Pakistan's Place in the Chinese Belt & Road Project

By James Dorsey | 2019-01-01 11:00:00

Two attacks in Pakistan, including a brazen assault on the Chinese consulate in Karachi, are complicating Prime Minister Imran Khan’s efforts to renegotiate China’s controversial Belt and Road investments. He is also seeking an International Monetary Fund (IMF) bailout and shielding the country from blacklisting by an international anti-money laundering and terrorism finance watchdog.

The attack on the consulate was led by three members of the Balochistan Liberation Army, a militant nationalist group seeking self-determination for Pakistan’s troubled, resource-rich, sparsely populated southern province. Balochistan is the heartland of China’s US$45 billion investment and had been seen as the crown jewel of its infrastructure and energy generation-driven Belt and Road initiative.

The attack, together with an unrelated suicide bombing by unidentified militants that killed 26 people and wounded 55 others in a market comes at an awkward moment for Mr. Khan.

With Pakistan teetering on the edge of a financial crisis, Mr. Khan has been seeking financial aid from friendly countries like China, Saudi Arabia and the United Arab Emirates as well as a bailout from the IMF.

Responding to widespread criticism of Chinese investment terms that go beyond Baloch grievances, Mr.

Khan is seeking to renegotiate the Chinese terms for this part of the Belt and Road project, which has been dubbed the China Pakistan Economic Corridor (CPEC). The corridor would link the crucial Baloch port of Gwadar with China’s troubled northwestern province of Xinjiang, the scene of a brutal crackdown on Turkic Muslims.

Mr. Khan had previously bought some relief by attending Saudi Crown Prince Mohammed bin Salman’s showcase investors’ conference in Riyadh, dubbed “Davos in the Desert.” The meeting was shunned by numerous CEOs of Western financial institutions, tech entrepreneurs, and media moguls, as well as senior Western government officials, because of the killing of Saudi journalist Jamal Khashoggi.

SAUDI PROMISES

In talks with King Salman and the crown prince, Saudi Arabia promised to deposit US$3 billion in Pakistan’s central bank as balance of payments support and to defer up to US$3 billion in payments for oil imports for a year.

However, Mr. Khan’s visit to Beijing earlier in November was less conclusive. Despite lofty words and the signing of a raft of agreements, Mr. Khan’s visit failed to produce any immediate cash relief: China insisted that more talks were needed.

Chinese authorities signalled their irritation at Mr. Khan by sending only its transportation minister to receive the prime minister upon his arrival.

Baloch activists charge that the province’s local population has no stake in the project. Members of the business community chafe at China importing materials from China rather than purchasing them locally, and mainly employing Chinese rather than Pakistanis. Mr. Khan only elicited vague promises for his demand that CPEC focus on issues such as job creation, manufacturing and agriculture.

By refusing to immediately bail Pakistan out, China has forced Mr. Khan to turn to the IMF for help. The IMF, backed by the United States, has set tough conditions for a bailout, including complete disclosure of Chinese financial support.

US Secretary of State Mike Pompeo warned in July that any potential IMF bailout should not provide funds to pay off Chinese lenders. By late autumn, US-Pakistani relations had dived, with President Donald J. Trump and Mr. Khan trading barbs on Twitter.

The attack on the consulate coupled with Saudi Arabia’s financial support is likely to fuel long-standing Chinese concerns that Pakistan has yet to get a grip on political violence in the country. Chinese Foreign Ministry spokes man Geng Shuang said in response to the attack that China had asked Pakistan to step up security. Pakistan has a 15,000-strong force dedicated to protecting Chinese nationals and assets.

China also fears that Balochistan could become a launching pad for potential US-Saudi efforts to destabilize Iran by stirring unrest among the Islamic republic’s ethnic minorities.

The attacks not only signal a recent spike in political violence in Pakistan but amplify increased incidents involving Iran’s Kurdish, Iranian Arab and Baloch minorities.

Earlier, Pakistan said it had rescued five of 12 abducted Iranian border guards, saying efforts to recover the other captives are ongoing. An anti-Iran Sunni Muslim militant organization, Jaish al-Adl (Army of Justice), had kidnapped the guards in the south-eastern Iranian border city of Mirjaveh, and had taken them to the Pakistani side of the porous frontier between the two countries.

The two attacks are likely to increase pressure from the Financial Action Task Force (FATF), an international anti-money laundering and terrorism finance watchdog, and its Asian counterpart, the Asia Pacific Group (APG), to strengthen Pakistani compliance with international best practices.

GREY-LISTING PAKISTAN

An Asia Pacific Group delegation expressed its dissatisfaction with Pakistani compliance in October and said it would report its findings to FATF by the end of this month. FATF put Pakistan on a grey list in February, a prelude to blacklisting if the country fails to clean up its act. Blacklisting could potentially derail Pakistan’s request for IMF assistance.

In sum, the November attacks put Pakistan between a rock and a hard place. Countering militancy has proven difficult, if not impossible, given the deep-seated links between government, political parties and militants, a web that includes Mr. Khan and many of his associates.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies. His most recent publication is China and the Middle East: Venturing into the Maelstrom.