Xi stares at write-off of PRC’s investments in Pak, Lanka

New Delhi: The ongoing economic and political turmoil in Pakistan and Sri Lanka is going to hurt severely the $150 billion investment made by the Xi Jinping-led People’s Republic of China (PRC) in these two countries. As per China Global Investment Tracker (CGIT)—the only public accounting mechanism that tracks China’s investments in the world—China has invested $15 billion in Sri Lanka and $66 billion in Pakistan. This $66 billion, however, does not include $62 billion that China had committed to spend separately as part of its Belt and Road Initative (BRI). BRI was officially launched in Pakistan in April 2015 by Chinese President Xi Jinping when he visited Pakistan.
Officials from both sides involved in implementing the $46 billion China-Pakistan Economic Corridor (CPEC), which is a part of the BRI, were tasked to complete the majority of the CPEC projects by 2025. However, due to perennial problems, these projects are unlikely to be completed on time. Factors that have delayed the projects include local governance issues and terror threat, money being embezzled by government officials and the return on investment that was envisaged not being achieved because of which China has tightened its purse.
In February 2017, it was revealed that of the total revenue from the Gwadar port, considered to be the grand pearl of CPEC, 91% of it would go to China, while the Gwadar Port Authority (that will have local officials as members) would get the remaining 9% share in the income for the next 40 years. The port is being developed on a build-operate-transfer model, spread over 40 years. Under this scheme, Pakistan will take over the operation of the port along with the infrastructure, maintain it but will only be able to keep 9% of the revenue received from it. Of the total 95 projects that are to be completed under CPEC, they have been divided into following sub-heads: energy (21), transport infrastructure (24), Gwadar projects (14), SEZs (9) and social and economic developments related projects (27).
However, out of the 68 projects under four heads (excluding social and economic developments related projects), only 17 have been completed till now with many of the remaining still awaiting approval or awaiting the issuance of a letter of intent. The Gwadar port, spread across 2,281 acres, is being developed at a cost of $300 million; however, it is still to see substantial traffic with unloading of liquified petroleum gas that comes from Qatar and Oman in ships happening once a month, as a local resident told The Sunday Guardian—a far cry from what the Chinese investors had imagined.
The Gwadar port is immensely important to China as then China would be able to encircle and keep a watch on India, and by extension the United States, by stationing its offensive water-based assets at Gwadar. The Chinese strategists plan on using the Hambantota port in Sri Lanka for the same purpose. For practical purposes, both these ports are now under the control of China.
With International Monetary Fund (IMF) showing reluctance to release more loan to Pakistan, unless it tightens its spending capabilities and take a relook at the terms and conditions of CPEC, which IMF believes are contributing significantly in widening Pakistan’s current-account deficit as the country has been forced to import billions of dollars of materials for the projects, CPEC’s problems are unlikely to end soon, despite propaganda and claims by China stating that CPEC has been a “grand success”.
Pakistan has started delaying the loan repayment that it owes to China and has also sought to cut down the interest on loan that it had taken from Chinese banks, which has led to Chinese fund managers scaling down on their expectations and take a relook at the entire spending under BRI which was called by Xi Jinping and Nawaz Sharif as a game-changer for the country.
Officials tracking the developments believe that it was on the directions of China, post the signing of the CPEC project agreement, that the People’s Liberation Army (PLA) and General Headquarters (GHQ), Rawalpindi, increased their focus on the area surrounding Kashmir from where many of the CPEC projects pass or are expected to be built.
The recent political situation in Pakistan. which is unlikely to stabilise before the next general election, (scheduled to happen in July 2023 unless held earlier) has further dampened the hopes of Chinese officials who are increasingly getting worried over the economic feasibility of their investments in Pakistan, both commercial and strategic. “China cannot keep sustaining Pakistan, especially when it does not get even a minimum return on the investment that it has made. Soon a time will come when Xi will have to rethink his economic policies vis-à-vis Pakistan. China is no US, which for years kept helping Pakistan monetarily for multiple reasons that were crucial for its own strategic interest,” a diplomat with an Asian-Pacific country posted in New Delhi told The Sunday Guardian.
As per China Global Investment Tracker (CGIT), China has, since 2005, invested in 101 projects in Pakistan, apart from the projects that are envisaged under BRI. Out of this, $48 billion are in the energy sector and $12.29 billion in the transport sector.
In Sri Lanka, too, China is finding it hard to recover any sort of return on investment with the island country struggling to recover from the damages done by the pandemic. CGIT data reveals that China has invested $15 billion in Sri Lanka across 41 projects. Out of this, $6 billion has been given for transport infrastructure.
Earlier this year, Sri Lanka requested China to restructure its debt repayments. The economic situation of the country has deteriorated even more since then. In December 2017, Sri Lanka, for failing to meet its loan repayment obligation, was forced to hand over the Hambantota port to China for a lease period of 99 years, a fate that is likely to be met by the Gwadar port. At that time, China had to recover $8 billion from Sri Lanka. The corresponding figure for Pakistan, as per IMF’s latest figure, was almost $19 billion.