• header EFSAS

EFSAS Commentary

Cracks appear in CPEC as China 'temporarily' halts funding


Recently, China decided to stop the release of funds with regard to the construction of three roads, part of the CPEC project. The Chinese Government stated at the last Joint Working Group session in November that it would cut funds for the construction of the roads, Dera Ismail Khan-Zhob, Khuzdar-Basima and the Karakorum highway, which together encompass 456 kilometres and are estimated to cost $850 million. The three important road projects were brought into the CPEC framework during the sixth meeting, held last December, of the Joint Cooperation Council (JCC), the crucial forum where details of various projects that come under the CPEC umbrella are negotiated between Pakistan and China.

Part of its ambitious ‘One Belt One Road’ (OBOR) initiative, the China Pakistan Economic Corridor (CPEC), launched in 2013 remains one of its most important projects as it will facilitate Chinese access to strategically important regions - such as the Middle East, Africa and the Arabian Sea - through the Indian Ocean, in addition to the traditional road of the Strait of Malacca. Chinese investment in the CPEC is estimated to cross $50 billion.

According to reports, the Chinese Government stopped funding the three infrastructure projects as it is concerned over corruption in CPEC projects. This argumentation is very weak, to say the least, as corruption is not a new phenomenon in Pakistani politics; No Pakistani Prime Minister has ever completed the five-year long Government term as all democratically elected Heads of Government in Pakistan have been dismissed due to charges of corruption in the country’s 70-years existence.

Had corruption been the reason behind the Chinese step, it would, or perhaps should, have happened in July, when in the context of the Panama Papers, the former Pakistani Prime Minister Nawaz Sharif and his relatives were charged with financial irregularities and corruption, which prompted the Pakistani Supreme Court to declare Mr. Nawaz Sharif ‘unfit’ for political office, resulting in his dismissal from the Office of the Prime Minister of the country.  

Despite all the speculation regarding corruption in the Pakistani Government, it seems that China’s decision to stop its funding is a ‘temporary’ measure to reassert Chinese control over CPEC projects until it decides to release new guidelines. In addition, Beijing is keen to give the Pakistani Army the lead role in the CPEC projects as Pakistani Ministries charged with carrying out the projects have incurred delays because of infighting. Concerns that the project bypasses Pakistan’s poorer regions and will mainly benefit the financially-strong province of Punjab has made politicians argue with regards to the benefits of CPEC. Pakistani Water and Power Development Authority (WAPDA) Chairman, Muzammil Hussain, recently said that the Chinese conditions for financing the Diamer-Bhasha Dam were not acceptable and against Pakistan’s interests. China and Pakistan have also been at odds over the ownership of the hydropower project on the Indus River.

The Chinese are not used to such harsh disagreements which evidently would have made people in Beijing nervous over the future of its vital projects. Pakistan is a political volatile country where power is unevenly divided between the Government and the Military and a closer involvement of the Military on political issues would have desirable impacts for China as the Chinese consider the Pakistan Army as the epicentre of power in Pakistan and view its involvement with this project as a guarantee of its success.

The involvement of the Pakistani Army would also satisfy some of the security concerns which China has, as the nearly $50 billion flagship project passes through the region of Gilgit Baltistan, currently under Administration of Pakistan, but legally part of the disputed territory of Jammu & Kashmir, and claimed by India, and links China's restive Xinjiang region with Pakistan's insurgency-torn Balochistan province, where in October, a Chinese workers' shelter at the Pakistani port of Gwadar was attacked. The fragile security situation in Pakistan came to the surface again when, on the 8th of December 2017, the Chinese Embassy in Pakistan warned CPEC's Chinese workers that they may be targeted, in a statement issued on its website. The Embassy warned, "All Chinese-invested organisations and Chinese citizens to increase security awareness, strengthen internal precautions, reduce trips outside as much as possible, and avoid crowded public spaces". It also asked Chinese nationals to cooperate with Pakistan`s Police and the Military, and to alert the Embassy in the event of any emergency. The wring came despite repeated promises by Islamabad and Rawalpindi that it will deploy troops to secure the China Pakistan Economic Corridor and Chinese nationals in the country.

In the absence of an unambiguous decision of who in Pakistan, the civilian Government or the Army, will take ownership of CPEC projects and thereby, in essence, of the security situation, China would be taking very high risks regarding the future of its OBOR initiative, as its geo-political stakes remain unchanged and it has already invested substantial amounts into the project. The decision to halt funding has, therefore, all the ingredients of being a temporary punitive step to affirm control over the situation.

Two weeks ago, Nepal’s cabinet scrapped a $2.5 billion deal with China’s Gezhouba Group to build the Budhi Gangaki hydro-electric plant citing lapses in the award process. The withdrawal questioned Beijing's approach about what many see as neo-colonial efforts to extract host-country's resources.  

Although Pakistan badly needs Chinese money, Beijing is in no mood to let such withdrawals set a precedent. The current deferral to release funds is temporary and China’s way of conveying a diplomatic, yet strong, message to the Pakistanis; ‘We will pay, but only on our terms’.