by Harsh V Pant

China is facing trouble on multiple fronts these days but the most significant one seems to be emerging in Pakistan – its "all weather" friend. Despite the support of Pakistani elites for the China-Pakistan Economic Corridor (CPEC), part of Chinese President Xi Jinping’s ambitious Belt and Road Initiative (BRI), there is a bottom-up push in Pakistan to revise the terms of engagement on this project.

Pressure On Pakistan Government

The government of Imran Khan is under pressure to push back against the terms of the rail project linking Karachi to Peshawar as concerns have grown about Pakistan falling deeper into debt, exacerbating an already precarious economic situation. As Khusro Bakhtyar, minister in Pakistan’s planning ministry, made clear recently, “We are seeing how to develop a model so the government of Pakistan wouldn’t have all the risk.”

Despite Pakistan’s global isolation, worsening economic condition and the need for an IMF bail-out, the terms of CPEC related projects are apparently so unfavourable to Pakistan that Islamabad is being forced to review all the BRI contracts, though Beijing is in no mood to relent and has decided that only those projects which are not yet operational would be reviewed.

To help balance China’s inroads, Pakistan is now looking at Saudi Arabia and has asked Riyadh to join CPEC as the third "strategic partner." This week, a high-level delegation from Saudi Arabia is in Pakistan for talks during which five MoUs including the one on selling petroleum products on deferred payments are expected to be signed.

If the situation is so serious for China in Pakistan with which its relationship has been described as “sweeter than honey”, and “higher than the Himalayas,” then clearly Beijing should be worried.

In the wider Indo-Pacific, it is now becoming a pattern that wherever a new administration is taking charge, the first thing on the agenda is a review of China-funded projects. From Malaysia and the Maldives to Sri Lanka and Myanmar, there is a re-evaluation underway of China’s involvement in local economies.

The government of Mahathir Mohamad has cancelled Chinese infrastructure investments worth around $40 billion even as Mahathir has made his intention of strengthening ties with the West clear so as to counterbalance China. During his visit to China in August, Mahathir made his unease clear by suggesting that China is “pouring in too much money, which we cannot afford, cannot repay.”

Debt-Trap Diplomacy

Myanmar and China are also negotiating a framework agreement on the development of Kyaukphyu Special Economic Zone (SEZ) in Rakhine State. These negotiations between China state investment vehicle CITIC Group and the Myanmar government are aimed at reducing the Chinese consortium’s stake in the port from 85 per cent to 70 per cent. It was Sri Lanka’s fate pertaining to Hambantota port which prompted this reappraisal in Myanmar.

Sri Lanka has become the singular case study of China’s debt trap diplomacy. It borrowed around $1 billion from China to build Hambantota port and when it could not repay the loan, it had to lease the operational rights to China for 99 years. In the Maldives, the leader of the new winning coalition, Mohamed Solih, has said he is alarmed by the growing dependence of the Maldives on Chinese debt and wants to curb China’s influence.

This regional push back is happening at a time when China has come under pressure from the Trump Administration. Trump has long accused China of unfair trade practices such as subsidies, currency manipulation and in particular of stealing American intellectual property in the form of cutting-edge technology. While one can view these developments as a function of President Trump’s worldview, there is a wider shift happening in the US in so far as China is concerned. There is a fundamental re-evaluation of America’s China policy going on at the moment with questions being raised about the nation’s past posture.

US-China Relations

As a 2017 report from the US Trade Representative to the US Congress underscores: “It seems clear that the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China's embrace of an open, market-oriented trade regime.” These concerns about China’s economic behaviour are not America’s alone.

A number of other leading trade powers, including the European Union (EU), share these concerns. While China has responded with a tit-for-tat approach in retaliating against the US imposition of tariffs, the future will be difficult for Beijing because China imports much less from the US than it exports there. There have been reports about growing criticism of Xi Jinping in China as the future economic prospects of the country look tough.

As the push back against Chinese economic model gains momentum, it was New Delhi which first pointed out the drawbacks of the Chinese model and it is to its credit that it remained consistent in its opposition despite fears of India getting isolated. Now as the world is converging with Indian views, it is time for India to work in concert with other partners and offer credible alternatives to the Chinese model.