Imran Khan’s China Visit: A Much-needed Reality Check
Photo Credit: EPA/EFE
By Abdul Basit

Imran Khan’s China Visit: A Much-needed Reality Check

Nov. 29, 2018  |     |  0 comments

The first visit of any Pakistani leader to China, following a power transition, is monumental as it sets the tone for the relationship for the next five years. The newly elected Pakistani Prime Minister Imran Khan went to China in early November 2018 eyeing immediate financial assistance to negotiate a bailout package from the International Monitory Fund (IMF) on more favorable terms. However, the joint statement issued marking the end of Khan’s visit did not mention any assistance package.


Khan returned to Pakistan empty-handed. The Chinese authorities not only avoided committing anything specific in financial assistance but also brushed aside the proposals to re-negotiate and re-orient the China-Pakistan Economic Corridor (CPEC) projects. In the joint presser, Chinese Premier Li Keqiang said: “There is no change at all (in CPEC projects). If there were, it would only be to increase, not decrease” the number of projects. It was a sobering and learning experience for Khan and his fledgling cabinet. Khan’s body language looked diminutive and fidgety. He went to China unprepared and with unrealistic expectations.


After securing a financial package worth USD 6 billion — a deposit of USD 3 billion with the State Bank of Pakistan for one year and USD 3 billion in deferred oil payments — from Saudi Arabia, Khan aimed for a similar package from his China trip. However, on his arrival in China, instead of a high-ranking official, Chinese Transport Minister Li Xiaopeng received him. It was a clear indication that China was clearly not satisfied with the Khan-led government over its statements on CPEC projects.


Since coming to power in August, the Khan-led Pakistan Tehrik-e-Insaf (PTI) government has been blowing hot and cold on CPEC projects, which has created a lot of discomfort in Beijing. Khan’s economic adviser Razak Dawood’s Financial Times interview in September, in which he suggested that Pakistan should put CPEC on hold for a year and revise the agreements which were unfairly benefiting Chinese companies, set the cat among pigeons. Moreover, the Chinese were dissatisfied with the Pakistani government’s lack of interest in rebutting international criticisms of China’s increasing influence in Pakistan and the CPEC projects. In the Western media, the CPEC projects have been dubbed as a form of  “debt trap diplomacy” and Chinese “neo-colonialism.”


Khan’s government also hinted at — without any consultation with Beijing — reducing the overall value of the CPEC projects from USD 62 billion to USD 50 billion due to debt concerns. In October, the Railway Minister Sheikh Rashid Ahmed announced the decrease of the cost for the upgrading of the Karachi-Peshawar Main Line-1 (ML-1) from USD 8.2 billion to USD 6.2 billion. The Chinese were even more baffled when the PTI government invited Saudi Arabia to join CPEC as the third “partner” without getting China on-board first. Later, given the Chinese objections, Pakistan retracted from the statement, calling Saudi Arabia an “investor” and not a “partner” in the CPEC projects. 


Islamabad needs to realize that CPEC is neither a gift from China nor a charity. Rather, it is a set of commercial projects based on grants, loans and investment from Chinese state-owned enterprises and private companies with sovereign guarantees from Pakistan.

Hence, China’s hard to get attitude in Khan’s maiden visit is unsurprising. President Xi Jinping’s administration is approaching its ties with Pakistan more strategically. It wants to move beyond the “higher than the Himalayas and deeper than the deepest sea” rhetoric and make the relationship more meaningful and process-oriented. Instead of doling out soft loans, Beijing wants Islamabad to break out of the double trap of debt and dependence. However, the poor capacity of Pakistani institutions and their lack of professional expertise to analyze the real benefits of CPEC have frustrated their Chinese counterparts. For instance, in 2013, it was the Chinese experts who developed the initial blueprint of CPEC as Pakistan had failed to develop one. More recently, China awarded a study of CPEC projects to the World Bank instead of Pakistani institutions given their lack of expertise and capacity issues. To China’s frustration, the various think-tanks which are working on China and Pakistani-China relations which have mushroomed in Pakistan since the onset of CPEC have turned into PR firms instead of carrying out in-depth research. In addition to the above, the following five factors account for China’s conditional approval for Pakistani request for financial assistance.

First, amid the ongoing trade war with the US, China is working to increase liquidity. So, it is more inclined towards investing in projects rather than handing out soft loans.


Second, the Chinese response to Pakistan’s bailout request will be a litmus test for all future cases involving the IMF, the US, China, and emerging economies. If China chooses to hand out a soft loan to Pakistan, then this will become a permanent commitment that Beijing will have to shoulder. Since 1988, Pakistan has availed 12 IMF programs and China is very well aware of that. Moreover, more than 60 countries are in the BRI framework: a loan to Pakistan would attract similar requests from other BRI countries.


Third, China is driving a hard bargain because it wants Islamabad to get its priorities right and its house in order. Moreover, Beijing is taking its time to assess the new Pakistani government. China will wait for the outcome of negotiations with the IMF and will try to fill the remaining financial gap. In other words, China does not want to replace IMF as Pakistan’s main lender. 


Fourth, it seems China is reluctant to replace the US as Pakistan’s main security, economic, and diplomatic partner. Every time US-Pakistan relations are in a tight spot, China becomes uncomfortable as China-Pakistan ties attract close scrutiny in the West. A case in point is US criticism of CPEC loans as responsible for Pakistan’s external debt problems.


Finally, Pakistan wants more out of its ties with China than China is willing to offer. The faster China gets closer to Pakistan; the faster India will move into the US orbit. A partnership with Pakistan comes with economic and diplomatic costs and Beijing does not seem ready yet to carry that baggage. For instance, China withdrew its support from Pakistan during the Financial Action Task Force (FATA) — a financial watch-dog that looks after anti-money laundering laws and counter-terrorism financing — preliminary meeting in February. After the Saudi withdrawal on US insistence, China along with Turkey was the only country opposing Pakistan’s grey listing. The Chinese informed the Pakistani side that they were opting out as they did not want to “lose face by supporting a move that’s doomed to fail.


Islamabad needs to realize that CPEC is neither a gift from China nor a charity. Rather, it is a set of commercial projects based on grants, loans and investment from Chinese state-owned enterprises and private companies with sovereign guarantees from Pakistan. It is an opportunity from which Pakistan can benefit if it does its homework properly. The second phase of CPEC, which, among other things, involves the creation of special economic zones, provides the new Pakistani government with an opening to align its agendas of job creation, the revival of local industries, and increases in exports with these projects as a member of a “community of common destiny.”


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