As the end of April 2015, Chinese president Xi Jinping visited his country’s energy-deprived 'all-weather friend', Pakistan, to unveil a $46bn spending plan. The plan, known as the China-Pakistan Economic Corridor, envisages about $34bn of spending in Pakistan’s energy sector. The remaining capital will be put towards an assortment of rail, road and infrastructure projects for a trade route connecting China’s western regions with Pakistan’s southern sea ports by 2030.
The announcement received a 'credit positive' rating from credit ratings agency Moody’s Investor Services. But, for a country whose total FDI inward stock stood at $27.58bn as of 2013, according to the last available United Nations Conference on Trade and Development (Unctad) data, the promise of $46bn appears too good to be true. Consider also that $46bn is about 20 times that of China’s FDI stock in Pakistan.
Even by China’s own overseas investment trends, $46bn is a huge number – about 7% of its total FDI stock abroad. According to Unctad, China’s biggest outward FDI stock in any single destination – outside of Hong Kong or tax havens the British Virgin Islands and the Cayman Islands – was only $21.8bn, much less than its $46bn promise.
The two countries signed dozens of memorandums of understanding (MoUs) between 2008 and 2013, but little has materialised as a result of these. But, observers say this time it is different.
“Back then it was only a discourse, and not a fully committed policy. Plus, the ‘agreements’ have been signed this time around, which is something more than the MoUs signed in the past,” said Mr Mustafa Hyder, executive director of the Pakistan-China Institute in Islamabad, which houses the Pakistan secretariat of the recently launched joint think tank Research and Development International (Randi). With its focus on the corridor, Randi’s China secretariat will be co-hosted by the Chinese Academy of Social Sciences and the China Institute of Reform and Development.
“Today, China’s ‘One Belt, One Road’ initiative is defining its foreign policy, which is not only important for its trade and economy, but also for its maritime security. And Pakistan is the most important country in China’s latest foreign policy; it is the backbone of this initiative,” Mr Mustafa said, referring to Beijing’s plans to connect China with south-east Asia, the Middle East, Europe and north Africa via land and maritime corridors.
Echoing similar views, Anushka Shah, an analyst at Moody’s, highlights that “this time the investments have already been pledged”. “The Pakistani government seems more committed; it has moved very quickly over the past few months, though of course the implementation will take place over the course of a few years. Continued resolve by both sides provides impetus to the project which is also a credit positive,” she told fDi Magazine. “Regardless of how it’s being financed, it will improve Pakistan’s investment to GDP ratio, which is lower than the median for B-rated sovereigns.”