Pak-China ‘Iron’ Ties Have Turned Rusty, But Don’t Dismiss Them Yet

As of now, too much rides on keeping the relationship healthy for Beijing to turn away.

There is one thing to be said of anything to do with Pakistan – its various diplomatic contortions are always a source of a certain hilarity. An instance was the most recent joint statement between China and Pakistan, in which Pakistan recognised the Chinese position on not just Tibet, Hong Kong, and the South China sea, but also on Xinjiang, where Muslims are being hounded, to put it mildly. In the next breath, Islamabad condemned “persecution of minorities” in India in what was, even for Pakistan, a contradiction so startling as to make it ludicrous. Needless to add, the Chinese readout of the event said no such thing, but did have a lot else that is of interest in gauging the trend of ties between the two ‘iron brothers’.

What Preceded the Meeting

That things were going to get difficult was apparent months ahead of the visit. At the centre of matters are the parlous state of the Pakistani economy and the fact that over the last three years till June 2022, it owes more to China – a whopping $6 billion – than the $2.8 billion it owes to the International Monetary Fund (IMF).

Roll-over of debt was clearly going to be a central clause, something that had been in the loop of discussions for months, and which Beijing was skillfully avoiding.

The visit was to mark the second phase of the China Pakistan Economic Corridor (CPEC) and shift from infrastructure development to industrial development of Special Economic Zones and the agriculture sector, among others.

The trouble is that the first phase was still lagging severely, as admitted by the Prime Minister himself, this after a Senate report noted severe Chinese dissatisfaction. Worse still was a report from Aid Data, which not only observed a hide-and-seek methodology in terms of how loans were provided, and also that interest rate was 3.76 per cent for an average loan with 13.2 years maturity, and that too heavily collateralised to minimise risks to investors.

And the final nail in the wall, Islamabad’s running back to the International Monetary Fund, came at a price. Not only did the fund insist on a good hard look at the accounts books, but it also forced Islamabad into legislation that imposed stringent controls over the State Bank of Pakistan, freeing it from an encroaching state.

Meanwhile, policymakers hurried to remove a serious irritant in Sino-Pakistan relations with the opening of a revolving bank account to allow payments to Chinese power companies, to address the decadal problem of circular debt. Another Rs 50 billion was released to the Chinese IPPs to lower their dues. Another sop was the announcement of $11.6 million in payments to Chinese nationals who died or were injured in a terrorist attack. Clearly, Khan’s trip to Beijing would be potholed most – but not all – of the way.

The Meeting at Beijing

The expected “Framework Agreement on Industrial Cooperation” was signed to encourage industry in the Special Economic Zones in the expected Phase 2. The baiting of the agreement includes exemption for Chinese investors from a range of bureaucratic procedures, the Special Economic Zone Act being amended to allow a ‘plug and play’ ease of business, and the Prime Minister promising to personally intervene on any irritant.

The Prime Minister’s office now has overarching powers under new legislation that also protects officials of the CPEC Authority from criminal investigations. Meanwhile, the Joint Statement does refer to ‘high-quality development’ projects for Gwadar, including a reported steel and metal recycling plant.

Can Islamabad Deliver?

But here’s the rub. The key debt rollover, an extension in currency swap from $4.5 bn to $10 bn and additional financial support of $5.5 bn is only, as yet, under consideration. That’s one in the gut for Islamabad. Beijing is clearly waiting to see whether Islamabad can deliver this time round before it commits more money.

The single largest project, which is the Main Line-1 from Karachi to Peshawar, remains unresolved, as Beijing earlier had reservations not only on Pakistan cutting project costs but also the restrictions imposed by the IMF and the G-20 Debt Servicing Suspension Initiative. All this is serious, but don’t write off the CPEC yet. Nine power projects, including the Matiari-Lahore Transmission line, is up and running, while another six are said to be near completion.

Going Ahead to Phase 2

Phase-2 has several vital aspects that will hold Chinese interest. For one, it will push through the digital connectivity projects undertaken by the Pakistani military’s Special Communication Organisation. Interestingly, the first stage of the fibre optic line, completed, was to Rawalpindi rather than Islamabad.

The next phase will see it go on to Gwadar with a new submarine landing station. China’s interest? That it will also provide it with an alternate and shorter access for transit telecom traffic to Europe, the Middle East and Africa.

Any cable-cutting operations by the US are now catered for, while Pakistan can ensure the safety of its own military communications. But it does mean complete domination of Pakistan’s internet space, adding to the penetration by Chinese mobile companies.

Second, Phase-2 also includes what is said to be the actual heart of CPEC, which is agriculture. The Master Plan revealed earlier outlines an end-to-end supply chain, from the provision of seeds, fertiliser, credit and pesticides to processing facilities and logistics. Many of these farms are to be operated by Chinese enterprises in what promises to be a massive project to feed China, at a time when it is facing high costs, drought and shrinkage of arable land from the already low 13 per cent of land area. The end result is a virtual colonising mandate.

Foreign Policy Cosying Up

Though Pakistan put itself in a corner by supporting the Chinese position on Xinjiang, Beijing only reiterated “that the Kashmir issue was a dispute left from history" with references to the UN Charter, Security Council resolutions and bilateral agreements. However, it also chose to oppose “any unilateral actions that complicate the situation”. In other words, China continues to accept that the borders of the erstwhile Kashmir state are in dispute, but opposes the Article 370 action.

Remember that the Chinese occupation of Kashmiri territory is governed by the PRC Pakistan Agreement of 2 March 1963, which recognises that the agreement may have to be redrawn once the Kashmir dispute is settled – quite opposite to what it argues in Galwan. There is a reference to a joint Gandhara art exhibition, ironically between a strongly Islamic state and a communist one, but that again underlines Beijing’s use of (state-controlled) religion for its own purposes. The Chinese side reaffirmed ”support for Pakistan in safeguarding its sovereignty, independence and security”, which sounds dangerously like a commitment to its defence, but is more likely a segue into a nuclear and defence relationship.

The Defence Offence

That was once a huge pillar of support for Islamabad, and it owes its nuclear deterrent almost entirely to Chinese help. But that assistance could turn threatening. In November 2021, the Pakistan Navy commissioned four Type 054A/P frigates as part of one of the largest deals ever made with China, which included not only these powerful frigates but also eight submarines in a modernisation drive to balance India. The frigates are ostensibly equipped with an ‘indigenous’ missile that experts say is actually the Chinese hypersonic anti-ship missile, the CM-401, which can manoeuvre to evade interception.

All in all, a very hefty package. But here’s the interesting aspect. These gems of the Chinese Navy are highly unlikely to be maintained by the Pakistanis alone. The PLA Navy will keep strong oversight, which means a further erosion of Pakistani autonomy.

In addition, this is not just about Pakistan’s modernisation. This deal was signed in 2017 at the same period when Delhi signed on to the Quad. This deal, therefore, suits Beijing. It checkmates India (to an extent) and also provides its Navy with a strong foot hold in Ormara.

Imran's Diplomatic Gesture

In sum, the whole exercise was played to Beijing’s tune, with Islamabad keeping up a shrill contralto on Kashmir that was echoed nowhere but in its own corridors. The ‘iron’ relationship has clearly turned rusty, but is far from being a bust-up – too much rides on keeping it healthy for Beijing to turn away, just yet.

The sharp uptick in attacks on Pakistan, both by the Baloch and the Tehrik e Taliban Pakistan, is only likely to make Beijing pressure the Taliban. It doesn’t really need Islamabad for that, and the latter knows it too well. That is why Imran has made what he thinks is the diplomatic gesture of his lifetime – an offer to bring China and the United States together in a reprisal of the famous Henry Kissinger backchannel of the 1970’s to reach out to Peking. But that ship has sailed, without Islamabad. Any quiet contact will be done directly or through far more reliable channels than a chancy Prime Minister.

(Dr Tara Kartha is a Distinguished Fellow at the Institute of Peace and Conflict Studies (IPCS). She tweets @kartha_tara. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)