China’s Ambivalence Grows as Pakistan Launches CPEC 2.0  

In 2022, the Pakistan Institute of Development Economics (PIDE) published a report citing a CPEC-related agreement that would allow the Metallurgy Corporation of China (MCC) to claim 80 percent of the profits from Balochistan’s Saindak Copper and Gold Project, while the local Baloch would receive only two percent. MCC currently holds a 50% stake in the project.

It is not surprising that Balochistan, despite its abundant natural resources, remains Pakistan’s poorest province, with the majority of revenue-filling coffers in Islamabad and Beijing. The arrival of Chinese workers adds salt to the wound, as despite high expectations and promises, locals continue to face extremely poor services in health, education, drinking water, communication, sanitation, and housing.

Kaiser Bengali, a well-known Pakistani economist, tells Deutsche Welle that the process of awarding project contracts to the Chinese is non-transparent with the Baloch government playing virtually no role. Dr. Abdul Aziz, a Gwadar resident, tells Deutsche Welle that the Chinese presence has resulted in a loss of livelihood for locals. Thousands of locals were displaced when the Chinese began the Gwadar port project. With CPEC 2.0 on the horizon, locals anticipate more displacements. The Baloch should be the masters of their resources, but China and Pakistan treat them as slaves.

Dr. Abdul Malik, the former Chief Minister of Balochistan, claims that both Chinese and Pakistanis collude to deprive local Baloch of their fair share of project royalty payments. Senator Akram Baloch supports his claim by stating that Pakistan is awarding contracts to Chinese companies without taking Baloch into consideration.

The Baloch story is no different when compared to Chinese resource abuse in Gilgit and Muzaffarabad, the two parts of Indian Jammu Kashmir that Pakistan currently occupies. Tens of thousands of people in Gilgit Baltistan and the so-called Azad Kashmir have held demonstrations over the past eighteen months to raise awareness about land loss due to Pakistani and Chinese greed. A few weeks ago, protesters demanding affordable food and electricity clashed with Punjab police and paramilitaries in Muzaffarabad, which killed three and injured hundreds. Despite local objections, China continues to extract minerals and construct mega dams in these occupied territories.

Gilgit’s importance extends beyond its role as the Himalayan resource-basket. The CPEC, which connects Pakistan’s Gwadar port to the production hub in central China passes through Gilgit. The megaproject passing through Gilgit includes the development of a fiber optic cable, a high-speed rail line, and oil and gas pipelines to improve connectivity and transportation between China and the Middle East.

China’s massive investment in road and dam infrastructure isn’t increasing Pakistan’s exports as expected. Pakistan is currently experiencing a debt crisis and is being forced to seek heavier loans to repay its existing debt.

According to the Khaleej Times, Pakistan’s total debt burden is more than $290 billion, with Chinese loans accounting for 23% of the external debt. It owes almost $8 billion in project debt to CPEC-related power plants and nearly $2 billion in unpaid bills to Chinese power producers. Although Chinese officials claim that Pakistan owes China 13% of its total external debt, the IMF’s 2022 report puts the figure closer to 30%. The United States is concerned that Pakistan may use IMF loans to repay debts to China. In April 2024, Islamabad requested an additional $17 billion from Beijing to complete the stalled CPEC projects.

Pakistan has also asked China to restructure over $15 billion in power plant debt owed to Chinese energy companies. This request came as Islamabad is negotiating yet another $6 billion bailout package with the IMF.

Despite financial challenges and opposition from local communities, Pakistan and China have decided to pursue CPEC 2.0, which will focus on manufacturing, agricultural development, intergovernmental assistance, market adaptation, and media modernization. This was announced a few days ago in Beijing, where Pakistani Prime Minister Shehbaz was present with over 100 Pakistani business leaders.

According to a joint statement issued at the end of the visit, China and Pakistan signed 23 agreements and memoranda of understanding. The Chinese government expects Pakistani companies to assist and accommodate Chinese enterprises to encourage investment in Pakistan in accordance with global commerce standards. The Chinese government also states that it would not force Chinese firms to take unnecessary risks or make concessions to Pakistani companies in the process.

According to China Daily, 79 Pakistani enterprise heads accompanied Prime Minister Shehbaz to lay the groundwork for CPEC 2.0, which will help promote manufacturing, mining, energy, information technology, innovation, green transition, and market expansion in Pakistan over the next decade. PM Shehbaz also showed interest in opening aerospace, science and technology, and education and culture sectors for Chinese investment.

The flagship project of CPEC 2.0 is the $6.8 billion cross-country Mainline-1 or ML-1 rail line, which will improve goods transportation between Peshawar and Karachi. Pakistan also obtained funds to upgrade a section of the Karakoram Highway, which connects Pakistan to China via Gilgit. Pakistani economists fear that this will significantly increase the country’s already high debt.

Pakistan claims to have enlisted wealthy Gulf nations such as Saudi Arabia, the United Arab Emirates, and Qatar to invest heavily in Balochistan. If true, this could help diversify the loan portfolio and alleviate external debt repayments. At the same time, this would help divert attention away from Chinese activities in the country.

Last month, Pakistani news outlets reported that the UAE would invest $10 billion in mineral exploration and land development, while Saudi Arabia would invest $25 billion over the next five years in a variety of sectors, including the gold and copper Reko Diq project.

China and Pakistan’s hopes to include Iran in CPEC were dashed after the United States threatened Pakistan with sanctions for declaring greater economic and military cooperation with Tehran during President Raisi’s recent visit to Islamabad.

Jeremy Garlick at the Prague University of Economics and Business told Nikkei Asia that Pakistan wants to strengthen CPEC 2.0, but it may not go beyond flowery rhetoric because the Chinese are no longer throwing money at Pakistan as they once did. Professor Garlick believes that China would continue to maintain the appearance of CPEC success. While China would not completely withdraw from cooperation with Pakistan, there would be no large investments in CPEC 2.0 in the coming years. Stella Hong Zhang of the Harvard Kennedy School agrees and states that the previous CPEC investments in the power sector may not have been optimal because they were rushed by strategic considerations.

Professor Garlick reiterates that the Chinese response during Sharif’s visit was lukewarm and there was no talk of restructuring Pakistan’s debt. China considers Pakistan a financial black hole due to the country’s chronic economic corruption. According to Nikkei, China turned down Prime Minister Sharif’s request for a large investment, as the 32-point joint statement makes vague mention of an improved economic cooperation.

Beijing claims that the security of Chinese nationals working in Pakistan is a major concern. In March of this year, five Chinese workers were killed in a suicide attack near Gilgit. In April, militants attempted another suicide attack on six Japanese workers in Karachi, after mistaking them for Chinese.

During the prime minister’s recent visit to Beijing, Pakistan’s army chief accompanied him to assure Chinese leaders of foolproof security measures for Chinese workers. The Pakistani military blames the Chinese attack on militants in Afghanistan. The ruling Afghan Taliban reject Pakistan’s allegations and describe Islamabad’s blame game as a cheap tactic to sour fast-growing relations between Kabul and Beijing.