When Pakistan entered its 22nd International Monetary Fund program last year, plenty of observers assumed that the China-Pakistan Economic Corridor (CPEC)—described by Beijing as a “flagship project” in its broader Belt and Road Initiative—would be one of the casualties.
After all, with the IMF mandating cuts in public sector spending, a reduction of Pakistan’s deficit, and tightening of monetary policy, it made sense that the vast loans and spending associated with CPEC would have to stop. And further, China had already started to have misgivings about lending and investment in poorly governed frontier markets like Pakistan. It was said that CPEC—billed as a $62 billion connectivity initiative linking China’s landlocked Xinjiang region with Pakistan’s Arabian Sea ports—would likely continue only symbolically so as to enable the two stalwart allies to save face.
But today, over a year into its latest IMF program, Pakistan is actually doubling down on CPEC as a major vehicle for economic growth and investment. New or stalled hydroelectric and rail projects are moving forward. And as CPEC regains momentum, it has a new steward: the Pakistan Army, which has gone from a behind-the-scenes role in championing the project to publicly overseeing its overall implementation.
For Pakistan, the renewed emphasis on CPEC and the growing role for the Army are double-edged swords. In the short term, paired together, they will inject much-needed aid and investment into the Pakistani economy. And a tighter embrace with China will bolster Pakistan’s security against archrival India.
But, in the long term—absent civilian ownership, renegotiated terms, and structural reforms—CPEC may burden Pakistan with unaffordable electricity and unsustainable debt, cannibalize its federal budget, entangle Pakistan in broader U.S.-Chinese tensions, and further entrench the Army in the country’s politics and economy.
The announcement of CPEC in 2013 marked a departure in China-Pakistan relations, adding an emphasis on economic development to a relationship that had been largely confined to the diplomatic and military realms. The scheme paved the way for a surge in aid and investment from Beijing, and by giving Pakistan’s democratically elected civilian leadership the power to determine how tens of billions of dollars in Chinese aid and investment would be directed, it also gave the civilians a big say in the country’s most vital strategic relationship.
That never quite sat well with the Army—in part because the prime minister at the time was Nawaz Sharif, a man the military twice deposed from office. When Sharif came to power, he continued to call for the prosecution of Pervez Musharraf, the general who had sacked him in 1999, for high treason. In pushing for Musharraf’s treason trial, which could have resulted in the former general’s execution, Sharif crossed a red line for the Army, which would in turn keep his government on the defensive until he was permanently disqualified from holding public office by the Supreme Court in 2017.
Such tensions would be enough to sink a different civilian government. But in this case, the former prime minister and his brother Shehbaz Sharif, who was serving as chief minister of Pakistan’s most populous province, Punjab, were buoyed by easy access to Chinese financing for energy and infrastructure projects. They directed these funds toward boosting road, digital, and economic connectivity with China; addressing Pakistan’s endemic power shortages; and strengthening their party’s fortunes ahead of elections slated for 2018.
For example, in 2016, Sharif pledged to end all scheduled blackouts within two years. The vast majority of initial CPEC funds went toward a building spree of power plants in order to fulfill that pledge. Shahbaz Sharif, in particular, was able to cut through red tape and get power plants completed in record time.
In urban areas, their strategy at first seemed to work. Power blackouts significantly declined. Economic growth ticked up, and public opinion polls in late 2017 pointed toward a sizable lead for Sharif’s party, the Pakistan Muslim League-Nawaz (PML-N). But the gambit was fiscally unsustainable, relying on comparatively expensive electric power projects and putting off needed reforms of the power sector, including the dilapidated grid. As a result, the debt in Pakistan’s power sector has only continued to grow—reaching over $12 billion this year. Coupled with other potential white elephants, including a commuter rail line in Lahore, the Sharifs’ base, CPEC spending became enmeshed in Pakistan’s preexisting power disputes, including the civil-military rivalry.
And in the end, it didn’t work to keep the PML-N in power. Months before the election, ex-cricketer Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) made up considerable ground. That late shift in the electorate toward PTI, combined with preelection defections of strong candidates to Khan’s party—induced by the Army, which could not countenance another term for the PML-N—gave Khan’s party a plurality of seats in the National Assembly, enabling it to form a coalition government.
The rise of PTI in 2018 meant the loss of a key partner for Beijing. The party was a relative unknown for China. It had never ruled at the national level, and what Beijing knew about it provided little comfort. In 2014, Khan had led an anti-government sit-in in the capital that resulted in the delay of Chinese leader Xi Jinping’s visit. And Beijing feared his anti-corruption crusade, a key element of his platform, could target CPEC.
The uncertain feelings were to some degree mutual. PTI inherited a coal- and infrastructure-heavy CPEC portfolio at odds with its own developmental priorities, which leaned toward renewable energy and social welfare. And with multiple economic crises looming thanks to the PML-N’s reckless economic policies, PTI had to make tough policy choices fast. Khan’s commerce advisor, Abdul Razak Dawood, told the Financial Times a month after coming into power that the government should take a year to reassess CPEC. His suggestion caused a storm, and the party was forced to backtrack.
Still, CPEC—and, with it, the Pakistani economy—did slow down. Pakistan dragged its feet on expensive, big-ticket projects like upgrading the country’s main railway line, the ML-1, which stretches from the port city of Karachi through the industrial cities of Punjab and on to Peshawar, near Afghanistan. By last year, the estimated cost of the project had ballooned to $9.2 billion, from the original $8.2 billion.
Now, two years into Khan’s tenure as prime minister, relations with China have improved, but both Beijing and the Army have lost faith in many of those who surround the prime minister. Meanwhile, some cabinet ministers, including the planning minister, the lead coordinator for CPEC on the Pakistani side, have been sacked, and the Army has won back a more pronounced role in governance, including with CPEC. This marks a reversal of the back-to-the-barracks policy initiated in 2007 by then-Army chief Ashfaq Parvez Kayani when he succeeded the embattled Musharraf.
Last November, a retired senior Army officer, Asim Bajwa, was even appointed by Khan as chairman of the CPEC Authority, a newly established body to oversee and facilitate corridor projects. Bajwa retired from the Army just two months before his appointment, and his last posting was as head of the Army’s Southern Command, which covers the province of Baluchistan, home to the Chinese-run port of Gwadar, a key node in the CPEC.
Bajwa was undoubtedly selected out of a belief that he could address security concerns in particular. Beijing is worried about terrorism in Baluchistan, where separatists have stepped up attacks on Chinese targets in recent years. Bajwa also served as lead military spokesman for three years and is credited as having taken the Army’s media management game into the digital era. The Army sees CPEC as being the target of a malicious foreign propaganda campaign (for example, several senior U.S. officials have publicly questioned the sustainability, transparency, and even the legitimacy of the program) and wants to fight back.
But there’s also indication that the Army has tried to use Bajwa and CPEC as Trojan horses to claim a greater share of power back from the civilian government. Last month, Pakistan’s Express Tribune reported on proposed legislation that would have radically enhanced the powers of the CPEC Authority, nearly converting it into a parallel government. The draft legislation would have cut Pakistan’s Planning Commission—which has served as the country’s chief economic policy development body since the 1950s—out of the picture on CPEC, giving the CPEC Authority sole power to conceive and develop the projects.
In other words, the CPEC Authority, effectively controlled by the Army, would exercise control over a large percentage of the country’s development budget—a power that is even more pronounced in a period of austerity. The CPEC Authority would report directly to the prime minister but would only be obliged to comply with their directives “to the extent that these are not inconsistent with the provisions” of the proposed law. The CPEC Authority could potentially even supersede the powers of the prime minister.
In a cabinet meeting this month, the most egregious elements were reportedly stripped out of the draft legislation, whose larger purpose is to formalize the CPEC Authority. Nonetheless, the brazen attempt at commandeering CPEC reflects the Army’s enduring dislike of civilian rule.
As the Army’s role grows, CPEC is regaining steam. Two months ago, tax exemptions for Gwadar’s economic zones—long seen as key to attracting Chinese investment in local industries—were finally put into law. Agreements were also signed for two hydroelectric power plant projects, around $4 billion in cost, in Pakistan’s Azad Jammu and Kashmir region. And this month, Islamabad approved the ML-1 at a revised cost of $6.8 billion—well below the more recent estimates of $9.2 billion and the initial proposed cost of $7.2 billion.
There’s a lot we don’t know about the ML-1 project. Pakistani officials have not adequately explained the fluctuations in the estimated project costs. Loan terms from China are said to be very generous to Pakistan, but they’ve yet to be finalized. Unconfirmed reports claim that the proposed grace period before repayments start may be extended from eight to 20 years, which—if true—would significantly ease Pakistan’s ability to repay the loan.
If and when completed, the ML-1 would increase the capacity and speed of Pakistan’s main railway line connecting its major cities and industrial hubs. There’s little doubt that the country needs to revamp its railways, which are underutilized for cargo and plagued by growing pension costs. But as is the case with most CPEC infrastructure projects, Islamabad has yet to clearly explain how the country will generate the amount of traffic that will enable it to repay loans owed to Beijing.
Although Chinese and Pakistani officials tout the economic importance of the ML-1, they’ve also referred to it as “strategic.” The line would mainly serve Pakistani commuters and companies, but—in combination with the existing Karakoram Highway or a future (and unlikely) railway line—it would also provide landlocked western China with better access to the sea. China could make commercial use of the railway, but the term “strategic” can be seen as signaling that it may also serve as a potential ground line of communication for China’s army. A similar point has been made about the Chinese-operated port of Gwadar, which sits just outside the Gulf of Oman near Iran, along Persian Gulf shipping lanes.
Proclamations of the ML-1’s strategic importance and accusations around the world of China’s “debt diplomacy” make Beijing’s opposition to Pakistani attempts to multilateralize the project even more concerning. In 2018, Voice of America reported that Pakistan had given up attempts to bring the Asian Development Bank on board in 2017 after Beijing’s opposition.
Such facts, combined with the growing role of the Army, add heft to the claims of CPEC’s foreign detractors that the project is more strategic than economic.
China is indeed an essential defense and strategic partner for Pakistan. It bolsters Pakistan’s ability to deter and balance an increasingly aggressive Hindu nationalist India, most notably through the JF-17 fighter jet, which is jointly manufactured with China and will serve as the backbone of the Pakistan Air Force, to some extent replacing the American F-16. Pakistan is also reportedly the only country that has been given military access to China’s BeiDou satellite navigation system, which will help wean Pakistan off of Western location-guided missiles and communication systems.
Beijing has also stepped up in critical ways in the past year to support Islamabad diplomatically and economically, demonstrating its reliability as an ally. It has modified its language on the India-Pakistan Kashmir dispute, recognizing its international nature and emphasizing United Nations and related Security Council resolutions instead of simply terming the conflict a bilateral one the two countries must solve together.
By comparison, Pakistan’s longtime ally Saudi Arabia has refused to convene a high-level session of the Organization of Islamic Cooperation on Kashmir. The Saudis’ unwillingness to do so, combined with Pakistan’s growing proximity to Turkey, has severely strained the Pakistan-Saudi Arabia relationship, so much that Riyadh asked Islamabad to repay a $1 billion loan early this year. Notably, Beijing provided Islamabad with equivalent funds “within hours,” according to the Financial Times, enabling it to repay Riyadh. Beijing also recently agreed to provide Islamabad with early access to a coronavirus vaccine for one-fifth of its population—which may hasten Pakistan’s economic recovery.
Still, it is in Pakistan’s interest to cleanly separate the economic and strategic dimensions of the relationship with China and desist from ambiguous messaging on potentially dual-purpose infrastructure. Blurring the lines between the two may have a deterrent effect on New Delhi, but it may also close off opportunities for trade and investment from other foreign sources wary of Beijing’s motives. Pakistan’s pursuit of greater connectivity with Xinjiang, where China is waging a brutal campaign against Uighur and other Turkic Muslims, is also risk. It increases Islamabad’s exposure to morally and legally hazardous entities that are now targets of U.S. sanctions.
Pakistan’s political elite unrealistically claim that the country’s strategic value to China will magically yield economic dividends and a cushy position in a strong regional bloc anchored by China. Just this month, in an interview with Dunya News, Khan himself said that “Pakistan’s future is with China. We should be clear on this. Our [economic] development has now been intertwined with China.”
That might be true, but not in the way Khan means. When it was launched, CPEC was purportedly intended to serve as a vehicle for integrating Pakistan into the world economy. But the PML-N used it as a vehicle to drive an unsustainable, consumption-driven burst of growth ahead of the elections. And today, the Army and other military services are keen on commandeering CPEC to address security concerns—or simply grab a piece of the economic and political pie, perhaps even through defense special economic zones.
Meanwhile, foreign direct investment remains limited to a few sectors, coming from entities—mainly Chinese—attracted by the growing local consumer market and overly generous concessions. Pakistani business elite, meanwhile, have remained unable to tap into global export markets in a real way. Exports make up only 10 percent of Pakistan’s gross domestic product, compared to 15 percent for Bangladesh and 19 percent for India. Sustained growth in exports and foreign direct investment are vital for Pakistan to exit its historic boom-bust economic cycles and avert an impending low-growth trap.
Khan’s government achieved some initial success in renegotiating power purchasing agreements, which may bring down the cost of electricity. Talks with CPEC electric power producers must begin. The country’s import tariff policy, currently focused on revenue-generation and protecting low-productivity local companies, should be reformed to promote value-added exports. And Pakistan needs to enact legal and regulatory reforms that protect investors, allow for transparent dispute resolution, and encourage investment from beyond China. Pakistan’s practice of bartering its strategic location for economic concessions has generally led to short-term gain and long-term pain. Institutional and policy reform are key to attracting diverse, sustainable inflows.
The Army’s growing role in CPEC and, more broadly, in Pakistan’s economic policymaking, will do little to push forward these necessary reforms, which require the buy-in of the country’s political and business elite and can only be born by consensus, not coercion. Should the Army command the heights of Pakistan’s economy, the country’s fragile democracy would erode, and its already sclerotic bureaucracy, unsure of who is truly in charge, could be paralyzed.
Although the Pakistan Army and other military services play critical roles in securing CPEC, their mission creep may severely distort economic policymaking with their commercial and strategic interests cannibalizing Pakistan’s budget and taking precedence over Khan’s stated focus on developing human capital in Pakistan and improving the welfare of its people. The average citizen invariably ends up as the loser in the country’s unending elite tug of war. The Army can help break that cycle by not getting in Khan’s way.
