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China and Pakistan Deepen Ties As the U.S. Exits Region

Publication Date: 10 February 2014

Edition: Volume I, Issue 3

Assessment
  • China is making a bold push for strengthening economic and strategic ties with cash and energy-strapped Pakistan, despite concerns over Islamabad’s support for jihadist groups.
  • Beijing’s assertiveness reflects a high degree of confidence in the Pakistan Muslim League – Nawaz (PML-N) government that came to power last year, which is widely seen as less corrupt and more competent than its predecessor.
  • Also, to Beijing’s benefit, the area encompassing the planned China-Pakistan Economic Corridor is effectively under the control of one party after last May’s elections. The PML-N rules in the center as well as in the largest province, Punjab, and has a strong influence over the Balochistan provincial and Gilgit-Baltistan regional governments, facilitating the development of the an economic corridor connecting China to the Arabian Sea and Persian Gulf.
  • The Chinese are also probably driven by a desire to exploit as well as fill a region vacuum left by the U.S. withdrawal from Afghanistan, and growing concerns over the development of an anti-China bloc that includes New Delhi and Tokyo.
Analysis

China has become more assertive in defying the Nuclear Suppliers Group (NSG) regime, which made an India-specific exemption in 2008 for the transfer of enrichment and reprocessing technology.

  • In early January, Islamabad and Beijing concluded a $6.5 billion financing deal for the KANNUP-2 and KANNUP-3 nuclear power plants in Karachi, which will utilize Chinese-designed 1100MW reactors.
  • China argued that its agreement to build the CHASNUPP-3 and CHASNUPP-4 plants in Punjab, which will be completed in 2016 and 2017, were grandfathered in as they were part of a deal arranged by China prior to joining the NSG. In May 2013, the two countries agreed to build add a 1000MW reactor to the site, CHASNUPP-5.
  • Pakistan has approved entirely new locations in the southern Punjab areas of Muzaffargarh and Ahmedpur East for 1100MW nuclear power plants, marking an increasingly generous interpretation of NSG rules by Beijing and Islamabad. A third site, whose potential location has yet to be named, is being explored. Given the restrictions on the supply of nuclear technology to Pakistan, China would certainly be the source for the projects’ reactors and financing.

China has proposed at least $40 billion in energy and infrastructure development assistance, with much of it on the condition that no-bid contracts be awarded to Chinese companies. Despite Pakistan’s failure to secure funding for major energy projects, it is unlikely to offer no-bid contracts en masse. 

  • Beijing has reportedly offered Islamabad $20-22 billion in energy and development assistance if it amends the Public Procurement Regulatory Authority (PPRA) rules and permits no-bid contracts. Another report indicates that existing loopholes in the PPRA rules that could be used to invite no-bid contracts from the Chinese and others.
  • Mushahid Hussain, a politician close to the military-intelligence establishment and head of a pro-China think tank in Islamabad, expressed his opposition to changing regulations for Beijing.
  • Beijing and Islamabad have pushed forward with the $18 billion China-Pakistan Economic Corridor connecting western China to the southern Pakistan. Current projects include a 125-mile tunnel connecting the two countries and allowing for all-season travel, a fiber optic cable connecting Rawalpindi to China, and the expansion of the Karakoram Highway. A feasibility study is slated for a motorway connecting the Chinese-operated port in Gwadar, Balochistan, located on the outer edge of the Persian Gulf region, and Kasghar, in China’s landlocked Xinjiang province. Also planned is a rail link connecting Gwadar and Kasghar.
  • China’s Shandong Ruyi Group signed a memorandum of understanding with the Punjab government for investing $2 billion in the province’s struggling textile industry.

Forecast and Implications

  • Chinese funding for the 4500MW, $14 billion Diamer-Bhasha hydroelectric power project, which has failed to get external funding due to the World Bank’s requirement of a no-objection certificate from India, would be a political and strategic boon for the current democratically-elected government. Previous civilian and military governments failed to get domestic and international approval for the Diamer-Bhasha and Kalabagh mega hydroelectric power projects.
  • Corruption and a lack of transparency during the process of awarding contracts to Chinese companies could invite the attention of the opposition and Supreme Court, which remains an activist force.
  • As the Chinese footprint in Pakistan grows, popular resentment toward China in Pakistan could emerge for the first time if the terms of Chinese investments and loans are seen as exploitative. Currently, however, eighty-one percent of Pakistanis view China favorably — the highest rate out of any country without a sizable ethnic Chinese populace.
  • The Pakistani government will have to step up security for Chinese nationals and installations across the country as they will likely be increasingly targeted by ethnic Baloch separatists and militants connected to the Tehreek-e Taliban Pakistan (TTP) network, both of which have previously targeted Chinese workers inside the country. Baloch separatists have stepped up their attacks on passenger rail and gas pipelines connecting the province to Punjab. Meanwhile, the TTP recently called on its members to target Shia Muslims in the Gilgit-Baltistan region. Given the Chinese role in economic and infrastructure development in these regions, local militant networks are likely to expand their targeting to the Chinese as well.
  • The public diplomacy impact of Washington’s diffuse and incoherent aid strategy will be increasingly marginal as Chinese manages to take the lead in funding and implementing big ticket economic and energy projects in Pakistan, whose economy has been debilitated by energy shortages.

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