ISLAMABAD — As Prime Minister Imran Khan prepares to visit Beijing on Thursday, Pakistani officials warmly welcomed China’s latest message to its overseas partners assuring them that loans tied to Beijing’s Belt and Road Initiative will be affordable.
China’s commitment to invest up to $60 billion under the China-Pakistan Economic Corridor, or CPEC, is not only the largest investment from a single foreign country in the South Asian nation’s 72-year history, it is a centerpiece of the Belt and Road.
“This partnership relationship is not a geopolitical tool, but a platform for cooperation,” said Chinese Foreign Minister Wang Yi in comments on Friday ahead of a high-profile summit on the initiative in Beijing, where Khan will deliver a keynote address. “You can’t put hats like ‘debt crises’ on to the head of the Belt and Road,” Wang said, rebutting criticism of the risk associated with Chinese investments. Many in Pakistan also feel that criticism is unwarranted.
Last September, Khan’s adviser on commerce, Abdul Razzak Dawood, surprised many across Pakistan in rare public comments on the issue of Pakistan’s Chinese debt. In an interview with the Financial Times, he said the previous government did a “bad job negotiating with China on the CPEC. They didn’t do their homework correctly and didn’t negotiate correctly, so they gave away a lot.”
A Pakistani cabinet minister who spoke to Nikkei ahead of Khan’s visit said the country is now focused on seeking investments from Chinese companies to sectors such as industry and agriculture to “demonstrate the benefits flowing to the public.”
Haroon Sharif, chairman of the Board of Investment, a position equivalent to a junior minister, said: “Twelve Chinese companies have begun setting up in Pakistan’s manufacturing sector in the past six months, with a combined investment plan of just over $1 billion. Another 10 companies are showing concrete intent to invest in Pakistani industrial sectors.” Sharif said the board has been in touch with at least 150 companies since Khan came to office, urging them to set up ventures in the country.
Western economists based in Islamabad have warned that Khan’s eagerness to be seen delivering benefits to the Pakistani public from closer economic ties with China will not reduce the country’s mounting debt pressure. On Thursday Asad Umar resigned as finance minister amid widespread speculation that Khan was not satisfied with progress in talks with the International Monetary Fund for a new loan intended to avert a balance of payments crisis.
The discussions with the IMF have run into resistance from the U.S. over Pakistan’s Chinese debt. Three members of the U.S. Congress wrote a letter to Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin on April 5, urging them to block future IMF loans to Pakistan on the grounds that the money will be used to pay off Chinese debts.
Other analysts in Pakistan who track the corridor project closely, however, say fears about Chinese debt crippling Pakistan’s economy are overblown. Imtiaz Gul, head of the Islamabad-based Centre for Research and Security Studies, told Nikkei the effect of Chinese loans is often exaggerated. “Pakistan will be nowhere near taking up more than $60 billion in debt, which is the total planned cost of the CPEC. A large part of this will come from private investment in future economic zones and other ventures,” Gul said.
“Our research shows Chinese debt repayments will not be due before 2022, when the IMF program, which is likely to be of three years’ duration, will be over. The interest rate on Chinese loans will be around 4% annually, which is affordable,” he said.
Ali Sarwar Naqvi, a former Pakistani ambassador who heads the Islamabad-based Centre for International Security Studies and does extensive research on China, noted Pakistan’s centrality to Beijing’s plans. “Pakistan has a long-term alliance with China. For Beijing, too, it will be important to see the CPEC succeed,” he told Nikkei.
A senior government official, who spoke to Nikkei on condition of anonymity, said that during his visit to Beijing Khan will urge China to intensify the flow of “Chinese private capital to Pakistan.” Pakistani leaders have also repeatedly highlighted China’s central role as a supplier of military hardware to the country’s influential armed forces.
“In the region around China, Pakistan remains China’s most important military ally. I doubt if anyone in Beijing will ignore the special military relationship between our two countries as … [China] pursues the CPEC,” said the official.