New agreements with China fan flames of debate over economic impact

ISLAMABAD -- New agreements signed during a recent visit by the Chinese vice premier to Islamabad have reignited debates about the impact of China's investments in the country amidst Pakistan's deteriorating economic situation.

Chinese Vice Premier He Lifeng, acting as the special envoy of President Xi Jinping, arrived in Islamabad Sunday (July 30) to attend celebrations marking 10 years of the two countries' infrastructure development collaboration through the China-Pakistan Economic Corridor (CPEC), a Pakistani component of Beijing's Belt and Road Initiative (BRI).

During the visit, He said that as "an iron brother and strategic partner" China remains committed to providing ongoing economic and financial support to Pakistan, the state-run Associated Press of Pakistan (APP) reported Monday.

Prime Minister Shehbaz Sharif and He also signed six new memoranda of understanding and other agreements, referred to as the "second phase of CPEC".

The new agreements included the establishment of an export exchange mechanism, a phytosanitary requirement protocol for the export of dry chilies from Pakistan to China, a feasibility study for the realignment of Koramkoran Highway Phase II and an industrial workers' exchange program.

New agreements draw criticism

China claims it has invested $25.4 billion in Pakistan over the past decade for projects ranging from roads to power plants.

However, economic analysts cite concerns that loans and financial agreements with China under CPEC during the past decade have exacerbated Pakistan's debt and made the country vulnerable to economic and political crises.

The criticism extends to the new agreements signed with Beijing as Sharif's government already faces a severe economic crisis.

The government Tuesday announced a fuel price increase of up to 20 PKR ($0.07) per liter, aligning with the fluctuations in the international market. It sparked protests across the country.

Pakistan owes 30% of its foreign debt to China, which includes state-owned commercial banks, according to an International Monetary Fund (IMF) report published in September.

By June, Pakistan's foreign currency reserves had dwindled to a level that could barely sustain one month's worth of imports, Reuters reported at the time.

With Pakistan about to default, the West -- not China -- rescued it.

The IMF on June 30 bailed out Pakistan with a $3 billion loan program, offering a desperately needed respite for the South Asian country.

The United States played a key role behind the scenes in helping Pakistan secure the bailout package with the IMF, Daily Dawn reported July 3, citing diplomatic sources.

Unequal partners

During He's visit, Sharif expressed optimism about the successful execution of Main Line-1 (ML-1) and Karachi Circular Railway, two major rail projects in Pakistan linked to CPEC, APP reported Monday.

Pakistan agreed to increase the amount that it is borrowing from China to upgrade the ML-1 railroad. The loan is growing from $6.8 billion to $9.85 billion.

"Pakistan seems keener to take on new financing from China than China may be to furnish it," said a February analysis by the Middle East Institute.

"Even as the economy wobbles under a heavy debt burden and other acute challenges, Pakistani officials have sought support from China to upgrade the ML-1 railroad," it said.

Pakistan, like other countries that have made deals with China, has become a victim of China's "debt-trap diplomacy", said Kashif Hussain, a researcher at a Karachi-based brokerage firm that advises investors.

"Without tackling the Chinese debt, the country cannot find a solution to its financial challenges," he said.