PM Shahbaz Sharif’s Visit to Beijing

Shahbaz Sharif concluded his five-day visit to China on 8th June. While China may be Pakistan’s most important foreign partner, the prime minister’s dash to Beijing on the eve of the budget session raises questions. Pakistan follows a July-June budget cycle. The budget presentation scheduled for 7th June was postponed to 12th June to allow for the 5-day visit to the all-weather friend. Pakistan is facing its worst economic crisis. China is its largest creditor. A visit to the ‘mahajan’ (money lender) was required.

PM Shahbaz Sharif’s delegation included all senior Cabinet Ministers, including Foreign Defence, Finance, and Trade. The most important member of this high-powered delegation was the Army Chief, General Asim Munir. His inclusion was justified on the ground that he is a member of the Special Investment Facilitation Council (SIFC). There could be an added reason. China is worried about attacks on the Chinese personnel working on the projects in Pakistan. The Army is the final guarantor of security. It now has assumed a role in the country’s economic governance. Apart from pure economics, the Army Chief’s presence is crucial as the China Pakistan Economic Corridor (CPEC), contrary to its nomenclature, is essentially a strategic programme. Three of the four projects mentioned in the China-Pakistan joint statement are located in so-called Gilgit-Baltistan (G-B) and Gwadar. Neither road development in G-B, nor the port in remote Balochistan has any immediate civilian purpose.

The visit may not have been linked only to bilateral credit. According to Pakistan media reports, a commitment by China to roll over $ 6 billion payments due is a condition for the new IMF package Pakistan hopes to secure.^[1] This has to be extended not only till the end of the year but for the duration of the next IMF assistance package which may run for 3-4 years. ^[2] The IMF does not want its assistance to be utilized to pay interest to China on past credit. The IMF also expects China to defer contractual obligations. This is necessary as payment conditions flow from contracts signed.^[3] This may be very difficult to meet as contracts would involve private parties on both ends. The third condition is that Chinese FDI should not require sovereign guarantees. This could indicate that a government on the verge of default has no capacity to honour its commitment to guarantee repayment of loans taken.

China-Pakistan trade is heavily eschewed in favour of the former. The Chinese exports to Pakistan accounted for $ 23.1 billion in 2022, while Pakistan’s exports to China were 3.03 billion.^[4] To put this in perspective, we need to look at the investment figures. According to the Chinese Ambassador to Pakistan, Jiang Zeidong, China has directly invested $ 25.4 billion in Pakistan.^[5] Thus, China’s annual trade surplus is more than 80 % of cumulative Chinese investment in that country.

As Pakistan’s credit rating has continued to deteriorate, Chinese credit has become all the more important for that country. China is Pakistan’s biggest bilateral lender with $ 27 billion credit. It is followed by the World Bank with $ 16.2 billion and ADB with $ 13.7 billion.^[6]

Though IMF conditions may not be most convenient to China, it welcomes the IMF’s involvement. The IMF conditionalities may keep in check Pakistan’s profligacy. The country received large dollops of aid on a grant basis from the US and the Gulf States. China would also welcome the IMF to share the burden of sustaining its strategic ally perpetually tottering on the verge of bankruptcy.

Did Pakistan succeed in securing new loans or getting Chinese commitment to defer interest payments on the existing loans? The joint statement issued at the conclusion of the visit is silent on the issue.

CPEC

The media briefings given before Prime Minister Sharif’s departure strongly suggested that Pakistan was hoping for the launch of the next phase of CPEC assistance. Instead, the joint statement merely talks about ‘upgrading’ various projects. The four specific projects under CPEC mentioned in the joint statement are: the upgradation of Mainline 1 (ML-1), Gwadar, the re-alignment of Karakoram Highway, and the upgradation of Khunjareb - Sost Pass to make it passable all year long.^[7]

Mainline 1 is a railway corridor under development to link Nowshera-Karachi-Lahore-Rawalpindi-Peshawar. Gwadar is an existing project, where an International Airport is under construction. The re-alignment of Karakoram highway as well as Khunjareb-Sost road appear to be new projects. Road building in a remote region has little civilian benefit. The Chinese infrastructure-building activities in so-called Gilgit-Baltistan are covered in greater detail in the author’s book ‘Forgotten Kashmir: The Other Side of the Line of Control’. The area is important because this is where CPEC enters Pakistan. It is also close to eastern Ladakh where Indian and Chinese forces have clashed in the past. This region will see a consolidation of Chinese presence.

South Asia

The China-Pakistan Joint Statement includes a paragraph on peace and stability in South Asia. This has been a feature of statements in the past. The reference to the opposition of both countries to ‘unilateral change in situation’ is the same as the earlier statement of 2022. The paragraph mentions that the Pakistani side briefed the Chinese side about developments in Jammu and Kashmir. In response, ‘The Chinese side reiterated that the Jammu and Kashmir dispute is left over from history, and should be properly and peacefully resolved in accordance with the UN Charter, relevant UN Security Council resolutions, and bilateral agreements.’ There is no change from the language in the past.^[8]

The balance of the document is heavily tilted in favour of China. Pakistan has extended its support to the Chinese positions across the board on Taiwan, Xinjiang, Xizang, Hong Kong, and the South China Sea.^[9] Would this complicate Pakistan’s position vis-à-vis the US, Japan, South Korea and ASEAN countries? The US has a veto over any package of assistance extended by the IMF. Pakistan has to live with the conflicting pressures. It has just now been elected for a two-year term as a non-permanent member of the UN Security Council from 2025-26. It will have to line up behind Chinese positions.

Endnotes

^[1] Business Recorder, The PM’s visit to China, June 4, 2024
^[2] Business Recorder, The PM’s visit to China, June 4, 2024
^[3] Business Recorder, The PM’s visit to China, June 4, 2024
^[4] Trade Economics, www.trade [4] economics.com
^[5] Business Recorder, The PM’s visit to China, June 4, 2024
^[6] Reuters, Pakistani Prime Minister Sharif meets China’s President Xi ahead of IMF talks, June 7, 2024
^[7] Joint Statement between the People’s Republic of China and the Islamic Republic of Pakistan Ministry of Foreign Affairs, Peoples’ Republic of China, www.fmprc.cn [5]
^[8] Joint Statement between the People’s Republic of China and the Islamic Republic of Pakistan Ministry of Foreign Affairs, Peoples’ Republic of China, www.fmprc.cn [5]
^[9] Joint Statement between the People’s Republic of China and the Islamic Republic of Pakistan, June 9.6.2024, Ministry of Foreign Affairs, Peoples’ Republic of China, www.fmprc.cn [5]

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