Pakistan's Prime Minister Imran Khan will visit China on Nov. 2-5, in his first trip to Islamabad's largest foreign investor, biggest aid donor and so-called all-weather friend.
As he heads for a face-to-face meeting with President Xi Jinping, the key question on Khan's mind will be the $62 billion China-Pakistan Economic Corridor (CPEC) project -- his country's chunk of Beijing's huge Belt and Road Initiative.
Islamabad is having second thoughts about the scheme pioneered by Khan's predecessor, Nawaz Sharif, who saw it as a game-changer for Pakistan. But how far can the new prime minister go in revising a project that his ministers have criticized as too big and too dependent on Chinese-financed loans?
Progress on CPEC has slowed down considerably, since Khan took power in August. Not only has Pakistan halted some of CPEC projects but some cabinet members have proposed even stopping it altogether.
Khan is reportedly planning to renegotiate CPEC and to make it align more with Pakistan's interests. While Pakistan is a poor country with a vulnerable economy and heavy debts, and China is an economic superpower, Islamabad may be in a better bargaining position than it seems.
Firstly, China has already invested $19 billion in CPEC projects and will be loath to lose any of its money or give up the right to further investments, which it plans will reach up to $62 billion till 2030. It certainly doesn't want a government change in Pakistan to sabotage an economic program that benefits Chinese construction companies.
Secondly, with BRI also under fire in other Asian countries that have accepted China's projects and assumed its loans, it is crucial for Beijing to win renewed public and political acceptance in Pakistan. Bullying Islamabad into simply sticking to the existing investment program will not do.
CPEC is the flagship project of Belt and Road Initiative. The success of CPEC will determine the success of the entire BRI project and vice versa. Therefore, China will be willing to accommodate the demands of Pakistan about modifying the CPEC. Beijing values BRI as a tool of political soft power as well as of economic expansion, so it needs to keep projecting a friendly and understanding face.
The intensive efforts made by China to influence public opinion in Pakistan support this view. For instance, on Oct. 26, Chinese diplomats held a daylong media briefing for Pakistani journalists and pleaded their case in detail that CPEC is not creating a debt trap for Pakistan.
Khan's government has not so far released any official information on what it wants to renegotiate. However, there are two broad aspects of CPEC where Pakistan will probably ask for change. The first will be the financing. Given the secrecy surrounding the CPEC agreements, there are serious public and political concerns that the conditions of the CPEC-related loans are unfair to Pakistan. Khan may ask for interest rate cuts and extensions to repayment periods.
Secondly, Khan and his team reportedly believe that CPEC projects were selected in ways that benefited former Prime Minister Nawaz Sharif and his support base in central Punjab. Khan can ask for some Punjab-related projects to be removed and replaced by others elsewhere.
Moreover, the Pakistan government may exploit what it sees as its position of strength to make another demand -- for more loans.
Pakistan's economy is facing a severe balance of payment crisis and is unable to pay for debt servicing and oil imports. Pakistan did secure a $6 billion bailout package from Saudi Arabia. However, Pakistan needs $15 billion altogether, leaving an estimated gap of $9 billion.
It is logical to press China for extra funds as it will not want a balance-of-payments crisis that might threaten CPEC's future.
Khan's trip is cleverly timed. On Nov. 7, a team of International Monetary Fund will arrive in Pakistan to discuss a possible bailout package.
Khan wants to conclude a loan deal with China first so that Pakistan has a better bargaining position with the fund. Whether Pakistan can avoid an IMF bailout package altogether depends on how much China will lend Pakistan.
Since the inception of CPEC in April 2015, the financial agreements have been a highly guarded secret. Despite repeated demands by the Pakistani opposition and media, the Nawaz Sharif government did not make public the arrangements. When Khan came to power, initially his ministers said that CPEC projects would be made public but now they seem to have backtracked.
This is highly problematic. The IMF will require Pakistan to be "absolutely transparent" about its Chinese loans if it wants a bailout. This provides Pakistan with another reason to push hard for a bigger Chinese financial package to avoid disclosing damaging secrets. Beijing may cooperate as there could be details -- onerous repayment clauses, for example -- that it would be embarrassed to see revealed before the world, including other BRI partner countries.
But, this is not only about sparing the blushes of the Pakistani and Chinese governments.
Financial secrecy on this scale is damaging for public confidence in the economy and in the political system. These arrangements should be disclosed not only to accommodate the IMF but for the sake of the Pakistani people.
Adnan Aamir is a journalist and researcher. Follow him on twitter @iAdnanAamir. Email: Adnan.Aamir@Live.com
