Pakistani Prime Minister Imran Khan has arrived in China for talks with his “iron brothers” that are likely to shape both his country’s financial stability and its involvement in Beijing’s Belt and Road Initiative.
The discussions will also help to shape a partnership of sorts between China and Saudi Arabia in the economic development of Pakistan. Beijing stands to benefit from an extension of its overland belt and road route from Xinjiang to the Pakistani port of Gwadar, but runs the risk of being dragged into the intense rivalry between Saudi Arabia and Iran.
Khan hopes China will join Saudi Arabia, an equally close ally, and the International Monetary Fund (IMF) in pumping billions of dollars of emergency financial assistance into Pakistan’s threadbare coffers, to avert a balance of payments crisis caused by the profligate policies of his predecessor, Nawaz Sharif.
But the grandeur and warmth of China’s welcome is matched by its concerns about the Khan administration’s rebalancing of Pakistan’s foreign policy towards the West and Middle East. Its obsession with finding proof of corruption by Sharif in projects linked to the China Pakistan Economic Corridor (CPEC), the estimated US$50 billion showcase of the belt and road, has also created concerns in Beijing.
The CPEC is a 15-year programme to connect China’s economy overland with the oil-rich Persian Gulf via restive Xinjiang and Gwadar on the Arabian Sea. Since the launch of the CPEC in 2015, power generation and infrastructure projects in Pakistan worth US$28 billion have either been completed or proceeded to advanced stages of construction.
“I think [the Chinese] are putting on a good front of being accommodating, and they will do their best to maintain a positive public narrative, but they had questions about [Khan’s] government before it took office, and the handling of CPEC and the China relationship writ large has given further cause for concern,” said Andrew Small, author of The China-Pakistan Axis.
Pakistan’s Khan slams IMF, then seeks bailout. Why the change?
Since assuming power after a July general election marred by allegations of favouritism by the powerful military and activist judiciary, the Khan administration has slashed development expenditure as part of an austerity drive to control Pakistan’s runaway fiscal deficits. It has also cut the envisioned value of CPEC to US$50 billion from US$62 billion, and ordered an audit of projects agreed by Sharif’s government.
While Khan is bound to receive a polite, attentive hearing from his Chinese partners, they are likely to have pressing questions and will want reassurances.
“I think they are still waiting for the dust to settle, which may not happen until after the Imran Khan visit. They are willing to give the new government more time to find its feet but there have been a lot of raised eyebrows in the last couple of months,” Small said.
Khan’s immediate priority is to secure China’s participation in a convoluted bailout for the Pakistani economy. He will arrive in Beijing days after securing a three-year US$6 billion financial assistance package from Saudi Arabia. Two days after the conclusion of his visit on November 5, Pakistani finance minister Asad Umar is expected to begin negotiations with the IMF for a medium-term programme.
As well as CPEC borrowings, China has loaned Pakistan US$6 billion since last year to increase its dwindling foreign exchange reserves. It is likely to acquiesce to Khan’s request for further financial support but only if Pakistan commits to the structural economic reforms required by the IMF. Khan’s government has slashed subsidies for utility bills, an unpopular inflationary measure, but it has no plans to reduce the size of Pakistan’s civil service or cut spending on defence.
“China may be willing to provide more assistance in conjunction with an IMF programme, just not as an alternative to one.
“China has already been providing financing but was quite clear that it wanted the new government to go to the IMF,” Small said.
Khan has posited that Chinese and Saudi financial assistance will reduce the amount Pakistan needs to borrow from the IMF, mitigating Pakistan’s susceptibility to US demands its CPEC debt be transparent. China wants to avoid such transparency because exposing the terms of CPEC project agreements could validate US criticism of the belt and road as a debt trap for emerging economies.
The US and its allies, particularly India – Pakistan’s neighbour and arch-rival – were alarmed when Sri Lanka handed over control of Hambantota port to a Chinese state operator in June, settling a US$1 billion loan from Beijing in 2013 to develop the white elephant project.
Pakistan risks Chinese anger by courting Saudi Arabia
The deal provided China with control of a third maritime facility in the western Indian Ocean, after Gwadar in Pakistan and Djibouti, across the Red Sea from Yemen where a Saudi-led Arab coalition has been fighting Iran-backed Houthi rebels since 2015.
China has steered clear of Middle Eastern rivalries but the undisclosed terms of Pakistan’s deal with Saudi Arabia for US$6 billion in financial assistance brings complications for both the Khan administration and Beijing.
The deal was struck on the sidelines of the “Davos in the desert” investment conference hosted last weekend by Crown Prince Mohammed bin Salman, the focus of international outrage following the brutal murder of Jamal Khashoggi, a columnist for The Washington Post, at the Saudi consulate in Istanbul.
The Khan administration claims Riyadh’s aid came with no political strings attached but Saudi Arabia has long chafed at Pakistan’s neutrality in its regional rivalry with neighbouring Iran, particularly since it refused to join the Arab military coalition in Yemen three years ago.
“Saudi moves and investment in Pakistan are a set and established policy that seeks to better integrate Islamabad into Riyadh’s camp,” said Theodore Karasik, senior adviser at Gulf State Analytics, a geostrategic consultancy in Washington.
He said the US$6 billion aid package also sets out to “align US and Saudi policy with Pakistan as part of the larger picture of the Islamic Military Counter Terrorism Coalition”. Led by former Pakistani army chief of staff Raheel Sharif, the coalition was ostensibly established by Riyadh in December 2015 to fight Islamic State and other terrorist groups, but it is widely viewed as an attempt to build an alliance of Sunni-majority Muslim states against Shia-majority Iran.
In Pakistan, Chinese money grapples with a Karachi-Lahore divide
As part of the bailout, Khan has invited the Saudis to invest in energy and mineral projects near Pakistan’s border with Iran. They include a multibillion-dollar oil refinery and strategic storage complex to be located at the Chinese-managed port of Gwadar, the centrepiece of CPEC.
But the prospective Saudi presence near Iran’s eastern border threatens to bring their proxy wars in the Middle East into the Gwadar area. The potential complications for Pakistan and China were made apparent on October 16, when 14 Iranian guards stationed near the border with Pakistan were kidnapped by militants of the Jaish al-Adl, an extremist Sunni faction active in the area. Pakistani security forces have been unable to locate the abductees, increasing the threat of Iranian reprisals.
“The issue of the amount of sway the Gulf Arabs have over Pakistan is growing because of Khan and his own vision,” Karasik said. “These Arab states are looking to China to cooperate in Pakistan on a number of issues obviously related to CPEC but also investment in ports. Thus Pakistan finds itself at the nexus of an Arab pull but also a Chinese push.” ■
