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Is China's investment in Pakistan slowing down?

Pakistan has hoped that the China Pakistan Economic Corridor project would serve as a lifeline for the country's struggling economy

Pakistan has hoped that the China Pakistan Economic Corridor project would serve as a lifeline for the country's struggling economy

As China marks the 10-year anniversary of its Belt and Road Initiative (BRI) in 2023, investment into one of the initiative's most important pieces, the China Pakistan Economic Corridor (CPEC), looks to have stalled.

Signed in 2015, the CPEC pledges billions of dollars in Chinese investment into developing rail and road links intended for shipping Chinese goods via the Xinjiang region across the mountain border through Pakistan and into the Arbaian Sea at Gwadar port, around 630 kilometers (390 miles) west of Karachi. The CPEC has also pledged billions of dollars in energy infrastructure development in Pakistan.

However, China has recently demonstrated its reluctance to fund several Pakistan-requested CPEC projects, according to the minutes of a high-level meeting of CPEC's decision making body released in July.

The new projects in question are related to energy, climate change, tourism and electricity transmission lines in Pakistan, officials told Japanese news outlet Nikkei Asia.

Why the CPEC slowdown?

"The CPEC slowdown can be attributed to both economic and security factors. Pakistan's worsening economic crisis, and China's own recent slowdown, have dampened prospects for new projects," Michael Kugelman, a South Asia expert at the Washington-based Woodrow Wilson International Center for Scholars, told DW.

Pakistan has hoped that the monumental infrastructure project would serve as a lifeline for the country's struggling economy.

However, several experts assess that the actual outcomes of CPEC in Pakistan have fallen far short of expectations.

"The overpromising and under delivering have remained a crucial factor, coupled with inherent capacity issues, and instability on the political and security fronts, said Azeem Khalid, a Pakistan-China relations scholar at COMSATS University Islamabad.

Khalid told DW that he believes the tangible benefits of CPEC for the Pakistani people have been limited, while the burden of public debt and payments to Chinese companies has surged.

"It is safe to assert that the hype surrounding CPEC was more a product of propaganda than a reflection of reality. China, aided by elements within Pakistan's media and academia, vigorously marketed the project, leading to inflated expectations," he said.

However, Maleeha Lodhi, a former Pakistani ambassador, told DW she believes CPEC is "moving ahead according to plan," adding that it has "gathered momentum" after a coronavirus pandemic-related slowdown.

"It is CPEC's detractors who claim, wrongly, that it is not proceeding. In fact, it continues to hold great promise in modernizing Pakistan's road, rail, and energy and transport systems and enhancing its connectivity," Lodhi said.

Pakistan's political instability

Pakistan is experiencing continued political instability since the ouster of former Prime Minister Imran Khan in April 2022. Khan remains behind bars on corruption charges, while a caretaker government holds power until elections can take place.

"Naturally as an external investor, China is worried about political stability because of the risk of unrest and violence that may pose a threat to its nationals and interests in Pakistan," said Kugelman.

"The political uncertainty, flowing from the lack of clarity about when or if the election will occur, is likely to worry China because it makes for a volatile combination of political uncertainty and instability," the analyst added.

Pakistani scholar Khalid said that China has "significant and genuine concern" regarding the political landscape in Pakistan.

"The enduring turbulence within Pakistan's political sphere, which does not appear likely to stabilize, in the near term, is of critical importance to Chinese policymakers. Beijing's strategic objectives in Pakistan are intricately tied to the country's political stability," he added.

Security threats to Chinese workers

China is becoming more concerned about security threats to Belt and Road investment projects, which could jeopardize new investment and the completion of projects.

In one of the most recent incidents, Pakistan's military stopped a militant attack on Chinese engineers in the southwestern Balochistan province.

In 2021, nine Chinese workers were killed in what Beijing called a "bomb attack" on a bus in northern Pakistan. In 2033, a suicide bomber killed Chinese teachers in Karachi.

"Any attempt to undermine [the] China-Pakistan friendship and the construction of the China-Pakistan Economic Corridor (CPEC) will never succeed," said Chinese Ministry Spokesperson Wang Wenbin after the August attack.

"Security risks are concerning to China because it is now confronting an expanding array of threats," said Kugelman. This includes "ever-present" Baloch insurgents, a resurgent Pakistani Taliban (TTP), and a "capable" Islamic State-Khorasan province (IS-K).

"China's worries are compounded by Pakistan's inability to put an end to these threats. In a worst-case scenario, China may be tempted to bring in its own security forces to protect Chinese assets, which could be politically damaging for Islamabad," Kugelman said.

Former ambassador Lodhi said there are "security concerns but these are not insurmountable. Pakistan is addressing China's security concerns while it deals with the spike in terrorist violence especially from the TTP."

Analyst Khalid said that China is "deeply committed to safeguarding its personnel and infrastructure projects operating within Pakistan."

"Any perceived threats to the CPEC projects and the safety of Chinese nationals can substantially impede progress on the CPEC," he said.

Edited by: Wesley Rahn