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Pakistan's U-turn on China's economic corridor?

September 18, 2018

China is reportedly irked by the new Pakistani government's criticism of the multibillion-dollar China-Pakistan Economic Corridor (CPEC) initiative in the South Asian country. But can Islamabad afford to offend Beijing?

Pakistani PM Imran Khan
Image: picture-alliance/ZUMAPRESS/R. Sajid Hussain

Pakistan's army chief General Qamar Javed Bajwa arrived in Beijing on a three-day official visit on Sunday, days after a Pakistani minister raised concerns about China's $57-billion China Pakistan Economic Corridor (CPEC) project.

Abdul Razak Dawood, Pakistan's minister for commerce, industry and investment in Prime Minister Imran Khan's government, last week suggested that all CPEC projects could be suspended until a review is completed.

"I think we should put everything on hold for a year, so we can get our act together," Dawood told the Financial Times in an interview. "Perhaps we can stretch CPEC out over another five years or so."

Dawood also criticized the previous government headed by Nawaz Sharif, who is now incarcerated on corruption allegations, for granting China "too favorable" terms on many projects.

Read more: 'New Silk Road' and China's hegemonic ambitions

"Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan; this is one of the things we're looking at because it's not fair that Pakistani companies should be disadvantaged," Dawood said.

Later, Dawood "clarified" to a local TV channel that his remarks about CPEC had been taken out of context.

In 2015, China announced CPEC, which is part of its intercontinental One Belt, One Road initiative, with an aim to expand its influence in Pakistan and across Central and South Asia, as well  as countering US and Indian influence in the region. CPEC also includes plans to create road, rail and oil pipeline links to improve connectivity between China and the Middle East.

As Pakistan is grappling with an acute economic crisis, experts say that CPEC has the potential to stimulate much-needed economic activity in the country.

Karte Map China Pakistan Economic Corridor

Reservations against CPEC

But Khan's new government, which was inaugurated in August, has hinted that it would not give China a free hand over CPEC.

Dawood's criticism of CPEC came soon after China's Foreign Minister Wang Yi visited Islamabad. Officially, the two sides reaffirmed the mutual benefits of the Beijing-funded projects.

Pakistani media says the army chief's Beijing visit could be aimed at allaying China's concerns over PM Khan's approach toward its economic projects.

"During the visit COAS (Chief of Army Staff) will interact with various Chinese leaders including his counterpart," Major General Asif Ghafoor, the military spokesman, tweeted on Sunday.

General Bajwa is considered as the most powerful person in Pakistan, as analysts say the South Asian country's military controls foreign and security policy matters and also has huge stakes in economy.

Khurrum Sher Zaman, an official belonging to Khan's Pakistan Tehreek-e-Insaf (PTI, Movement for Justice) party says the government is not opposed to CPEC.

"We have not taken a U-turn on CPEC. The finance ministry made some changes to the budget so that we can study and review some of the CPEC projects. But that does not mean that the government wants to scrap it. CPEC is crucial for Pakistan and its future," Zaman told DW.

Read more: Can Afghanistan join China-Pakistan Economic Corridor?


It's not just the ruling party that has reservations about CPEC; many other political groups, particularly those with support in smaller provinces of the country, are skeptical about China's growing economic clout. Some analysts say that CPEC could turn Pakistan into China's "economic colony."

Read more: Gwadar – Pakistan's impoverished colony or an economic hub?

"The commerce minister represents his country's business community. He actually echoed the sentiments of Pakistani industrialists who are wary of China's growing control on Pakistan's economy," Ayub Malik, an Islamabad-based analyst, told DW.

"Dawood's statement has infuriated both China and the Pakistani military establishment. Army chief Bajwa's visit to China was not pre-planned and it appears that he decided to visit Beijing to control the damage caused by the minister's interview," Malik added.

But Malik is of the view that China would not dwell on the controversy as its commercial and strategic stakes in Pakistan are too high.

"At the same time Pakistan cannot afford to offend Beijing as it badly needs financial aid. The US has cut Pakistan's aid and China is probably the only reliable partner for the country," Malik underlined.

Read more: US aid cut: Why Pakistan shouldn't rely on China

Imran Khan and Mike Pompeo
US Secretary of State Mike Pompeo held talks with Pakistani PM Khan in Islamabad earlier this month

US pressure?

Some analysts believe that by criticizing CPEC, the new government is also trying to send a signal to Washington that it does not intend to break ties with the US just to appease China.

Khan's government urgently needs an International Monetary Fund (IMF) bailout to pay its debts, and the US, which has the biggest share in the IMF, has made it clear that it would not allow the West's money to be used to repay China.

The South Asian nation's economy has been in poor shape over the past several years. While its current account deficit jumped 43 percent to $18 billion ($15.4 billion) in the fiscal year that ended June 30, its fiscal deficit rose to 6.8 percent of GDP.

The country's foreign exchange reserves, meanwhile, are dwindling, plummeting to just over $9 billion now from $16.4 billion in May 2017. The central bank has been forced to devalue the currency three times since December. Rising global crude prices present another challenge, as Pakistan imports about 80 percent of its oil needs.

Some analysts also say that the recent controversy about Atif Mian, a world renowned economist who was first appointed by Khan on his economic advisory board and was later sacked due to his Ahmedi faith [Pakistan declared Ahmedis non-Muslims in the 1970s] was a result of Mian's anti-CPEC approach and closeness to the IMF.

"Mian's appointment indicated that the ruling party was also against CPEC. It is likely that he was removed from his post not only because of the pressure exerted by Islamic clerics but also by Chinese authorities," Ahsan Raza, a Lahore-based analyst, told DW.

Mushahid Ullah Khan, a former minster in Sharif's government, says that Dawood would not have said anything against CPEC without PM Khan's approval.

"The government has harmed Pakistan's relations to China. CPEC's future is in danger, but if they try to roll it back or delay it, our party will resist it," former Sharif minister Khan, told DW.

Economic experts also say that the government's decision to seek IMF money, and Washington's approval in this regard, would help determine in the coming days which camp – the US or China – the new government deems more important for its survival.

Read more: Pakistani minister: 'CPEC linked to civilian supremacy'

Additional reporting by Sattar Khan, DW's Islamabad correspondent.