Damned if you do: China avoids involvement in Pakistan's contentious hydropower project

China's US$45 billion push into Pakistan is skirting one of the Indian subcontinent's most dangerous flashpoints.

The proposed 4,500-megawatt Diamer Bhasha hydropower plant in Kashmir would eliminate about half of Pakistan's power shortfall and irrigate more than a million hectares of parched farmland. While both the US and China have promised to help Pakistan find private investors for the dam, they've resisted putting up the cash themselves.

China's reluctance shows that its push to finance infrastructure across Asia hardly amounts to a blank cheque. It also keeps leaders in Beijing away from a project in a disputed area that has triggered three wars between Pakistan and India, where tensions over shared waters are rising.

"China is doing a smart thing by putting money up for smaller projects with better returns," said Priyanka Singh, an associate fellow at the New Delhi-based Institute for Defence Studies and Analyses, who has published papers on the Diamer Bhasha project. "China has made its calculations and concluded that it doesn't directly serve its interests."

On a visit to Islamabad this week, President Xi Jinping picked a US$1.65 billion, 720-megawatt hydropower plant in Karot, Pakistan, as the first project for his Silk Road fund to build infrastructure in Asia. He made no mention of the Diamer Bhasha project, whose cost has risen to more than US$12 billion since it was first proposed in 2001.

China is unlikely to fund Diamer Bhasha because it doesn't want to get involved in a water dispute between India and Pakistan, said a senior Chinese water resources official, who declined to be identified because the information isn't public.