Washington’s critique of the China Pakistan Economic Corridor (CPEC) is becoming a bit predictable. Alice Wells, the top US diplomat for South Asia, reiterated the Trump leadership’s long-term position on CPEC last month. She claimed that aid was an illusion, Pakistan was headed for a debt trap, and Beijing would consolidate all profits. Interestingly, what began as a warning quickly transpired into a proposition: the US multinational engagement in Pakistan should increase. As long as Washington overlooks key consistencies in Sino-Pak bilateral engagement, it is unlikely that its view on the CPEC will make gains with Islamabad.
First, Pakistan’s repayments to China are stretched over 20 years, a timeline aligned with the corridor’s prospective operations. According to official documents with the Ministry of Planning, total payments amounted to $39 billion – where $28 billion accounted for infrastructure and energy projects, and $11 billion accounted for dividends (a sum extracted out of profits). These specifics directly contest Ms Well’s assertion that “the bulk of payments start to come due in the next four to six years”, and that “the corridor is going to take a growing toll on the Pakistan economy.”
Moreover, what frequently escapes American discourse is how Pakistan and China manage their deferrals. For instance, many of the deferred project investments under the CPEC are marked by concessionary loans–an adaptive measure designed to suit Pakistan’s revenue generation limitations. Same is the case with bilateral loans and grants. Beijing has pushed across billions this year to bolster Islamabad’s dwindling cash reserves and socio-economic challenges. This judicious tailoring of Chinese investments to Pakistan’s economic limitations has been a long-standing hallmark of Sino-Pak cooperation–a trend largely absent in Pakistan’s experience with the US.
What frequently escapes American discourse is how Pakistan and China manage their deferrals
Interestingly, many within the Trump administration are of the view that Pakistan is pushing itself into a “client-state” spot with Beijing. This view stems from the fact that Beijing is the chief financier in the initiative, and thus, entitled to asymmetrical leverage. What the view fails to consider, is the fact that the corridor’s development is itself an attempt to upgrade Pakistan’s revenue generation capacities. Nonetheless, Thursday’s remarks should not strike Islamabad as a total surprise. The Trump administration has argued its case on the CPEC far more erroneously in the past. Last year, the US Secretary of State, Mike Pompeo, alleged that Pakistan’s pursuit for an IMF bailout package was an attempt to pay back Chinese loans. “There’s no rationale for IMF tax dollars, and associated with those American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” said Pompeo. The allegations, confirmed by the IMF as false, were a direct reference to the Chinese investments under the corridor. Earlier, former state secretary, Rex Tillerson, went on record to question the financial structure of projects under the CPEC. Another odd probe into an inherently bilateral settlement.
President Trump has been very open about America’s reservations with China. At the UN, he accused Beijing of undermining free-trade through tactics of currency manipulation, forced technology transfers, and massive market barriers. All these fit into Mr Trump’s self-initiated trade war with Beijing, designed to boost his protectionist domestic image.
The understanding now is that Islamabad too should embrace some of these protectionist policies towards Beijing: “CPEC relies primarily on Chinese workers and supplies, even amid rising unemployment in Pakistan,” warned Ms Wells last November. The remark enjoys strong parallels with President Trump’s February State of the Union address, alleging “Chinese theft” of American jobs.
Thus, Washington’s view that CPEC is destined to backfire appears unconvincing on many counts. Little suggests that Chinese investment has been dismissive of Pakistan’s economic challenges in the past, or that Pakistan prefers a cynical approach to regional connectivity and integration in its neighbourhood.
The writer is a research analyst at the Islamabad Policy Research Institute, and an author