By Abdur Rehman Shah
With China’s Belt and Road Initiative (BRI) coming under increasing global scrutiny, major aspects of the country’s international role, investments, and activities have drawn a lively debate. From Sri Lanka to Malaysia, questions are being raised as to how the “project of the century” is shaping the economies of host countries. It is within this context that the Pakistan-China relationship has become a subject of newfound interest. After all, the “flagship project” of the BRI is the China-Pakistan Economic Corridor (CPEC).
CPEC has led to a major transformation in Pakistan-China ties. A relationship that was fundamentally defined by close diplomatic and strategic cooperation is swiftly molding into a geoeconomic collaboration, but with China holding an asymmetric position. The broader contours of this relationship can be categorized into three periods: the beginning from 1949-1962; “Entente Cordiale 1.0” from 1963-2012 and “Entente Cordiale 2.0” from 2013 onward. While giving an overview of Entente Cordiale 1.0 this article focuses primarily on the changing dynamics of the Pakistan-China relationship since 2013, under Entente Cordiale 2.0. It argues that the latest stage is more comprehensive but simultaneously more liable to challenges and risks. Unlike the previous stage, when bilateral ties were related to specific fields of cooperation and accordingly dealt with by precise state-to-state level entities — i.e. diplomats, incumbent governments, and security institutions — Entente Cordiale 2.0 is broader in scope and more open to public debate.
For all the ups and downs in Pakistan-China relations since the establishment of formal diplomatic ties in 1951, the actual breakthroughs were to happen a decade later. The year 1963, when two major agreements were signed between the two Asian neighbors, proved to be a watershed moment in the history of Pakistan-China relations. The Border Agreement of March 1963 was the first milestone in that respect. Another major deal was signed in August the same year: the Air Transport Agreement.
Both agreements had their own merits for the two countries. The border agreement was vital because it led to a (conditional) demarcation of the boundary between China and Pakistan at time when border settlement was proving a contentious issue between many countries in the region. Hence the two countries got auspicious momentum for the evolution of their relationship. Similarly, the air travel agreement was no less unique and important. Both countries had agreed to grant designated airlines of each other “the right to operate scheduled air services” via their respective territories. Pakistan was the first non-communist country to have been accorded air access to China. On the other hand, the deal helped China come out of U.S.-led isolation — so much so that top Chinese leaders still refer to the Air Transport Agreement. For example, Premier Li Keqiang in his speech to the Senate of Pakistan in 2013 reminisced: “We will never forget in the 1960s, Pakistan International Airlines (PIA), with a resounding statement ‘PIA, First to China’ launched the first flight to China which served as an air corridor linking China with outside world.”
Thus the trajectory of this relationship was all set for deepening cooperation. However, it is only part of the backdrop of evolving amity between Pakistan and China in the early 1960s. The dynamics of Cold War politics along with China-India and Pakistan-India border disputes had profound impacts on the course of Pakistan-China friendship. Even if Pakistan — under the Southeast Asia Treaty Organization (SEATO) and Central Treaty Organization (CENTO) — had joined the United States’ principally anti-communist bloc, that very factor became the ostensible reason for Pakistan’s opening toward China. In late 1962, when China and India went to war in a border dispute, U.S. President John Kennedy assisted India logistically and diplomatically at the request of Indian Prime Minster Jawaharlal Nehru (as well as due to Washington’s own strategic calculations). Pakistan interpreted the American move as a breach of their alliance and justified its warming ties with China on the same grounds.
From the mid-1960s onward, common rivalry with India provided an essential plank to the Pakistan-China relationship. In fact, then-Foreign Minster of Pakistan Zulfikar Ali Bhutto — who is also considered the architect of Pakistan-China friendship — had foretold an emerging entente with China long before the 1965 Indo-Pakistan War. In a speech delivered to the National Assembly in July 1963, he said: “Attack from India on Pakistan today is no longer confined to the security and territorial integrity of Pakistan. An attack by India on Pakistan involves the territorial integrity and security of the largest state in Asia” — meaning China.
These diplomatic relations burgeoned into military and strategic cooperation in the aftermath of the 1965 Indo-Pakistan war. China not only started supplying Pakistan with weapons but also assisted the latter in establishing its domestic military industry. Decades later that industrial base would thrive to the extent of surpassing the defense production prowess of much larged India. In 2017, India’s Vice Chief of Army Staff Lieutenant Sarath Chand acknowledged that “Pakistan probably has a better industrial base, as far as defense production is concerned, than our country.”
Similarly, it is an open secret that Pakistan’s strategic weapons and technology, such as nuclear, missile, and civilian nuclear capacities, owe their expansion to Chinese collaboration. Economic and trade relations also evolved during that timeframe, but at minimal level as the two friends prioritized the strategic aspects of cooperation.
Entente Cordiale 2.0, 2013 Onward: Geoeconomic Collaboration
The year 2013 was momentous for two reasons. Pakistan saw its first ever successful transition of power from one democratically elected government to another. The same year, Chinese President Xi Jinping announced his“signature foreign policy project,” the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which came to be collectively called the “One Belt, One Road” (OBOR) and later the BRI. Both these developments would have profound implications for the Pakistan-China relationship.
In April 2015, the two countries laid down the ground work for CPEC on the occasion of Xi’s visit to Pakistan. CPEC is a major development project aimed at constructing energy, industrial, and connectivity infrastructure across Pakistan, with Gwadar port as the lynchpin. Although Beijing had initially announced the portfolio of CPEC to be worth $48 billion, figures have reportedly crossed the $60 billion mark. Then-Pakistani Prime Minister Nawaz Sharif noted the corridor “is a catalytic project that will help us combine the geoeconomic streams of our countries.”
Three years down the road, economic interconnection has ballooned massively. China has so far invested $19 billion in various sectors of Pakistan’s economy while nine of the 22 under-construction and planned projects have been completed. Around 30,000 Chinese are working on different projects across Pakistan. In fact, China intends to showcase CPEC as the earliest and most successful of the six corridors of BRI. For that reason CPEC is interchangeably dubbed as the “flagship project,” “pilot project,” and “an icon” of BRI.
The potential gains of Entente Cordiale 2.0 for both China and Pakistan are immense. But so are the challenges and dilemmas. It has led to a dramatic increase in China’s engagement with and consequent stakes in Pakistan. Likewise, Pakistan has become ever more dependent on China.
A relationship which was previously specific in scope has expanded beyond the closed diplomatic corridors. A complex of factors now defines this phase. China’s growing footprint in Pakistan (under BRI) across multiple sectors of the economy in combination with Pakistan’s parliamentary/federal democracy and flourishing media means this relationship has become more multilayered and intricate than ever before. As a result each side has got some snags to deal with.
For Pakistan, CPEC presents economic and political dilemmas. Massive loan-based investments have come with undesirable costs and perhaps too steep prices. The process of macroeconomic stability is strained. Chinese loans have started pouring into country at a time when the economy is already encumbered by underperformance and thus requires stringent reforms. For example, the energy sector, which has attracted the largest chunk of money ($35 billion) under CPEC, is afflicted by chronic shortcomings: electricity theft, unpaid bills, line losses, and technical and administrative issues. The result is a huge circular debt, which successive governments have failed to deal with effectively. Currently it is over and above 1 trillion Pakistani rupees ($8.12 billion). On the other hand, the new government has announced economy urgently needs $10-$12 billion of financial bailout. How Pakistan is going to pay back these loans to China without enduring further economic regression is anyone’s guess.
At the political level, the electoral agenda of the new government for economic reforms will be difficult to materialize. The incumbent Pakistan Tehreek-e-Insaf (PTI) government had vowed — both before and after the elections — to audit some CPEC projects as well as place all deals before Parliament for the sake of transparency. Going one step ahead, a commerce advisor to Prime Minister Imran Khan lambasted the last government for conceding too much ground to Chinese firms and suggested that these projects should be put “on hold” for the time being. However, Islamabad not only refuted the report but has been sending contradictory signals, one after another. The government declared that it would broaden the base of and expedite work on CPEC. But Islamabad is also said to be urging Beijing to realign the goals of the project. Perhaps making good on the PTI’s CPEC promises is a step too far that will not go down well with domestic political forces (of pro-China inclinations) and Beijing itself. Therefore, the PTI government seems to be resigning itself to eating its own words and look for a third option for now.
China has got its own quandaries to deal with. Foremost are the systemic challenges posed by Pakistan’s unaccommodating institutions. First, political parties and provinces are divided across ethnic lines and it is hard to get them develop a durable consensus on any single issue. Federal democracy and the ever critical media are no less of a challenge. In fact, Beijing and its embassy in Islamabad have resorted to diplomacy via rebuttals, refuting and discrediting any critique of CPEC. Tardy bureaucratic and institutional procedures are making the swift implementation of the projects even more difficult.
Second, depending too much on Pakistan in terms of the BRI is tantamount to China partially owning its neighbor’s problems. From faltering exchange reserves to potential security threats (to both Chinese entities and citizens), Beijing’s interests in Pakistan are at stake to an extent that China no longer enjoys the option of discreet indifference toward Pakistan’s domestic travails. Unlike October 2008, when Beijing snubbedIslamabad’s request for a big economic bailout, China has, over the last financial year, lent Pakistan more than $5 billion and recently promised more. It is nothing short of an irony.
Third and most importantly, China is also anxious that amid growing international backlash against the BRI, the newly elected government of Pakistan may change its mind on CPEC. Chinese Foreign Minister Wang Yi’s three-day long visit to Islamabad was a clear indicator of this fact.
With all these limitations, there are some silver linings to Entente Cordiale 2.0. Ties are becoming more diverse and dynamic as rhetoric is matched with deeds to some extent. After having to deal with these bilateral issues, the two partners can be more realistic in perceiving this “all-weather” friendship and accordingly balance their mutual expectations. After all, Pakistan and China have always looked at each other in highly rosy terms regardless of the facts on ground. China’s influence can also impel Pakistan to look for enhanced stability at the domestic and external level — especially in its relations with India, Afghanistan, and the United States.
Given the complexity of emerging challenges, Pakistan and China need to reconsider the dynamics of this relationship so as to make it more constructive in the long run. As far as China’s role is concerned, CPEC projects must be given a second look. After Sri Lanka’s Hamabantota imbroglio, small wonder the BRI in Pakistan is under microscopic focus by the international community. China should not necessarily press ahead blindly with the project but instead consider Pakistan’s domestic limitations and economic imperatives. Hence the new government must have breathing space to make economic reforms and indispensable alterations to CPEC plans. In other words, the implementation of new projects must be made contingent upon Pakistan’s macroeconomic exigencies. Repetition of the same mistake would be a humbling blow with irreparable damage to China’s global image and ambitions as a “benign power.”
Bilateral trade is another area where China can help assuage Pakistan’s economic travails. Pakistan has long lamented the ballooning trade deficit (up to $9.7 billion) with its largest trading partner, due to a lopsided Free Trade Agreement (FTA) signed in 2006. Islamabad has yet to draw its desired concessions from Beijing despite 10 rounds of talks on the renewal of the FTA.
On its part, Pakistan should undertake long overdue economic and institutional reforms. Foreign aid and investment should not obviate the importance of domestic means of revenue generation. Making economic policies more sustainable and viable by privatizing loss-making institutions and adopting austerity, broadening the tax base, booting the efficiency of institutions overall, and eradicating corruption and mismanagement of resources are some of the institutional imperatives that the country needs to implement sooner rather than later.
Lastly, there should be a balance of expectations between Pakistan and China. The glowing narratives of a friendship “higher than the Himalayas,” “deeper than the ocean,” and “sweeter than the sweetest honey” are inflating hopes in a manner that can prove counterproductive. Official rhetoric should reflect the ground realities and one partner should realize that the other is not necessarily the ultimate or only source of its interests. Apart from a shared sense of friendship and national interests, Pakistan and China are different in many ways. Their domestic political system and institutions, economic size and strength, and international (and regional) standing and ambitions are largely different if not directly conflicting. Understanding these limitations could help forestall the possibility of this relationship turning into a mutual liability in the future.
Abdur Rehman Shah is Research Associate at the Centre for Research and Security Studies, Islamabad. He holds a Ph.D. in International Relations from Jilin University, China. He tweets @abdur_shah.
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