Andrew Small on the China-Pakistan Economic Corridor’s Return to the Shadows

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Andrew Small on the China-Pakistan Economic Corridor’s Return to the Shadows

“CPEC has been a chastening experience for China in the context of the BRI.”

Andrew Small on the China-Pakistan Economic Corridor’s Return to the Shadows
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In the five years since the China-Pakistan Economic Corridor (CPEC) was launched, it’s been beset by the winds of local politics and the waves of geopolitics alike. In a new report, titled “Returning to the Shadows: China, Pakistan, and the Fate of CPEC,” Andrew Small catalogues the grand promises and countless pitfalls of CPEC. In an interview with The Diplomat, Small, a senior transatlantic fellow with the German Marshall Fund’s Asia Program, explains the significance of CPEC to the China-Pakistan relationship, the contours of its highs and lows, and what the fate of the grand scheme means for China’s broader Belt and Road Initiative.

What’s the significance of the China Pakistan Economic Corridor (CPEC) to the China and Pakistan bilateral relationship? 

CPEC was supposed to act as a vehicle to upgrade the China-Pakistan partnership. Some Chinese analysts used to describe the relationship as a “stool with two legs”: While security and political ties have been strong for decades, economic ties had always been extremely weak. Even this characterization somewhat overstates the breadth of the relationship — it was almost entirely confined to military and intelligence matters, and managed by a very small cast of individuals on the two sides. China was never a factor in day-to-day economic or political life in Pakistan, and its strong approval ratings in opinion polls reflected its unimpeachable reputation as the “all-weather friend” rather than any deeper affinity among the Pakistani public. 

That narrowness of relations also made it difficult for China to embrace Pakistan too openly — despite being arguably Beijing’s closest partner, virtually anything the two sides did together was always viewed through a security prism, and China had to tread carefully to avoid eliciting alarmed reactions in New Delhi or further afield. CPEC was a way of changing that narrative. China could make a big public push to enhance the relationship while selling it as an economic and development matter. There was also a gamble involved: CPEC was dubbed the “flagship” of the BRI, which tied its fate closely to the reputation of the entire initiative, and even to Xi Jinping himself. This was a risk that Beijing was willing to take. China wanted its relationship with Pakistan to be a “model to follow”: Close, trusted military ties that nonetheless fell short of the commitments of a formal alliance, underpinned by a comprehensive Chinese immersion in the country’s economic life. If CPEC succeeded, other countries would look to replicate it.  

For Pakistan, the logic was even more compelling. CPEC was an opportunity to draw China into a deeper level of political, security, commercial, and financial commitment to the country, in a highly visible way, at a juncture where U.S. support was being tapered back on all fronts, and international investors were very wary of the security situation. For both sides, the optics are therefore almost as important as the substance. China and Pakistan have a strong incentive to put a good face on CPEC whatever is actually happening in practice.

The Khan administration’s interest in modifying CPEC made headlines back in 2018. Since then, as you note in the report, CPEC first slowed then gradually sped up again. But in the interim, did the Pakistan Tehreek-e-Insaf (PTI) government have any success in pushing for its desired changes?

CPEC was already slowing down even before the PTI took power — by late 2017 Pakistan’s economic situation was weakening and political uncertainties were growing as Nawaz Sharif and the Pakistan Muslim League-Nawaz (PML-N)’s struggles with the army intensified. Imran Khan was known to be skeptical about CPEC — seeing it as too closely tied to the PML-N’s agenda, a poor fit for his own priorities, and almost certainly corrupt too. Prominent figures in the PTI, such as the commerce minister and leading industrialist, Abdul Razak Dawood, were also public critics of CPEC, representing sections of the Pakistani business community that saw the benefits as too tilted to Chinese firms, and had themselves missed out on the explosion of CPEC contracts.  

Beijing was ready to be accommodating to the new government’s priorities. Its position had always been that the PTI just didn’t understand that they could be beneficiaries too if they spelled out clearly enough what they wanted. In practice though, the model that Imran Khan was proposing was precisely the kind of economic relationship that China had always sought to avoid with Pakistan: In his first trip to Beijing after taking office, he asked for a bailout to address the country’s weak financial position, and support for socio-economic projects, in other words, aid.

Initially, China tried to figure out some way to rebalance CPEC around the PTI’s priorities. As one Chinese official put it to me in the early months after the elections: “We can do peanut projects instead of mega projects, if that’s what they want.” They looked at making Pakistan a test country for China’s new aid agency, as well as some agriculture and green energy projects, and they talked about renegotiating the terms of existing investments. But Beijing quickly grew fed up with the new government — particularly after the open criticism that CPEC received early in its tenure — and decided that they needed to go straight to the army instead, which they increasingly believed was running the show anyway. The result of that has been a slowed down and slimmed down CPEC but not necessarily a CPEC that bears the imprimatur of the PTI the way that its conception reflected the PML-N’s infrastructure and energy-centered agenda.    

What factors contributed to the more recent downgrading of ambitions for CPEC by both Pakistan and China? Did one drive the dampening of enthusiasm more than the other? 

It’s important to mention that CPEC is seeing a mini-resurgence at the moment. What should be the single largest project under CPEC, the ML-1 railway line upgrade from Karachi to Peshawar, is supposed to be moving ahead, and there are a couple of new hydro-electric dams. 

Officials on both sides will publicly dispute that there has been any downgrading of ambitions. But the really transformative plan that was originally envisaged — a multi-stage transformative agenda for the Pakistani economy — is not really there anymore, and the overall scale is no longer on a par with the kinds of figures that were being talked about a few years back. 

This reflects a confluence of factors. Pakistan’s economy has struggled in recent years, which has affected the government’s financing capacity. The BRI is no longer characterized by such an overriding focus on speed and scale as it was when CPEC launched. China found the political obstacles to be a real headache, and essentially decided to hold back until it was clear that they had partners on the Pakistani side that actually wanted to deliver on CPEC. But in Pakistan, too, there were questions from a number of corners about whether the full-scale version made sense — the debt levels, the implications for Pakistani businesses of an influx of Chinese firms in the special economic zones, the degree of dependence on China that was building, and many other factors besides. For its part, the army was not so comfortable about such a vast civilian-led economic agenda for the country either; it represented a potential rebalancing of power in Pakistan, and indeed China even sold it as that: A move toward a less military-centric view of national strength. Some of the frictions around these issues were not entirely helpful for the broader relationship either — so if anything there is a mutual sense that a slimmed-down version of CPEC may be preferable, as long as the public reputation is carefully managed.  

With the PTI government less interested in CPEC than the previous Sharif administration, the military has taken over more control. What are the implications of the renewed emphasis on China-Rawalpindi relations for Pakistan’s always tenuous civil-military balance?

The army was unhappy about the level of control it exercised over CPEC, and the role the PML-N occupied in running it. That has now been “fixed.” Even if China has certain preferences and views about how Pakistan should think about its national strategy, Beijing is ultimately indifferent about who is in charge in Pakistan as long as they deliver on Chinese objectives. I think there is a recognition on the Chinese side that CPEC ended up on the wrong side of the civil-military struggle and there will be even greater care to ensure that doesn’t happen again. 

There has always been a question of whether CPEC ends up reinforcing existing power dynamics in Pakistan or mitigating them. There was a genuine case to be made for the latter in CPEC’s first couple of years, but that’s clearly no longer true — instead CPEC is now likely to help the army entrench its role in an even wider range of economic decision-making and execution than its usual prerogatives. To be fair to China, this is not what they intended. They were not happy with how the Pakistani army treated Nawaz Sharif. But they have accommodated themselves to what happened and would rather work through a GHQ-centered set of structures if it means that some credible version of CPEC happens. I expect, as a result, that it will be difficult to get back to a civilian-led model for CPEC again. Given that it represents such an important part of Pakistan’s economic life, even on its more modest scale, that has some obvious long-term implications.  

At a recent All Parties Conference, Pakistan’s opposition issued a series of demands, mostly relating to allegations of election rigging and military interference in Pakistan’s government. But one of their demands was that CPEC be “expedited,” with the opposition accusing the PTI of endangering the initiative. In most countries (Sri Lanka, Malaysia, and the Maldives, for example), we’ve seen the opposite: pro-democracy forces aligned against Chinese investments and development projects, citing increased corruption risks and lack of transparency. Can you explain the role of CPEC in Pakistan’s domestic politics?

The routine with CPEC in Pakistani domestic politics is that everyone expresses their profound support for it in principle and then the opposition criticizes the form that it is taking in practice with the government in power, and the way it is being executed. This reflects China’s sanctified status in Pakistan. It is still the ”all-weather friend,” and its importance as a security partner and financial backer has only grown.

Beijing also has a radioactive reaction to any hint of public criticism. As we saw early in the PTI’s term in office, Chinese officials would routinely call on the army to get any critical ministers to shut up. So although there are many of the same concerns about CPEC in Pakistan as elsewhere — corruption, debt, transparency issues, advantageous terms for Chinese companies and so on — these tend to be expressed in private, and generally not to the Chinese. 

But we also have a situation at the moment where some of CPEC’s biggest critics are in government. For the PML-N and the PPP, which also claimed credit for aspects of CPEC — such as China’s decision to take Gwadar on again — the line has been that the PTI is squandering the economic opportunity that it represents. BRI politics also reflect electoral cycles. The skeptical opposition takes power and figures out its own accommodation with China, while the former governing parties then either take a more critical position itself or attack their successors for failing to handle relations with Beijing effectively. Of course, China doesn’t like this and wants to stay above the fray, but the scale of the BRI in some of these countries is on too large a scale for that to be possible. In Pakistan, though, Beijing still has the means to shut some of these voices down.

What can the fate of CPEC tell us about China’s Belt and Road Initiative (BRI) more broadly?

CPEC has been a chastening experience for China in the context of the BRI. Given its special relationship with Pakistan, this was supposed to be a politically easier experience than elsewhere, for all the security and economic challenges they knew they would face. It has been a demonstration that the grand-scale version of its plans may just be too difficult to execute — too exposing and contentious in countries where it simply doesn’t have the depth of relationships or expertise to pull it off, however close its top-level ties are. China cannot expect to replicate its own model outside its borders in very different political, cultural and economic contexts.  

One response could have been to come up with a new model — a BRI 2.0 and a CPEC 2.0 — that put things on a more sustainable footing, financially, politically, and environmentally, built consensus, and tailored plans even more closely to countries’ needs. The alternative is just to slow things down, scale things down, but basically plow ahead with the same approach as before, with a tighter focus on some of China’s own higher priorities, such as the Digital Silk Road projects or, in Pakistan, getting Gwadar wrapped up. I think that’s generally what we’re seeing: more of the same, just not quite as much, and with some modest re-prioritization. 

The big unknown now, though, is debt. Pakistan is among the many countries that are having to renegotiate terms on their overall finances and on specific projects, given the pandemic-induced economic crisis. For now that has actually opened the spigots again as the two sides look to stimulate the Pakistani economy with new investments. But there is still a reckoning to come. This is one area where Pakistan is in a sui generis position — given its importance to China, Beijing is willing to do more to shore up the country’s economy than in most other cases. However, we may yet see even more constraints on the Pakistani government’s finances again, as was the case with the last IMF program, which played its own role in slowing CPEC down. For all that China needs to swing in to secure the BRI’s reputation and Pakistan’s strategic position, and for all that the politics of CPEC have been squared between the army and the Chinese government, there is still the prospect that after this mini-resurgence, CPEC will collide with hard economic realities again, as everywhere else along the BRI.

Finally, we are starting to see, in Pakistan, less caution about certain perceptions of the BRI — Beijing wants to maintain a narrative of success but they seem to care less now about sensitivities relating to political issues, such as projects in Kashmir where they once trod carefully around India’s reaction, or the fact that CPEC is, given the army’s heightened role, increasingly securitized. As we have seen in other elements of Chinese foreign policy this year, it appears that we are moving to an approach that is more unabashed about the function the BRI is supposed to occupy in fulfilling China’s wider strategic objectives.