NEW YORK — Pakistan insists that progress on its $65 billion China-backed economic corridor, the crown jewel of Chinese President Xi Jinping’s Belt and Road initiative, has not slowed, even as security and financial problems complicate its development and relations with Beijing.
But recent trips by Pakistani officials to the U.S. suggest that Islamabad hopes to decrease its reliance on Chinese investment and look for help elsewhere.
Three Pakistani ministers, all with close connections to Prime Minister Imran Khan and the powerful Pakistani military, have visited the U.S. in the past month, though just one — Foreign Minister Shah Mahmood Qureshi — managed to secure face time with a Biden administration official when he met Secretary of State Antony Blinken at the sidelines of the U.N. General Assembly last month.
Pakistan’s finance minister, Shaukat Tarin, unsuccessfully sought to revive a paused IMF loan early this month. Planning and Development Minister Asad Umar, who administers the China-Pakistan Economic Corridor (CPEC), arrived in Washington last week, talking up investment, engagement, and even the prospects of the Belt and Road Initiative’s potential.
“Because of the U.S. presence in Afghanistan, there was a much bigger emphasis on the security part of the relationship,” said Umar in an interview with Nikkei Asia. “[After the withdrawal] we are now hoping that as we move forward, there is a greater emphasis on the economic aspect of this relationship…We want the private sector taking full advantage of the opportunities that are present.”
“Pakistan wants to make clear that it still looks to partnership with the U.S., particularly through trade and investment cooperation,” said Michael Kugelman, Deputy Director of the Asia Program at the Wilson Center, a Washington think tank.
“The United States remains an extremely important country for Pakistan,” said Uzair Younis, a policy analyst at the U.S. Institute of Peace. “Policymakers in Pakistan want to ensure that this connective tissue is strengthened and that the country successfully straddles the emerging U.S.-China rivalry in a way that helps it achieve its socioeconomic and human development goals.”
But the pickings are slim and the shoulders are cold in Washington. Umar’s trip was meant to secure funding for Pakistan’s dwindling foreign direct investment from the U.S., which is currently at just under $200 million compared with China’s $1.1 billion. But Umar, the former CEO of Pakistan’s most successful company, remained bullish about the importance of a U.S-Pakistani engagement, while trying to sell the potential of CPEC, of which $15 billion to $16 billion worth of projects stand completed and another $11 billion are under development, he said at the Wilson Center on Friday.
“Just the sheer size of Pakistan — one of the five biggest nations on Earth — makes it an imperative to engage with,” said Umar. “220 million people if you want to put on your commercial hat — that’s what the Cokes and the Pepsis and the Gillettes and the Procter and Gambles of the world cannot ignore.”
“Then the location of Pakistan,” he said. “We are the only country in the world which borders both of the largest nations of the world — India and China.”
But Chinese investors may be getting cold feet because of Pakistan’s proximity and the insecurity that festers in the region. As the U.S. military withdrawal from Afghanistan was underway, Chinese workers in Pakistan continued to face multiple attacks this spring and summer, most notably a suicide bombing in Dasu on July 14 that killed nine engineers. That attack was preceded by another deadly bombing in Quetta on April 21 that narrowly missed China’s counsel general. The attacks were claimed by the Pakistani Taliban, who pledge allegiance to the Afghan Taliban, now in control of Afghanistan, and who have long been considered to be supported by Pakistani military and intelligence agencies.
The balance sheets indicate even larger problems. Pakistan, which former U.S. Ambassador to Islamabad David Hale has called the “most IMF’d country on Earth” after undergoing 13 bailouts, has a total external debt load that ballooned in the last decade from $60 billion to $120 billion.
Moreover, Pakistan owes $1.4 billion to Chinese investors and independent power producers under CPEC and is having trouble paying them back. In the wake of consistent attacks against Chinese targets and slow progress in its investments, Beijing has demanded loan payments that Islamabad is struggling to make.
Umar acknowledged Pakistan’s debt problem in his recent talks in the U.S. but played down tensions with Beijing.
“It is an issue of concern, but it is an issue which is being addressed bilaterally between Pakistan and China,” said Umar. “There has been a good dialogue going on. And we believe that there is potential for some good solutions to be coming out of that dialogue in the not-too-distant future.”
One recent shift in foreign investment in Pakistan was Saudi Arabia’s decision in June to move its planned $10 billion oil refinery from the under development port of Gwadar to the megacity of Karachi. Both Pakistan and China have promoted the tiny city of Gwadar as an investment hub and a potential opening for foreign investors into the Persian Gulf and Central Asia. But security problems, capacity issues, and even water shortages have hampered progress. Some analysts see the Saudi move, followed by a new Chinese emphasis, as an indication that the Gwadar pitch is not working. But Umar told Nikkei Asia that Pakistan is still heavily pushing investment into insurgency-prone Gwadar and has already accelerated its infrastructure development there.
Has China’s interest in CPEC waned? Is re-engagement with the U.S., especially after the debacle in Afghanistan, back in the cards for Islamabad? With its increasing tilt toward and dependency on China, how is Pakistan maneuvering for Washington’s attention? Is the security blowback from Taliban-run Afghanistan imperiling Chinese investments in Pakistan? Here are excerpts of Asad Umar’s interview with Nikkei Asia:
Q: There’s been a pivot from Gwadar to Karachi from Chinese investors. Does this not leave Gwadar and its province Balochistan in a lurch, especially at a time when the implications of an underdeveloped, impoverished Balochistan, which borders Afghanistan, will be severe? Why the pivot?
A: Actually, you’re right that there is increased trust in Karachi and that will accelerate with the Dhabeji Special Economic Zone. Karachi has fantastic economic endowments. It is the most competitive business city in Pakistan. So it’s good to see that emphasis. However, this hasn’t come at the expense of Gwadar. In fact, there is more work being done, more money being spent right now on increasing the connectivity of Gwadar and improving the physical infrastructure of Gwadar than ever before. Right now, on water, on power, the airport, etc., all of this work is going on. Bigger funding is required for creating connectivity between Gwadar and…Afghanistan as well as right up to China. So there is more work going on, on these projects now, on these roads right now, than have been in years in the past. So the work is accelerating on both fronts.
Q: So it’s not really a pivot, then? It’s an expansion?
A: Absolutely. That’s what’s happening. Overall in Gwadar, what I call a “CPEC 2.0,” it’s a broadening of CPEC that is taking place. Not just geographically, but also in terms of sectors. The first phase was all about infrastructure. It was power projects. It was roads. We [moved on] to two joint working groups last year about science and technology and another one for agriculture. Recently…we have signed a joint working group for information technology. So you’re seeing a broadening of CPEC taking place — a deepening and broadening. So it’s not one versus the other. It’s just additive.
Q: There have been reports that the cost of projects in Pakistan, and even in Afghanistan, might not be worth it for Chinese investments given security concerns. Is security a peril with consistent attacks on Chinese targets after the events of Aug. 15 in Afghanistan and blowback seen in Pakistan?
A: So security is on the top of the priorities. Not just of the Chinese political decision makers, but also of the Pakistani decision makers. What’s going on is, as this broadening and acceleration of CPEC is taking place, so are the activities of the hostile agencies which are operating in Pakistan. And there has been a recent targeting of the Chinese, with more than one incident. So, given the fact it is being targeted, we have also upped security measures. However, as far as the cost is concerned, this cost of security is not borne by the Chinese. It is borne by the government of Pakistan. As you know, special security forces were raised, there are specialized divisions for security which provide security to CPEC. And so the commercial activities are not being burdened by the security costs.
Q: Before your arrival, there was a flurry of diplomatic activity from Pakistan in the U.S. that we haven’t seen in years. Are you trying to re-engage with Washington, where many look at Pakistan with skepticism?
A: Obviously the big decision for the U.S. was the disengagement from Afghanistan. So they were focused on that. However, Pakistan is very clear in its mind. We want an engagement with all countries of the world, including the U.S. We have a very large diaspora living here. The U.S. is one of the biggest export destinations. Cultural, political, historical, and security linkages still exist. So, Pakistan still looks forward to having a very constructive, positive relationship.
Additional reporting by Monica Hunter-Hart in New York.