China makes Pakistan an offer it cannot refuse

“Whether those billions come in loans or FDI, the outflow will start within four or five years of the inflow,” says Kaiser Bengali, a Karachi-based development economist. “It’s a blueprint as clear as can be for colonization.”

MOVE OVER, DUBAI. Some day soon, cruise ships will disgorge frolicking pensioners not by the palm-fringed Persian Gulf but on the balmy Pakistan Riviera. From the muddy delta of the Indus to the barren Baloch coast, a twinkling constellation of attractions is set to rise: luxury hotels, water parks, golf courses, health spas, yacht harbors, night clubs, the works. To top it all, this “vacation product” will be developed in such a way that “Islamic culture, historical culture, folk culture and marine culture shall all be integrated.”

Or so promises a prospectus, drafted for the Chinese government by the China Development Bank, that sets out a detailed vision of the China-Pakistan Economic Corridor (CPEC). Billed as a flagship of China’s $900bn One Belt, One Road initiative to build an Asia-wide infrastructure system tying China more firmly to its markets, CPEC promises to inject some $60bn of Chinese investment into Pakistan. More than half is earmarked for power generation, but there is plenty left over for roads, seaports, airports, fiber-optic cables, cement factories, agro-industry and tourism.

For a country that has struggled to nudge its capital-investment ratio to 15% of GDP—compared with around 30% for India and 28% for Bangladesh in recent years—this gush of Chinese money comes as a godsend. Not only does it promise to energize the economy and fix such problems as chronic power shortages; it represents a strategic insurance policy against India. China has long been Pakistan’s chief arms supplier, and has quietly provided diplomatic cover and technical aid for its nuclear program. As Chinese officials are fond of saying, China is an “all-weather friend”—unlike America, which has lavished some $78bn in economic and military aid on Pakistan since independence, but periodically gets stingy when Islamabad fails to curb terrorists.

Yet when Dawn, a Karachi daily, published excerpts from the CPEC plan in May, many Pakistanis were perturbed by what they read. Among other things, the plan envisages a big role in Pakistan’s agriculture for the Xinjiang Production and Construction Corps (XPCC), an arm of China’s defense ministry that since the 1950s has spearheaded the settlement of Han Chinese in the western border region. It is administratively autonomous, running whole cities as well as giant farms and industries, and is responsible for about 3m people, organised in army-style units. Military training comes in handy when Xinjiang’s Muslim Turkic-speaking Uighur natives grow restless. “There is a hue and cry here when some town in Switzerland limits the size of minarets, but not a peep when China bans Muslim names, or limits the length of beards in Xinjiang,” notes a Pakistani journalist.

With solar power now cheaper than coal and gas, questions have been raised about China’s gung-ho investment in traditional thermal plants. Two 1,100MW nuclear reactors that Chinese engineers are building west of Karachi have raised environmental concerns. The giant seaside complex is just 30km from the center of one of the world’s biggest and most densely populated cities. This particular reactor design has never been built on such a scale, and the power plants happen to sit atop the Makran Trench, a major faultline prone to severe earthquakes. In November 1945 a tsunami struck the coast nearby, washing away 4,000 people.

Factory owners are already complaining that a free-trade deal with China signed in 2007 has made their goods uncompetitive, and now economists fear that Pakistan may be mortgaging its future to Chinese finance. Other recipients of Chinese aid, such as Sri Lanka, have found themselves struggling to service their debts. “Whether those billions come in loans or FDI, the outflow will start within four or five years of the inflow,” says Kaiser Bengali, a Karachi-based development economist. “It’s a blueprint as clear as can be for colonization.”

Pakistani officials scoff at such qualms. The document leaked by Dawn dates from 2015 and has since been revised, says Ahsan Iqbal, the planning minister; and the Karachi nuclear power station is being built to stringent safety standards. “Those clubs and casinos are not happening,” says Miftah Ismail, the investment minister. “And we are not just going to hand over land to the Chinese.”

India views China’s spreading footprints next door with dismay. Officials put on a brave face. The Chinese are naive, say some, and will end up getting stung by Pakistan’s generals just as the Americans did. Others hope that once China discovers how far Pakistan’s deep state is entwined with Islamist radical groups, it will show less patience than the Americans.

Privately, however, Indian officials worry that Pakistan’s new patron may play the same role as America once inadvertently did, or as Pakistan’s nuclear deterrent still does: to allow Pakistan to sustain the awkward status quo. “Indian leaders have always calculated that sooner or later Pakistan would have to seek a normal relationship with us,” says Ashok Malik of the Observer Research Foundation, a Delhi think-tank. “CPEC gives them a new narrative: it puts them in China’s sphere.”

Diplomatically, India has taken a tough line on China’s regional initiatives. The CPEC road, it claims, runs through disputed territory in Pakistan-held Kashmir. India has also sharply criticised China’s broader, pan-Asian Belt and Road Initiative as a boondoggle that will trap smaller countries in debt.

India and China have had cool but calm relations since their brief border war in 1962. Each country claims territory the other holds. India’s continued hosting of the Dalai Lama, who fled into exile in 1959, riles Beijing. For its part, India objects to China’s occasional use of its diplomatic clout, bolstered by a permanent seat on the UN Security Council, to block its ambitions. “Our economy is growing faster and our population is about to overtake theirs,” says an Indian diplomat, “But they still treat us like some poor, skinny appendage to Asia.”

Even so, the virtually impenetrable barrier of the Himalayas has generally allowed the rivals to agree to disagree. Bilateral trade is around $80bn a year, five times as much as China’s trade with Pakistan; China is India’s leading trade partner.

India is trying to preserve its own sphere of influence in South Asia through projects such as building roads and bridges in Bangladesh, hydroelectric plants in Nepal and ports and railways in Sri Lanka. But it struggles to match the largesse of China, which not only has a GDP five times India’s but also a leadership that does not have to answer to voters. Last October Xi Jinping, on the first visit to Bangladesh by a Chinese president in 30 years, pledged $24bn in loans, credits and infrastructure projects. India responded with a generous new aid package of its own.

In its effort to remain a strong, independent player, India is trying to perform a fine balancing act. But Dhruva Jaishankar of the Brookings Institution, a think-tank, reckons China may not be taking much notice: “When they talk about how America has declined and this has become a multipolar world, what they actually mean is, China is the new pole.”

This article appeared in the Special report section of the print edition of The Economist — under the headline “One Lifebelt, One Road”

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