CPEC projects accounting to approximately USD 25 billion from the first phase either incomplete, abandoned, or existing only on paper.

In a recent development related to CPEC, both countries have yet to sign the minutes of the 13th Joint Coordination Committee (JCC) meeting, held on May 24, due to differences over projects and investment proposals. This pattern suggests that the second phase of projects will likely face similar challenges. Meanwhile, China will continue to increase its physical presence under the guise of CPEC in strategically significant areas such as Gwadar in Balochistan, the Karachi Port area in Sindh, and the occupied territories of PoK. Additionally, to revive CPEC, China is reportedly pressuring Pakistan to seek investors from “third countries,” particularly leveraging its influence with members of the Organization of Islamic Cooperation (OIC). Interestingly, Beijing has started referring to CPEC as an ‘open corridor’ to attract third-party investors, though this approach has not yet yielded any success. It clearly shows that China does not trust Pakistan on CPEC. Therefore, Sharif’s recent visit to China will not make much difference on the ground despite grabbing catchy news headlines.