China fears as Pakistan might be on the verge of bankruptcy, Read what happened!

China fears as Pakistan might be on the verge of bankruptcy, Read what happened!

Talk of Pakistan’s dampening financial situation is doing the rounds in China as well. Global Times which is a state-run media talks about Pakistan’s ‘deepening financial crisis’. This is what the daily had to say –

“While Pakistan’s fast growing economy has made it a darling for foreign investment, the surge in the country’s fiscal deficit & public debts has increasingly become a source of concern for international investors & has led to doubts about its capability to repay its debts.

“Given the massive investment that China has made in the country as part of the China-Pakistan Economic Corridor (CPEC), China has a vested interest to ensure that the rising fiscal deficit in Pakistan not snowball into a major financial crisis.

“A surge in the country’s deficit would make it vulnerable to external shocks & would increase Pakistan’s chances of a debt default. As a major creditor & the largest investor in Pakistan, China has an obligation to safeguard its investments in Pakistan & ensure it can recoup its loans.

“China needs to develop a plan to help Pakistan properly manage its deficit & reduce an excessive build-up of debt. To do that, China & Pakistan should effectively implement the CPEC project, make it more inclusive & prevent inefficiency & corruption from undermining the project.

“Meanwhile, China may need to diversify its ways of financing the CPEC projects. Currently, many projects are financed by Chinese government concessional loans. It is unrealistic & unsustainable to pin all hopes on government loans from China. Such a lending model is likely to drive up the debt level of the recipient country & toss it into a vicious cycle of inflation & currency devaluation.”

Is this concern really genuine?

First of all, Pakistan is no ‘darling for foreign investment’. Other than China no other nation even remotely invests anywhere close to what China does. Last year, Pakistan drew less than one billion dollars of investment. This statement of the Chinese daily is just a way of defending China’s investment in a nation that is a breeder of terrorism.

Now with regards to whether the concern about the economic health of Pakistan is genuine or not. It isn’t because China is a champion of economic warfare done to fulfil only its own motives.

China provides capital to economically unstable nations who desire capital for infrastructure but aren’t able to avail it from international organisations because of weak macro factors. This is where China steps in. It gives them cheap capital, even technology & man-power at times, with the motive to further its geopolitical motives. But it doesn’t invest to actually help the recipient nation, it does so to push the nation towards debt.

Gwadar Port in Pakistan is a prime example. Despite all the hype around the opening of the port, it remains isolated. There is no major business at the port. This means that because of no business, there wouldn’t be any revenue for Pakistan, which implies a lack of repaying capacity. This will push Pakistan into further debt of China.

Not only with Pakistan, but China does this with many other nations like Myanmar & Sri Lanka. When the recipient nation finds it hard to repay & asks for a loan-waiver of some sort, China happily agrees to cut the loan amount, but as compensation it asks the nation to give it stake in other even bigger projects. This is how China traps nations in its economic warfare.

Pakistan is no different, & in comparison to other nations, China’s involvement in Pakistan is tremendous. Yes, Pakistan is economically very vulnerable, & even though for the Chinese the CPEC is extremely crucial, it would certainly find a way to push Pakistan further into debt in its quest to making it a modern-day colony.

Wanting Pakistan to stand on its feet & think on its own is never a motive of the Chinese. As long as it stays in heavy debt of China, it will continue to do as it says.

This is why I feel that this concern by the Chinese daily, even though true, is a façade. It wants to show the world that its indulgence in Pakistan isn’t aggravating an economic crisis in the terror-affected country

Vinayak Jain