Violence, Fiscal Issues Hit China's Belt and Road Program in Pakistan

 

[By Atika Rehman]

More than 50 people were killed in late August during multiple attacks in Pakistan’s impoverished southwestern province of Balochistan. Despite extensive infrastructure investments made in the region, mostly through the China-Pakistan Economic Corridor (CPEC), a decades-long insurgency has only intensified, raising concerns about the sustainability of ongoing and future investments.

What is CPEC?

The attacks in Balochistan follow a similar pattern. Separatist militant groups, such as the banned Balochistan Liberation Army (BLA) and Balochistan Liberation Front (BLF), have long targeted Pakistani security forces and Chinese nationals, accusing them of exploiting the province’s resources. In Gwadar, home to the port often hailed as the crown jewel of the Belt and Road Initiative (BRI), resentment is growing among local communities, particularly fishermen, who have protested against the construction and the lack of basic amenities like water and electricity in their city.

Despite these challenges; there is little evidence that either Pakistan or China will abandon CPEC, with policymakers from both countries continuing to tout it as a “game-changer.” However, the reality on the ground is one that falls short of the lofty claims promoted by officials. Although some energy and infrastructure projects have been completed, CPEC is hardly the vibrant trade route it was billed to be.

Energy projects hit roadblocks

A key issue remains energy. Last year, Pakistan experienced an enormous blackout, a symptom of its creaky infrastructure and decades of underinvestment. Many of the CPEC energy projects, such as the Suki Kinari hydropower project and a coal power plant in Thar, were designed to address chronic energy shortages. Yet, according to Haneea Issad, an energy finance specialist at the Institute for Energy Economics and Financial Analysis (IEEFA), the issues run far deeper than simply building more plants.

“The government currently owes Chinese IPPs capacity payments to the tune of a billion dollars,” Issad told Dialgoue Earth. “Any investor owed such a huge sum would be wary of further investments after this.” She added: “There is also the issue of surplus capacity on the national grid and a shrinking consumer demand amidst slow economic and industrial growth. With the grid’s inability to absorb any new power projects, there aren’t many avenues for new investment opportunities opening up. From the Pakistan government’s end, it doesn’t have any more fiscal space to bring on any imported fuel-based new capacity, at least not on the traditional ‘take or pay’, fixed-price contractual model.”

Given these constraints, Issad argues that “any new contracts on the same model will not be feasible for both sides.”

CPEC: A multi-billion project in a struggling province

Perhaps more importantly, CPEC projects have yet to deliver meaningful benefits to the people of Balochistan, a province that makes up 44% of Pakistan’s land mass. According to the UNDP, Balochistan has the second highest headcount for multi-dimensional poverty out of all the provinces at 71.2%. It also has the lowest literacy rate in the country, especially among women.

Two energy projects under CPEC are located in Balochistan; both are troubled. The first, a 300 MW imported coal power project in Gwadar has yet to be built and there is speculation the project will be shelved due to financing challenges. Meanwhile, the China Power Hub Generation Company’s 1,320MW coal-fired plant at Hub has faced frequent liquidity problems, shattering investor confidence and leading to appeals for intervention from the Chinese ambassador to the prime minister.

Of the two road projects in Balochistan, the Khuzdar-Basima road has been built, but the second road from DI Khan to Zhob is not yet complete.

The BRI’s flagship project, the Gwadar port, is operational but has, thus far, failed to attract significant economic activity. It remains far from the bustling transshipment hub officials envisioned would “connect South Asia to the world.” Gwadar Airport, though reportedly complete, has yet to be inaugurated due to persistent security threats.

‘We don’t let saboteurs sabotage it ’

Over the years, militant groups have frequently threatened China against pursuing its development objects in the region via video messages. These groups have carried out numerous attacks, including assaults on Chinese engineers, an attack on the Chinese consulate in Karachi and the killing of three Chinese teachers.

In response, both Pakistan and China have reaffirmed their commitment to counter-terrorism and continued development. Pakistan’s defence minister, Khawaja Muhammad Asif, told Dialogue Earth: “The Chinese are invested and will not desert us. Of course, they have security concerns — it’s not just financial for them, it also involves Chinese workers on the ground. From Khunjerab to Gwadar, Chinese workers are present, making it a serious matter.”

Ahsan Iqbal, Pakistan’s minister for planning and development, expressed a similar sentiment, adding: “The Chinese understand that these incidents are isolated and they know that the forces behind them are trying to disrupt CPEC. We won’t let saboteurs succeed.”

Nonetheless, the persistent militant attacks have added pressure on CPEC projects, according to security expert Amir Rana. He pointed out that a recent high-level meeting between Pakistan’s army chief, the prime minister and Chinese president Xi Jinping featured security as “the foremost topic”.

He said: “They returned [from China] and announced ‘Azm-e-Istehkam’ [a military operation] ostensibly in response to Afghanistan, but it also reflects Chinese interest in making Balochistan safe — where the threat is highest and attacks are frequent.”

Rana added that resolving the insurgency in Balochistan and the ensuing militant attacks is far from straightforward: “It’s complicated because it’s not just a terrorist threat [and has] political elements.” On Pakistan’s response, he said “the political part of the resolution is missing.”

A pivot towards ‘Smart CPEC’

China, meanwhile, has adjusted its approach to investment in Pakistan in light of these challenges. Shahid Khaqan Abbasi, former secretary general of the Pakistan Democratic Movement coalition that governed the country from April 2022 to August 2023, noted that China had shifted away from large-scale infrastructure projects with long-term payoffs.

“Earlier in the CPEC process there was joint identification, feasibility and due diligence of potential projects and investments. But then the Chinese focus shifted to smaller and sharper interventions with quick returns; which was sometimes referred to as ‘smart CPEC’, i.e. not large infrastructure projects with long gestation periods, but smaller ones with faster results,” he explained.

At the third Belt and Road Forum in October 2023, president Xi placed great emphasis on “small yet smart” projects as part of BRI. These investments, focusing on a thousand small-scale livelihood programmes, aim to address local needs through targeted, manageable projects.

An Islamabad-based politician, speaking on condition of anonymity, said that Chinese business leaders had revealed unofficial instructions from their government to avoid investing in long-term projects. “They’ve been told to continue investing in Pakistan but to select projects that are near-ready or already operational with revenue streams. The direction changed after the slow pace and poor returns on existing projects,” he said.

This pivot reflects a broader reset in China’s overseas investment strategy, according to Isabel Hilton, founder of China Dialogue (which became Dialogue Earth in 2024) and visiting professor at King’s College London.

“Large-scale BRI investments peaked around 2017, as many of the projects became problematic for a number of reasons,” she told Dialogue Earth. “Last year, the 10th anniversary of BRI was a relatively subdued affair and today Beijing stresses a different development model — the Global Development Initiative. Chinese banks and government entities have become much more cautious in their lending and finance policies, and there is a much greater realization that due diligence matters in a world of low growth and mounting levels of debt.”

Atika Rehman is a deputy editor at Source Material, which carries out investigations around climate change, corruption and democracies. Prior to that, Atika was Dialogue Earth’s South Asia deputy editor. She is a journalist with over a decade of experience working in Pakistan.

This article appears courtesy of Dialogue Earth and may be found in its original form here.