Introduction
The Pakistani government celebrated the tenth anniversary of the establishment of the China-Pakistan Economic Corridor (CPEC) in 2023 with great fanfare. Prime Minister Shahbaz Sharif praised the “transformational impact of CPEC on Pakistan’s economy.” However, the reality was starkly different. After $55.2 billion in aid and credit for new highways, power projects, and rescue loans, CPEC has struggled to generate sustained economic benefits amidst a deteriorating security situation marred by poor governance.
The scholarship on CPEC has mainly focused on security dimensions, focusing on regional issues like China and Pakistan’s common rivalry with India and geopolitical considerations related to the Gwadar port. But far less is known about CPEC’s intergovernmental governance, the main cause of its failure to generate prosperity. With original data analysis and interviews with key stakeholders in Pakistan and China, this article fills this gap by shedding new light on this critical issue.
Large and Rapid Influx of Development Finance
The concept of an economic corridor between China and Pakistan has gradually evolved from existing initiatives, such as the 1,300-kilometer Karakoram Highway built in the 1970s connecting Xinjiang to northwestern Pakistan. In 2006, facing crippling energy shortages, Pakistan proposed a “trade and energy corridor.” These deliberations helped formulate the CPEC master plan, which envisioned a connectivity corridor originating in western China, passing through the length of Pakistan, and terminating at seaports in the Arabian Sea. CPEC’s status as the only bilateral economic corridor among the six corridors within the BRI was formalized by China’s “Vision and Action” document published in 2015.
Immediately after President Xi’s April 2015 trip to Pakistan, during which he formally launched CPEC, China’s state-owned financiers and implementors entered Pakistan with unprecedented speed and intensity. They found a very receptive host government keen to fulfill its electoral promise of ending the eight- to sixteen-hour daily power outages that were stifling economic activity. Key Pakistani officials involved in designing the first wave of CPEC projects were “pleasantly surprised” by the rigor of the Chinese side’s technical preparations on several projects.1 As a result, major coal-fired power plants, such as the 1,320-megawatt Port Qasim project, were completed within a record period of 30 months. By 2017, Pakistan had surplus power capacity.
During the first four years of CPEC (2013–2017), Pakistan received 71 projects worth $27.3 billion, making it the BRI’s single-largest portfolio. During this period, annual development finance growth from China reached 346 percent, which is five and a half times greater than the global average of 63 percent.2 China’s terms of financing for Pakistan were also rather favorable. According to AidData’s Global Chinese Development Finance Dataset, the average interest rate in Pakistan was 3.76 percent, with a maturity (when loans are due for all repayments) of 13.2 years and a grace period (before the first payment is due) of 4.3 years. These terms are at least as generous as China’s standard preferential credit offerings, which usually have an interest rate of two to three percent, fifteen to twenty years of maturity, and a five-year grace period.
In terms of financial resources mobilized for Pakistan, China’s rhetoric that CPEC is a flagship project in the BRI is not hyperbole. Two factors explain this prioritization. First, both sides were keen to show quick wins for their own political needs and thus did everything they could to make project negotiations as smooth as possible. As early as 2014, they developed mutually agreed-upon lists of “early harvest” projects in the energy and transport sectors, key priorities for the then-Sharif administration. Prime Minister Sharif personally chaired weekly CPEC progress meetings to remove administrative bottlenecks with his personal involvement.
Second, strong commercial interests further accelerated progress, particularly in the energy sector. Half of Chinese financing in Pakistan flowed in as export buyer’s credit, i.e., loans for purchasing equipment from Chinese companies for rapid project implementation. All sixteen CPEC priority energy projects completed or under construction by July 2022 were contracted exclusively to Chinese companies. Because many major engineering and construction companies had already established themselves in Pakistan prior to CPEC’s announcement, they were well-positioned to mobilize promptly through the joint China-Pakistan coordination mechanism. Entrepreneurial managers at Chinese companies in Pakistan were pivotal in getting projects approved and implemented in record time.3
Piloting New Coordination Mechanisms
Across the 152 countries where BRI engagements are underway, it is unclear which projects are included in the BRI. No central authorities have financed or coordinated implementation. CPEC is a rare exception, as China has established and maintained institutions for coordinating project approvals, implementations, and follow-ups owing to its status as the earliest pilot of the BRI engagement model. As a result, no other BRI country has benefited from such regular contact between both bureaucracies thus far.
Following the formal launch of CPEC, both countries immediately formed a Joint Cooperation Commission (JCC) led by China’s National Development and Reform Commission (NDRC) and Pakistan’s Ministry of Planning, Development, and Special Initiatives (MPDS). The JCC would become the overarching decision-making body for CPEC, with both planning bureaucracies developing a strong working relationship. As CPEC took shape, a total of thirteen thematic Joint Working Groups (JWGs) were established within the framework of the JCC, covering diverse topics like energy, transport, agriculture, science, and Gwadar. Overall, over twenty ministries or agencies, alongside subnational governments, from each country have participated in these coordination mechanisms.
The Chinese Communist Party’s (CCP) foreign relations organ has played a highly visible role in CPEC coordination. Having maintained a program of party-level contacts with various political parties in Pakistan since the 1990s, the CCP’s diplomacy has been further institutionalized under CPEC. The CCP initiated a Political Parties Joint Consultation Mechanism in 2019, with nine of Pakistan’s political parties participating in the first meeting, and ten in the second and third meetings in 2020 and 2024. The CCP’s outreach activities include organizing study tours and think tank exchanges centered on promoting China’s development experience. Party diplomacy has targeted building relations with some of Pakistan’s smaller political parties representing regional interests or ethnic groups in an attempt to ease the tension related to the distribution of CPEC projects.
Gwadar’s Unclear Future
But to what extent has the development cooperation mechanism established under CPEC been effective in delivering projects while managing risks on the ground? This question can be evaluated by examining the city of Gwadar, arguably CPEC’s most strategic project of all. Unrealistic visions that follow a top-down approach and overlook local conditions have contributed to the unsatisfactory outcome of the development project in Gwadar.
Despite being located in the geo-strategically vital mouth of the Persian Gulf, Gwadar has suffered from chronic underinvestment in human and physical resources: 90 percent of settlements in Gwadar do not have paved streets, and 43 percent of homes still have wooden roofs. Since 2013, through a combination of grants and concessional loans from China and own-source public investments from the government of Pakistan, over $1 billion has been committed to Gwadar.
While China has mobilized extraordinary resources into Gwadar, the pathway for Gwadar’s longer-term development is becoming increasingly uncertain. Earlier discussions around Gwadar often envisaged it as the maritime outlet for exports and a shortcut for China to receive energy shipments from the Middle East. This prospect remains remote, as Balochistan Province, where Gwadar is located, is home to several insurgency groups with long histories of resisting the Pakistani government. Viewing CPEC as a government scheme to extract economic rents from their resource-rich region, these groups have launched several fatal attacks against Chinese nationals working in Pakistan. The volatile security situation has discouraged Chinese investment beyond Gwadar, exacerbating its poor connectivity with the rest of Balochistan. Later discussions and actions from China suggest an updated vision for Gwadar as an economic enclave in the Arabian Sea, with its own outward-facing economy that would be less dependent on Pakistan’s internal markets. Even after 2017, China has continued suggesting that Gwadar could serve the transshipment needs for Afghanistan’s foreign trade.
Because Gwadar’s population is only 90,000, these plans are not only highly unrealistic but also show little sensitivity to the local socio-political fabric. Local communities have protested in the past few years against the impacts of CPEC projects, including the newly-constructed Eastbay Expressway’s obstruction of local fishing activities and the plan to build a security fence in Gwadar as part of the “safe city” envisioned in the Master Plan. Although these protests did not alter the course of CPEC development in Gwadar, they have contributed to numerous challenges in ensuring CPEC is perceived as beneficial for the local population.
The failure to develop Gwadar, the supposed lynchpin of CPEC, reveals the pitfalls of CPEC’s top-down approach that lacks adequate local ownership. The various visions for Gwadar—from a maritime link between China’s western regions and the Middle East to an economic enclave for Pakistan’s external economy—envision a future so detached from the reality on the ground that it struggles to gain local buy-in. Given the existing tensions between Baloch separatists and the government of Pakistan, this disconnect between top-down ambitions and local needs can easily be seen as imposition and exploitation, further exacerbating tensions.
Beyond Gwadar, the broader implementation of CPEC exhibits similar challenges in translating grand visions into reality, particularly in the efforts to promote industrialization in its “Phase 2.” The official goal of establishing nine Special Economic Zones (SEZs) across Pakistan to accommodate relocated Chinese industries has stalled, with only two SEZs (Allama Iqbal Industrial City and Rashakai SEZ) constructed and operational so far. The selection of these SEZs has followed a similarly top-down decision-making process, envisioning a future based on abstract technocratic concepts and political considerations without sufficiently accounting for local political conditions. The lack of progress in industrialization has led to a shortfall in the expected increase of demand for electricity and foreign exchange income. This, in turn, has resulted in the underutilization of the electricity generation capacity established during the first phase of CPEC, making what initially seemed like a success in rapid infrastructural development now appear as a reckless rush. The institutionalized China-Pakistan bureaucratic coordination mechanism, which has embodied the high expectations and commitment of both governments in development cooperation, has failed to address local challenges and make necessary adjustments to initial plans.
Conclusions
The gap between CPEC’s promises and what it achieved in more than a decade should cause both countries to rethink their approach to cooperation. A lack of commitment did not produce this disappointing outcome, as demonstrated in China’s extraordinary mobilization of financial and other resources in Pakistan. Regardless of its variants, the basic approach taken by both sides involved centralized top-down planning and implementation without the participation of local communities or civil society. Particularly in the wake of Pakistan’s unsustainable debt burdens and greater international scrutiny of BRI-induced debt stressors, China’s usual approach of ensuring rapid and effective project delivery by mobilizing its state-owned financing and construction sectors now needs to give way to a more nuanced, people-centric approach.
We propose several changes to address these challenges. First, both countries should engage in a candid reassessment of the suitability of existing development plans. Currently, both sides strictly adhere to the diplomatic rhetoric of “iron brotherhood,” which suppresses doubts and differing opinions. However, bilateral cooperation demands flexibility in rectifying errors and withdrawing from projects that have proven unfeasible. Engaging in frank discussions regarding these issues could prove more beneficial in dispelling doubts on both sides, rather than merely glossing over disagreements.
Second, the scope of the existing coordination mechanisms should be widened to incorporate inputs from local stakeholders and experts. These include representatives of local communities, who can help channel local demands into more central development plans. It is also crucial to consult the expert opinions of Pakistan’s many respected development specialists and scholars, an important source of policy input that has thus far been underutilized in CPEC. Leveraging Pakistan’s intellectual resources can improve the designs of development plans, ensuring they better reflect the local reality. This is particularly important because the strategic projects of Gwadar, Karakorum Highway, and Main Line-1 railway will not be successful unless local stakeholders buy in. CPEC planners should incorporate mechanisms for gathering local inputs, such as focus group discussions with local communities and roundtable discussions with experts, as part of their development strategy.
The bureaucratic coordination mechanism of JCC and JWGs, as discussed previously, might have played a positive role in charting the initial course for CPEC cooperation, but their lack of regular contact with stakeholders on the ground and limited problem-solving authority make them ill-suited for deepening economic and social engagement between China and Pakistan. The inter-governmental coordination mechanism should focus on core issues related to security and policymaking and allow more room for local experimentation. This latter point is especially relevant as both countries pursue industrial cooperation, which requires bottom-up entrepreneurial innovations rather than top-down administrative instructions.
In short, advancing CPEC requires the Pakistani and Chinese governments to adopt a more open approach than in earlier stages. Recognizing past shortcomings can facilitate the dialogue needed to rebuild trust. Fostering local ownership is also crucial, which necessitates establishing channels that incorporate local voices into the official agenda-setting process.
[1] Authors’ interview with a senior government official at the Prime Minister’s Office in Islamabad, Pakistan.
[2] It should be noted that not all Chinese financing in Pakistan in the BRI era falls under CPEC, which publishes an official list of projects funded by both Chinese and Pakistani sources.
[3] Authors’ interview with Pakistani bankers at two major banks, both of whom were in-charge of facilitating CPEC projects within their respective organizations.
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Hong Zhang is an Assistant Professor at the Hamilton Lugar School of Global and International Studies, Indiana University Bloomington. Her research focuses on China’s role in global development, particularly in the areas of infrastructure development and industrialization. She co-edits the People’s Map of Global China and Global China Pulse journal, initiatives that foster collective efforts to study China’s global presence. Previously, she was a Postdoctoral Fellow at the Harvard Kennedy School, Johns Hopkins University School of Advanced International Studies, and the Columbia-Harvard China and the World Program. She holds a PhD in public policy from George Mason University.
Ammar A. Malik is a faculty affiliate in public policy at William & Mary and at the Harvard Kennedy School. His research examines how China’s rise as the world’s largest provider of foreign development assistance is reshaping global development, with a particular focus on Pakistan. He explores how developing countries are utilizing China’s Belt & Road Initiative to support economic development, and how environmental challenges are hampering progress. His work has been featured in leading media outlets including The New York Times, The Economist, Wall Street Journal, and Financial Times. Ammar holds a PhD in public policy from George Mason University.
Image credit: Saadzafar91, creative commons, via Wikimedia Commons.
