Pakistan announced on Friday that China will provide 85% financing for the realignment of the Karakoram Highway (KKH) while supporting Islamabad’s plan to seek funding from multilateral lenders for the Main Line-1 (ML-1) railway project, after Beijing declined to extend concessional loans.
China has consistently urged Pakistan to focus on debt sustainability and avoid further accumulation of sovereign debt. However, as a special case, Beijing agreed to finance the KKH realignment to ensure uninterrupted road connectivity between the two countries under extreme weather conditions.
At the 14th Joint Cooperation Committee (JCC) meeting in Beijing, co-chaired by China’s National Development and Reform Commission Vice Chairman Zhou Haibing and Pakistan’s Planning Minister Ahsan Iqbal, both sides agreed to initiate phased bidding for the KKH project. Pakistan has already approved the 241-km Thakot-Raikot section at a cost of Rs576 billion ($2 billion). The first phase will focus on the 82-km stretch submerged due to the Diamer-Basha Dam.
On the ML-1 project, worth nearly $7 billion, both countries agreed that financing would now come from multilateral institutions such as the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). The ADB has already dispatched a team for field surveys. The project will be executed in phases, beginning with the Karachi-Hyderabad section.
While the final minutes of the JCC remain under discussion, Chinese officials reportedly advised Pakistan to manage existing debts carefully and explore alternative financing mechanisms that do not increase public debt.
Iqbal stressed the urgency of the ML-1 and KKH realignment, calling them vital for uninterrupted regional connectivity and economic growth. He also highlighted Pakistan’s push for climate resilience, Gwadar Port revitalization, and revisions to the China-Pakistan Free Trade Agreement to secure tariff concessions at par with ASEAN nations.
China and Pakistan also agreed to align the second phase of the China-Pakistan Economic Corridor (CPEC) with Pakistan’s “URAAN” 5Es framework—Exports, E-Pakistan & Innovation, Energy & Infrastructure, Environment & Climate Change, and Equity & Empowerment—while ensuring continuity with President Xi’s five corridors of growth, innovation, green development, openness, and livelihood.
The talks also touched upon stabilizing electricity price policies for CPEC energy projects, establishing a circular account for power payments, and exploring a 300 MW solar project in Gilgit-Baltistan to address severe power shortages.
Iqbal concluded by underscoring the importance of moving CPEC beyond government-to-government cooperation toward greater business-to-business partnerships to attract foreign direct investment and accelerate industrial relocation from China.