Pakistan learns the cost of an alliance with China

BY SAIM SAEED

Wedded to Beijing, Islamabad has discovered it could be difficult to get out.

Protests, massive debt, dwindling cash reserves. Those are the consequences of Pakistan's increasing reliance on China — but the country has still decided it's all worth it.

It's not what Pakistan anticipated when it happily embraced a $60 billion handout from China in 2013, when the countries formalized the China-Pakistan Economic Corridor (CPEC), part of Beijing's international infrastructure strategy known as the Belt and Road Initiative. Initially, the realignment with Beijing seemed a win-win situation, as the cash-strapped South Asian country drifted away from its traditional ally: the United States.

Beyond the geostrategic satisfaction of outflanking India, the traditional mutual archenemy of both China and Pakistan, there have been plenty of tangible economic benefits too.

Thanks to Chinese money and expertise, Pakistan has added more electricity to its faltering grid and is now better connecting its own cities with new roads and public transit systems. In international forums, Islamabad has a more reliable backer than the U.S., especially when it comes to the issue Pakistan cares about most: berating India. "They're all in," said Uzair Younus, a U.S.-based consultant who hosts a podcast on Pakistan's economy, referring to Islamabad's alliance with Beijing. "There is broad consensus that this the path forward for the country."

For Pakistan, the alliance has also meant relying on China for everything from fighter jets to coronavirus vaccines. In January, Islamabad said it would receive a "gift" of 500,000 doses of the Sinopharm vaccine. It is currently in talks with Beijing to secure more doses of both the Sinopharm vaccine and the Cansino vaccine.

"We ... value our unassailable friendship and strategic partnership," Pakistan's Prime Minister Imran Khan said last year.

The U.S. has had some cautious words about Pakistan's deepening romance with Beijing. A State Department spokesperson said Washington remained "concerned that some CPEC projects lack transparency and impose unsustainable levels of debt on Pakistan, with Chinese state-owned enterprises benefitting disproportionately."

It's not just the Americans who are worried. Many Pakistanis also observe that the alliance has been exacting on their country's resources, people and international reputation.

Money problems

For one thing, Islamabad simply isn't able to pay China back. Bloomberg reported earlier this month that the Pakistani government will ask China for debt relief on the projects it splashed out on. Between 2018 and 2020, Pakistan added $17 billion to its external debt, totaling $113 billion last year.

Even in the best of times, Pakistan's finances are notoriously unstable. It's currently in a $6 billion International Monetary Fund bailout program — its 13th — but the size and terms of China's investment have meant an even greater cash crunch at a time when its economy is squeezed by the coronavirus pandemic. As a consequence, its debt has ballooned, its currency has nosedived and inflation has skyrocketed. "They find themselves in a bit of a trap, but it's a trap of their own making," said Husain Haqqani, the director for South and Central Asia at the Hudson Institute, a Washington-based think tank, and a former Pakistani ambassador to the U.S.

Khan issued a public plea for debt assistance last year as the pandemic halted Pakistan's economy.

Younus, the consultant, said Pakistan's debt trap alone hardly tipped the scale against China. "The business community will say, yes we have debts, but Pakistan has always struggled to pay back debts." Pakistan has essentially swapped creditors, he said, while all its economic fundamentals remain the same.

But Pakistan might be trading away more than it bargained for.

"The U.S. or the IMF has never, ever, taken over someone else’s territory as payment for a loan," Haqqani said, citing China's takeover of the Sri Lankan port of Hambantota after the island nation ran out of cash.

"The terms of loans with a Western country are predictable and realistic," he said. "It's not the same with China. There’s less transparency." Experts warn that the port of Gwadar, near Pakistan's border with Iran, has the potential to become a new Hambantota. Recent work on a fence around the port was only paused after local residents protested. It is unclear whether the order to build it came from the Pakistani government or at China's request, which is concerned about the province's security issues.

Neither the Chinese nor Pakistani government responded to requests for comment.

The projects have not boosted local employment either, with the Chinese construction companies preferring to ship their labor from China rather than hire local workers, fueling tensions further. And Haqqani points out that stronger trade and road links have helped Chinese goods be sold in Pakistan, but not the other way round.

Bundled together

The problem, Haqqani said, is that the various aspects of Pakistan's relationship with China are intertwined. While European politicians can strike an investment deal with China while simultaneously criticizing its human rights record, Pakistan has a "one window operation."

"If you don’t give them what they want in the economic realm, they push back in the military realm. To keep the military relationship going, they have to give up the economic realm," he said. China is now Pakistan's biggest arms supplier, and with Pakistan's military playing an oversized role in its politics, the civilian government has to be wary it doesn't upset its generals in addition to Beijing.

"In the end Pakistan ends up giving everything," Haqqani said.

The "one window operation" partially explains Islamabad's reluctance to criticize Beijing for the human rights abuses being reported in China's western region of Xinjiang, which borders Pakistan. Khan, the prime minister, sees himself as a spokesperson for Muslims worldwide. He has accused French President Emmanuel Macron of peddling Islamophobia and has written to Facebook chief Mark Zuckerberg about banning anti-Muslim sentiment on his platforms. But on the plight of Uighur Muslims who report systematic rape and forced labor, the Pakistani prime minister has been less vocal.

Experts say there is reluctance within the government and the military about the relationship, but that contrasts with both countries' official statements. Last year the governments announced an additional $11 billion in infrastructure projects, and the countries routinely talk up the partnership.

That's partly because Pakistan can't get itself out, explains Khurram Husain, a journalist who has written extensively about CPEC. "There is concern, but the space to do anything about it is very limited. They have very little room for maneuver."

Meanwhile Pakistan's relations with the West continue to unravel. With the U.S. winding down its military presence in Afghanistan, Islamabad's importance to Washington has diminished. Pakistan was not a party to the Muslim countries who recognized Israel last year, despite Washington's efforts.

The EU, meanwhile, is an important importer of Pakistani goods, but that trading relationship has not evolved into a deeper partnership — especially as the bloc prepares to host India for a top-level summit in Porto in May.Pakistan has maintained that it's still open for business with Brussels and Washington, but Younus said the country's leaders "haven’t articulated that vision clearly and concisely." Accusing the French of "hate-mongering" hasn't helped the high-wire act."Pakistan has very few friends in the region, East or West," said Husain, the journalist. "China is the largest trading partner, the largest military supplier and playing a very helpful role in balancing out India. Pakistan needs China."

Haqqani, the former ambassador, said it didn't have to be this way. He cited the former Yugoslavia as a communist country that developed an independent foreign policy while preserving its distance from the Soviet Union.

"It's not too late," he said. "You can always break out."

https://www.politico.eu/article/pakistan-learns-cost-of-economic-alliance-with-china/