China, Pakistan invite third country to join CPEC, project struggling due to shortage of funds and delays

The invitation for a third country to join CPEC comes at a time when even China’s economy is facing headwinds from bank protests, property developer defaults and mortgage strikes that analysts say could erode public confidence in the banking system.

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As the China-Pakistan Economic Corridor (CPEC) faces obstacles due to shortage of funds and delays, the two countries have now invited any third country to join the multi-billion dollar infrastructure project to what they say is a “mutually beneficial cooperation”.
The $65 billion mega project has entered its second phase at a time when Pakistan is in the throes of a domestic financial crisis. And even China is grappling with a real estate crisis and mounting protests from depositors. CPEC is one of the flagships of China’s ambitious Belt and Road Initiative (BRI) which seeks to revive ancient trade ties – a 21st Century Silk Road that connects it to South/Southeast Asia, the Middle East, Africa and Europe via land and sea routes.
China has given massive impetus to the BRI which forms the core of its foreign policy. As part of the connectivity project, it has invested heavily in building power stations, ports, railways, 5G networks and laying fiber optic cables along the road.
CPEC is one of China’s largest enterprises in a single country. It was meant to show off the success of the BRI and allowed China to leverage ties with its all-weather ally to secure clearances and security commitments for its projects. But China’s failure to present CPEC as a success and a model has dealt a blow to other BRI projects, which are also in debt.

Pakistan’s growing problems with CPEC

Chinese President Xi Jinping and then Pakistani Prime Minister Nawaz Sharif launched CPEC in 2015. Pakistan’s economic difficulties had begun long before that and the project aimed to lift the country out of its dire economic situation, by putting it on the path to growth. .

Seven years later, Pakistan has slipped into a financial crisis partly caused by what was supposed to be a solution to chronic disease. CPEC has contributed to an increase in Pakistan’s debts. Islamabad had to import billions of dollars worth of materials for the project which increased its current account deficit. As the economic situation spiraled out of control after the outbreak of the pandemic, Pakistan requested a bailout from the International Monetary Fund (IMF). The $6 billion package was also stalled as the country attempted to meet IMF conditions for the release of payments.

Meanwhile, projects rising under CPEC were not only stalled due to a lack of funds, they were also plagued by corruption and security threats.

There has been strong Baloch resistance to Islamabad’s grip on their region which has also manifested itself in pushback against CPEC projects. A crucial link in CPEC runs through the resource-rich province of Balochistan, long a hotbed of insurgency. China is known to be particularly keen on exploiting the region known for its gold, gas and coal deposits and wants to develop the abandoned port of Gwadar to access the Indian Ocean.

Analysts also say that establishing a modern port in Gwadar will pave the way for a Chinese military base in the region in the future.

However, the CPEC infrastructure has always been the target of terrorist attacks. Even Chinese soft power is being brutally challenged. Earlier this year, a Baloch suicide bomber killed four people, including three Chinese professors at the University of Karachi.

The Baloch people claim that their province is exploited for the benefit of Islamabad while the region remains backward and has not benefited from the projects.

As Pakistan finds it harder to protect infrastructure and repayment loans, it is looking for ways to delay repayment terms and cut interest rates from Chinese banks. The Pakistani currency was at 226.81 rupees to the dollar last week, its new all-time low. Its foreign exchange reserves are down 60%. Pakistan’s new government also had to bite the bullet and undertake painful reforms that pushed petrol prices up to Rs 230.24 per liter and diesel to Rs 236 per liter (even after price cuts last week ).

Mutual benefits of a stalled project?

China and Pakistan plan to expand CPEC to Afghanistan to promote economic development and stability in the Taliban-ruled nation in exchange for guarantees on security and human rights, especially education girls, according to reports.

At Friday’s meeting of CPEC’s Joint Working Group (JWG) on International Cooperation and Coordination, the Foreign Ministry said in a statement, “As an open and inclusive platform, both sides have invited interested third parties to benefit from the mutually beneficial avenues of cooperation opened up by CPEC.

The invitation comes at a time when even China’s economy is facing headwinds from bank protests, property developer defaults and mortgage strikes that analysts say could erode public confidence in the banking system.

While China maintains that the problems will be managed and calls fears of a collapse of the banking system “Western hype”, it is also unable to maintain its investments in Pakistan without debt repayment. Could a third country maintain the CPEC? And would such a country benefit from CPEC, many of whose projects are well past their deadline?

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