China-Pakistan Economic Corridor

Pakistan-China ties and CPEC

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Abdul Razak Dawood, Prime Minister Imran Khan’s Adviser on Commerce, Textile, Industry & Production and Investment, told the Financial Times that the previous Pakistan Muslim League (Nawaz ) government did not get a good deal for Pakistan in CPEC (China Pakistan Economic Corridor), and that Pakistan has lost out as a result of poor negotiations.

Dawood also made the point that some of the CPEC projects could be put on hold for a year, and CPEC can be stretched up to five years. Said Dawood: ‘Perhaps we can stretch CPEC out over another five years or so.’

Interestingly, during Chinese Foreign Minister Wang Yi’s  recent Pakistan visit, Pakistan’s Foreign Minister, Shah Mehmood Qureshi, assured the former that Pakistan would accord high priority to CPEC — which was of immense economic and strategic importance for Pakistan. Qureshi also stated that projects would be implemented at the earliest outset. Even the normally outspoken Pakistan Finance Minister, Asad Umar, was cautious, and categorically said that ‘We don’t intend to handle this process like Mahathir.’ Imran Khan also met with Wang Yi, and a statement from the Pakistani side read as follows:

‘The Prime Minister reiterated that the Government is committed to the implementation of the CPEC.’

Wang Yi on his part emphasized on the fact that CPEC was not responsible for Pakistan’s debts. He also stated that Beijing was willing to re-negotiate a Free Trade Agreement which, according to many in Pakistan, was heavily skewed in favour of China and has faced domestic opposition.

During the course of a meeting between the Planning, Development and Reforms Commission of Pakistan and the National Development and Reforms Commission (NDRC) of China, two interesting aspects were added to the existing agreement. The first, that third countries would be allowed to invest in the upcoming 9 Special Economic Zones (SEZs) of CPEC. The Chinese delegation during the meeting is supposed to have conveyed the point that it was open to investment from countries which were friendly to both Pakistan and China to invest in the SEZs. Some of the potential countries discussed were Turkey, Russia, and Saudi Arabia

Second, ‘social sector’ schemes and regional development schemes were added to the existing CPEC projects. Social sector schemes include drinking water, health, education, and technical training. The inclusion of these areas was done keeping in mind the priorities of the current government.

Is a significant re-think towards CPEC possible?

There is no doubt that Islamabad’s dependence upon China would have increased as a consequence of its current economic situation and it’s deteriorating ties with Washington (days before US Secretary of State Mike Pompeo landed in Islamabad, military aid to the tune of $300 million was withdrawn). Yet, some re-think vis-à-vis CPEC can not be ruled out because a number of Pakistani politicians have expressed discomfort with the lack of transparency regarding the project.

Transparency with regard to the CPEC project

When in opposition, Imran had himself spoken about the need for greater transparency and openness with regard to the project. Before the elections in July 2018, many analysts argued that the Chinese would be far more comfortable with parties like the PPP and the PML-N as opposed to Imran Khan.

The protests of Khan and his party (PTI) against the previous PML-N government were also viewed with skepticism by the Chinese who believed that these protests would be detrimental to the progress of the project. Khan during his meeting, in 2016, with the Chinese Envoy to Pakistan tried to address the apprehensions of the Chinese by saying he was all for the project.

One of the objections of Pakistani politicians from Non-Punjabi provinces (across parties), as well as analysts, was that the project was Punjab Centric. In November 2017, members from the Senate, including the then-ruling party, PML-N, had spoken about the lack of transparency of CPEC, and had also alluded to the fact that China was benefitting at Pakistan’s expense.

Apart from domestic politics, the firm stance taken by Malaysian Prime Minister Mahathir Mohammad with regard to some Chinese projects (the Malaysian PM scrapped projects worth $20 billion) is also important and has forced a rethink in Pakistan . An editorial in Dawn titled ‘Rearranging CPEC’ also cited Mahathir’s stance against Chinese projects. While it is unlikely that Pakistan may follow suit as was stated by the Finance Minister, Asad Umar, as well as by Abdul Razak Dawood himself (Dawood in fact had to clarify that his remarks with regard to CPEC had been quoted out of context), there will be groups in Pakistan (especially members of the business community) who could nudge the current government towards tweaking the CPEC agreement further as well as resetting the Pakistan-China economic relationship to some extent.

China itself can not afford to ignore Mahathir’s stance, as well as his statement about the rise of a ‘new colonialism’. The address of Chinese President Xi Jinping at the Africa-China Summit, as well as Wang Yi’s statements during his Pakistan visit, are clear indicators that China is not taking Mahathir’s statements lightly. Whether Imran Khan can be a Mahathir of course is a different issue.

Lack of options and GHQ

While there may be certain personalities within the current government who are making the right noises with regard to the CPEC project, Islamabad’s economic situation has reduced its options.

Apart from this, the Pakistan army (which runs the show when it comes to complex foreign policy issues) has robust ties with Beijing, and will prevent any drastic changes to the CPEC agreement. During his meeting with Wang Yi, Pakistan’s Chief of Army Staff, General Qamar Javed Bajwa, assured the visiting Chinese Minister of full support. The Chinese also had a robust relationship with former Pakistan Army Chief, Raheel Sharif.

A re-think on CPEC, as well as Pakistan-China economic relations (highly unlikely in the short run), would benefit not just Pakistan, but could have broader ramifications, and may compel more countries to rethink their ties with China.

Mahathir Mohammad deserves credit for highlighting the shortcoming of China’s infrastructural projects as well as its economic ties with certain countries. This debate is not likely to die down soon, though not every country is in a position to take a bold stand like Mahathir. Imran Khan, in private, may be supporting Mahathir’s approach towards China, but can not afford to do so publicly.

How will Imran Khan’s electoral triumph affect Pakistan’s relationship with China?

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All eyes are on how Imran Khan will fulfill the ambitious promises which he and his party (Pakistan-Tehreek-i-Insaaf, or PTI) have made for creating a ‘Naya Pakistan’ (New Pakistan). Khan, who will take his oath as Prime Minister on August 11, 2018, needs to hit the ground running given the myriad of economic (Pakistan’s external debt is well over $90 billion, and accounts for over 30 percent of the country’s GDP) and geopolitical challenges. As Pakistani senior officials were drawing up plans to approach the IMF for a loan (estimated at $12 billion), US Secretary of State Mike Pompeo warned the IMF that there is absolutely no justification for ‘IMF Dollars’ to bail out ‘Chinese bond holders’ or China.

Given the high expectations as well as the impatience amongst the youth, Khan is not likely to have a very long honeymoon period.

Pakistan-China relationship under PTI government

It will be interesting to see how the crucial Beijing-Islamabad relationship pans out under Imran Khan. During his first address (after his party’s victory) to the Pakistani nation, he dubbed the Pakistan-China relationship as the most important for Pakistan. Khan also emphasized the point that Pakistan had a lot to learn from China in the context of poverty alleviation, as well as the latter’s anti-corruption campaign.

China’s relationship with Imran Khan

In the past, Khan, while supporting the China-Pakistan Economic Corridor (CPEC) project in principle, had expressed certain apprehensions during his meetings with Chinese diplomats. Khan had also stated that the government of Pakistan needs to be more transparent with regard to the contours of the project, and that each province should get it’s rightful due.

The Chinese in turn were uncomfortable with Khan’s dharna (protests) of 2014 (it was as a consequence of these protests that the inauguration of the CPEC Project had to be delayed). Khan’s 2016 protests against the Nawaz Sharif government (after the names of three of Sharif’s family members, who held offshore accounts, appeared in the Panama leaks) were also watched with skepticism by the Chinese.

It would be pertinent to point out that the PTI manifesto, while praising the project, has pointed to some of CPEC’s short comings, including investments as a consequence of ‘insufficient transfer of knowledge and capabilities, fewer partnerships with local businesses and Pakistan’s high dependence on imports of goods and services from China’.

PTI’s chief rival, the PML-N, often spoke about the need for an independent foreign policy, but never ever alluded to this aspect.

Beijing’s preference for PML-N

It would also be pertinent to point out that while Beijing has had problems with Pakistan, it has had a close relationship with the Pakistan Muslim League (Nawaz), or PML-N. Beijing, which has maintained robust relations with the army, also shared cordial relations with Shehbaz Sharif, the President of PML-N and former Chief Minister of Punjab. China has praised Shehbaz Sharif for his efficiency more than one occasion, even referring to his style of working as ‘Shehbaz Speed’ and Punjab speed. When Shehbaz was appointed President of the PML-N, he received a congratulatory message from senior members of the Chinese Communist Party.

The PML-N also sought to take credit for the CPEC project on more than one occasion. In August 2016, while addressing a meeting of his party’s parliamentary committee, then-Prime Minister Nawaz Sharif stated:

He [Xi Jinping] said this is a gift to you from China. They were also waiting for the time when our government would be in power so that they could make this investment.

Chinese Media’s comments on Imran Khan and CPEC

Post the election results, Chinese media has sought to be positive, and has been confident that the CPEC project will go ahead as planned. One op-ed published in the Global Times (‘Will Imran Khan pivot Pakistan from US to China’) referred to how the West was creating unnecessary paranoia with regard to the economic ramifications of the CPEC project. The op-ed also said that Imran Khan may take Pakistan further into the ‘Chinese orbit’ and that he had no problem with the CPEC project. The article cites the PTI manifesto to bolster its argument (saying that PTI has dubbed the project as a ‘game changer’). Other sections of the Chinese media have also welcomed Imran Khan’s election. Only one analyst, Tom Hussain, has categorically made the point that PTI had strained ties with China in the past. Said Hussain:

the PTI has been working overtime to repair its relations with the Beijing, which had been damaged by its disparaging remarks and allegations of corruption about CPEC projects in the past.

Likely developments in the short run

Imran Khan doesn’t have too many options, but there could be some re-examination of some of the CPEC projects. While Pakistan is now dependent upon China given Islamabad’s rock bottom ties with the US, the question on many people’s minds is if Khan can do a Mahathir (Malaysia’s Prime Minister), where maintaining good ties with China does not mean shying away from questioning the financial feasibility of certain projects within CPEC.

In the short run, this is impossible, and many would argue that even in the long run this may seem like nothing but a pipe dream. Yet, if Imran Khan can harness relations more effectively with neighbors (as he emphasized in his speech) and build a robust economic relationship with India (something which the Chinese may not mind), we could witness a course correction. One of the reasons why Nawaz Sharif advocated good ties with India was so that Pakistan could develop an independent foreign policy and end its dependence upon the US. One of Sharif’s slogans in 2013 was ‘Trade not Aid’. While Imran himself has spoken about trade ties with India, will the establishment allow him to go ahead.

Changing geopolitical dynamics in South Asia

If one were to look beyond economics, even in the context of Afghanistan, one of the significant developments in South Asia has been a decision by India and China to work jointly in Afghanistan. It remains to be seen how Imran Khan’s government perceives this. India and Pakistan are also likely to participate jointly in anti-terror drills in Russia, in August 2018, under the umbrella of the Shanghai Cooperation Organisation (SCO).

Conclusion

It is very tough to predict how Imran Khan handles ties with China, but one thing is for sure: Beijing may publicly be welcoming Khan’s election but from the opinion pieces in the Global Times, there is a worry deep down concerning his maverick nature. Imran, unlike the Sharif’s (who were businessmen), may not be as transactional in the economic sphere. His economic ideology is left-of-center (with a strong thrust on welfare). While he needs foreign direct investment, he is not as obsessive about mega projects as the Sharif’s.

Imran on his part will have numerous challenges to contend with, and needs to strike a fine balance. A less hostile relationship with the neighbors will benefit him, and a slightly less hostile relationship with the US would give him space. Given the plethora of challenges he is likely to face, no real changes should be expected in the context of Pakistan-China ties, though over a period of time, recalibration of policies should not be ruled out.

A short note on the India-Pakistan thaw

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Over the past couple of months, both India and Pakistan have been trying to lower the temperatures through some good gestures and reconciliatory statements, while both sides have reiterated their commitment to amicably resolve the issue of harassment of diplomats. India and Pakistan have also agreed to some humanitarian gestures with regard to prisoners languishing, on both sides, in jails.

There have also been indicators that the two neighbors are keen to revive economic ties and give a boost to bilateral trade, which is way below potential.

In the month of March, Indian High Commissioner to Pakistan, Ajay Bisaria, while addressing the Lahore Chamber of Commerce and Industry, spoke about the need for greater bilateral trade:

We should not talk about negative and positive lists rather we should work on the windows of opportunities. At present, over $5 billion trade is being done through third country but after removal of non-tariff barriers, liberalisation of visa and normalisation of mutual relations, the two-way trade could touch a high $30 billion.

Bisaria, while addressing the Employers Federation of Pakistan and the South Asian Forum of Employers, reiterated the need to increase the level of trade, and also said that if South Korea and North Korea could work towards resolving their serious differences, there is no reason why India and Pakistan could not.

Interestingly, in the month of April, Pakistan High Commissioner to India, Sohail Mahmood, met with the Chief Minister of Punjab (India), Captain Amarinder Singh, and discussed possible areas where both countries can cooperate. Not only was there an emphasis on reviving people-to-people contact between the two Punjab’s, but also to give a boost to trade through the Wagah-Attari land route. In the two phases (2004-2007 and then 2011-2014), when India and Pakistan made headway in terms of connectivity and economic linkages, the two Punjab’s played a pivotal role. The area of Punjab, of course, was split by the British Partition of 1947.

Change in mindset of Pakistan Army and RUSI report

What is interesting is a commentary, authored by Kamal Alam, published by premier British think-tank RUSI (Royal United Services Institution), which emphatically argues that there is a paradigm shift in the mindset of the Pakistani military, under the leadership of current Chief of Army Staff, Qamar Ahmed Bajwa, and a genuine realization for the need to move away from a zero-sum approach.

Alam’s commentary refers to an address by Bajwa last year, where he made a case for India being part of the $60 billion China Pakistan Economic Corridor (CPEC). The Pakistan army chief stated:

The Pakistan army is now no more insecure and feels confident of its future and that he welcomes Indian participation in Pakistan’s flagship infrastructure project, the China Pakistan Economic Corridor (CPEC).

Alam, to strengthen his argument, also points to some other instances, such as Bajwa’s speech at the passing-out parade of cadets at the Pakistan Military Academy in Kakul, where the Pakistan Army Chief referred to the necessity of dialogue between both countries, and an invite to the Indian Military attache, Sanjay Vishwasrao, and other senior diplomats posted at the Indian High Commission, for the military parade to mark Pakistan’s National Day. The diplomats attended the parade alongside Vishwasrao.

Another interesting development flagged by Alam is the military drill (conducted under the umbrella of Shanghai Cooperation Organisation) in September 2018, where both India and Pakistan along with other member nations will participate.

Alam’s commentary has quoted a number of other high level members of the Pakistan army who have spoken in favor of mending ties, and also argues that a change in the Pakistan army’s mindset has been visible since 2013.

In December 2016, Pakistan’s Southern Command Lt General, Amir Riaz, while speaking at an awards distribution ceremony at Balochistan FC Headquarters, invited India to join CPEC and ‘share the fruits of future development by shelving the anti-Pakistan activities and subversion.’ Riaz, as Director General of Military Operations in 2013, had met his counterpart at Wagah to reduce tensions across the Line of Control.

According to Alam, Major General Ahmed Hayat, the Director-General-Analysis of the Inter-Services-Intelligence for Pakistan, had authored, in 2013, what was dubbed as the India Plan. While agreeing that engagement and not conflict was the answer, the report sought to identify the appropriate time to reach out to India from a position of strength.

Points of contention moving forward

While Alam’s report has generated a lot of interest, a few facts need to be borne.

First, the recent meeting between Modi and Xi, where China, without making a mention of Pakistan, committed to flag terrorism as a key concern. In recent months, China has given some indicators that it may be willing to re-think its approach towards terrorism emanating from Pakistan. Pakistan is now likely to be put on the watchlist of an international financial watchdog, Financial Action Task Force (FATF). Beijing was initially opposed to this move, but relented after India lent its support to Beijing for the Vice Presidency of FATF.

China has of course been pitching for a better relationship between New Delhi and Islamabad for some time, keeping in mind its own economic interests, and has even asked New Delhi to be part of CPEC. New Delhi has been steadfast in its opposition to China’s One Belt One Road (OBOR) Initiative, given the fact that CPEC passes through disputed territory, but with the changing dynamics in the New Delhi-Beijing relationship, it is likely that Bajwa and the upper echelons of India’s diplomatic corps are making the right noises to look good to the international community, especially China.

Second, the incumbent PML-N civilian government in Pakistan, which has been completely overwhelmed in the past two years with the weakening of former Prime Minister Nawaz Sharif. The fall of Sharif began with the joint Tahir Ul Qadri-Imran Khan protests (backed by the Pakistan army) in 2014, and ever since the Panama Case leaks in April 2016, things have spiraled downhill for Sharif. In July 2017, Nawaz Sharif was disqualified by the Supreme Court from holding any public office, and had to resign as Prime Minister of Pakistan. In April 2018, he was disqualified from holding any position for life.

Sharif, who has on more than one occasion dubbed political rival and former cricket star Imran Khan, Chairman of Pakistan-Tehreek-E-Insaaf (PTI) as ‘laadla’ (favorite) of the army, has also argued that the judiciary and military are jointly conspiring against him. One of the points of divergence between Sharif and the army were relations with India, as Sharif has always batted for better relations with New Delhi.

There is absolutely no doubt that Imran’s relations with the army have improved considerably according to some. Imran has also publicly praised the army chief, recently calling Bajwa “probably the most pro-democratic man [Pakistan] has ever seen.” There is a good chance that PTI, backed by the military establishment, may win in the upcoming elections of 2018. The commentary, and Bajwa’s statements, could be a message to India that New Delhi will have to engage with the military in case PTI were to come to power.

In this context, Bajwa has been trying to cultivate the image of a pragmatist not opposed to peace. A few months ago in an article written for The News, the prominent left-leaning Pakistani journalist Sohail Warraich wrote:

The Bajwa doctrine stands for regional peace and, like China, wants to make peace with India while keeping our differences on core issues. The doctrine is ready for peaceful negotiations but without compromising on the Kashmir issue. The doctrine is fully aware of the Chinese advice to Pakistan that instead of war, other peaceful measure be negotiated for Kashmir issue.

Conclusion

It is important for New Delhi to wait and watch, while engaging with the business community and Pakistan’s vibrant civil society is absolutely essential. Not much should be read into Bajwa’s remarks. They should be taken note of, and not dismissed, but it is a bit premature to be optimistic. After all, the army has been backing the Milli Muslim League (MML), a civil front of the JuD, headed by the Mumbai terror attack mastermind, Hafiz Saeed.

It will also be interesting to see the ultimate outcome of the upcoming election in July.

New Delhi needs to deal with whoever is in power in Pakistan, and the army is an important power center there. A civilian government (possibly PTI) beholden to the establishment will not address India’s concerns the way a firm civilian government which has the fervent backing of the people (this may not happen in the imminent future, but is a reality) would. The Pakistan Army Chief’s words would have had more meaning if he had backed Nawaz Sharif’s attempts towards improving ties with India, and not joined hands with the judiciary to plot his downfall.

Beijing and the India-Pakistan conundrum

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During the course of the Shanghai Cooperation Organization (SCO) meeting in China, and days before Indian Prime Minister Narendra Modi arrived in China for his summit with Chinese President Xi Jinping, an editorial in Pakistan’s premier English-language daily (Daily Times) titled ‘China’s re-assurance on CPEC‘ made an interesting point:

If anything Beijing has been asking Islamabad to engage with New Delhi and keep tensions to a minimum. Such an environment is also conducive to timely completion of various projects under CPEC [China-Pakistan Economic Corridor] and transforming South and Western Asia into a high economic growth zone. Keeping the economy first is a lesson that our state has yet to learn from its big brother in the hood.

Zardari’s recommendation in 2012

Interestingly, during his meeting with former Indian Prime Minister Dr Manmohan Singh, in April 2012, former Pakistan President Asif Ali Zardari (Pakistan People’s Party — PPP) had also stated that Pakistan and India should seek to follow the Pakistan-China model of engagement. Zardari meant that, like India and China, India and Pakistan too should follow an incremental approach, with more frequent high level interactions and a heavy focus on economic cooperation.

It might be mentioned that between 2012 and 2013 some important leaps were made in the economic sphere between both countries, with the most noteworthy development being the setting up of the Integrated Check Post (ICP) at Attari (Amritsar, India). The ICP’s motive was to accelerate bilateral trade through the only land crossing (Attari-Wagah) between India and Pakistan. During this period, a number of high level delegations interacted, including the Commerce Ministers of both countries.

Pakistan also seemed prepared to grant India MFN status, but a change of government (along with domestic opposition from certain business lobbies as well as hardliners) in Islamabad (2013) and then New Delhi (2014) meant that this decision could not go ahead. Since then, relations have been tense, and there has been no opportunity to make any progress on this.

Tensions in the past 4 years: CPEC and terrorism emanating from Pakistan Continue reading →