Home Pakistan China China’s Belt-and-Road Initiative Puts a Squeeze on Pakistan – The Wall Street Journal

China’s Belt-and-Road Initiative Puts a Squeeze on Pakistan – The Wall Street Journal

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Chinese President Xi Jinping, right, meets Pakistani Prime Minister Imran Khan at Beijing’s Great Hall of the People in November 2018.


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ISLAMABAD—The huge Chinese global infrastructure building program known as the Belt-and-Road Initiative was supposed to help unleash an economic boom in close ally Pakistan that was beneficial to both countries.

Instead, Pakistan is now enmeshed in an economic crisis, putting the brakes on new building, with less than half of $62 billion of Chinese projects carried out. The Chinese infrastructure, all built by Chinese state-owned companies, required the Pakistani government to guarantee repayments to Beijing.

Pakistan is now asking China to step up with a different kind of initiative: some $1 billion in development aid and the establishment of factories from the Chinese private sector in the country.

Pakistan also recently needed a $2.1 billion emergency loan from China—along with even more from Saudi Arabia and the United Arab Emirates—to stave off a balance-of-payments crisis long enough to negotiate a bailout, expected within weeks, from the International Monetary Fund.

The Pakistani effort to revamp what is known as the China Pakistan Economic Corridor, a showcase for China’s 70-nation world-wide infrastructure building spree, isn’t the success story Chinese leaders would like heading into its big Belt-and-Road forum this month in Beijing. The program helped China largely displace the U.S. as a key partner for Pakistan.

Pakistan isn’t the only country that has failed to turn massive lending and construction by Chinese state companies into self-sustaining economic momentum—or that is pushing back against China. While the Chinese leadership got a big boost recently when Italy became the first European to officially sign on to Belt-and-Road, new governments have come to power in Malaysia, Sri Lanka and the Maldives complaining about debt levels and secrecy surrounding Chinese deals.

In Pakistan, where the powerful army has overseen the decadeslong strategic relationship with China, public criticism from the government has been muted. But new Prime Minister Imran Khan was critical of many of the projects his predecessor Nawaz Sharif initiated with China in the four-year-old program.

Mr. Khan’s government has quietly put on hold many of the remaining $62 billion of CPEC projects—so far, $19 billion of roads, power plants and port development were started or completed, Beijing said.

Islamabad still hopes to push some more infrastructure through the program, including an upgrade of the railway network, but it is unclear how those projects would be financed.

In Pakistan, China and the U.S. are clashing over China’s One Belt, One Road initiative. To understand what’s at stake, it helps to take a look at why China is in Pakistan in the first place.

Mr. Khan wants to refocus the relationship with China on his own priorities, especially health care and education, through more traditional development-aid grants that don’t need to be paid back. His government is grappling with a debt mountain and twin budget and balance-of-payments crisis.

“If we don’t have the money, how can we do more infrastructure projects?” a senior Pakistani official said.

According to an internal Pakistani government analysis, the country will have to pay China back $40 billion over the next 20 years just for the projects undertaken so far. Pakistan says its current debt crunch is unrelated to Chinese loans.

Pakistani officials say an agreement with China will soon be signed, perhaps at the coming forum in Beijing, on a first phase of aid projects, worth $400 million to $500 million. Beijing says its experts have visited Pakistan to assess needs.

“Both sides have decided to usher in a new stage of CPEC,” Yao Jing, China’s ambassador to Pakistan, said last week. “We will broaden the cooperation scope, we will have more cooperation in the industrial sector, we will have more cooperation in the social sector.”

However, the special economic zones, for Chinese manufacturers, are two years from being ready, Pakistani officials admit. Meanwhile, Pakistan wants them to set up elsewhere in the country.

Chinese projects have helped Pakistan overcome a crippling electricity shortage.

“In the last five years, we’ve achieved a mammoth amount of investment under CPEC. There’s much to celebrate,” said Mustafa Hyder Sayed, executive director of the Pakistan China Institute, a think tank in Islamabad.

The Chinese infrastructure was supposed to relieve transport and energy bottlenecks, creating the conditions for economic liftoff for Pakistan. Instead, Pakistan faces economic woes. The construction provided an economic stimulus, according to an analysis from Standard & Poor’s, the credit-rating firm, helping to push growth to 5.8% in the latest financial year.

But as the building winds down, S&P sees growth averaging just 3.6% through 2022. That is just half the rate required to absorb new entrants to the job market and well below that of key competitors in Asia. Pakistan’s central bank in March said a contraction in CPEC-related activities would contribute to a significant growth slowdown this year.

Some Pakistani businessmen say the Chinese infrastructure on its own couldn’t put Pakistan on the hoped-for new economic trajectory, adding that Pakistan didn’t do the necessary accompanying overhauls, such as steps to raise domestic productivity and cutting red tape. So Pakistan’s old economic cycle has kicked in, where higher growth sucks in too many imports, requiring the government to force a slowdown.

The senior Pakistan official said the country hadn’t done its homework on future fiscal scenarios and what infrastructure Pakistan really needed when previously pressing the Chinese for more projects.

Some of the projects were politically motivated, some Pakistani officials said, including a $1.6 billion rail service for Mr. Sharif’s hometown. Mr. Sharif’s party blames his ouster by the courts in 2017 and subsequent political turmoil for the loss of the country’s economic momentum.

Mr. Khan’s administration says the development of CPEC’s centerpiece, the new port of Gwadar, is behind where it should be. The remote port has negligible shipping traffic, road links aren’t complete, its industrial zone is empty and the promised airport and power plant haven’t been built.

“The line from Imran Khan’s party is, ‘We like CPEC, we just don’t like the Nawaz Sharif version of CPEC,’ ” said Andrew Small, author of the book “The China-Pakistan Axis.” “But China is not happy with that line—they wanted these projects to attain the status of national projects and don’t expect to face political criticism, however carefully couched, from the country that is supposed to be its closest friend.”

Write to Saeed Shah at saeed.shah@wsj.com

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