COVID-19 Delays CPEC Investments & Aspirations of China & Pakistan?

Pakistan authorities recently warned about the possible delay and disruptions in China-Pakistan- Economic-Corridor (CPEC) often touted as the game-changer for the Islamic Republic. The delay in the multi-billion dollar CPEC project is due to the outbreak of COVID-19 pandemic.

The detailed report was presented before the National Coordination Committee (NCC) and stated that Chinese multinationals working on CPEC projects will suffer delays and higher costs of production along with disruption in supply chains and workforce disruptions.

CPEC is part of the ambitious Belt and Road Initiative (BRI) of President Xi Jing Ping. Announced in 2013, BRI consists of a Silk Road Economic Belt – a trans-continental passage that links China with South-East Asia, South Asia, Central Asia, Russia and Europe by land – and a 21st century Maritime Silk Road, a sea route linking China’s coastal regions with South-East and South Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe.

Pakistan’s plan to build Special Economic Zones (SEZs) will also be thwarted or at least face severe delays as Chinese companies will find it difficult to manage the required human and capital supplies on an urgent basis.

As G-8 countries are striving to diversify their supply chains to reduce over-dependence on China, Pakistan could take advantage of the pandemic climes experts talking to the EurAsian Times. As many organizations are planning to shift their production units from China, Pakistan on the back of its infrastructure availability can also be a likely destination.

‘’A well-articulated policy is need of the hour, however, the response may be constrained by –

  • Scepticism about the nature and duration of shocks may hinder policy action;
  • Appropriately finance demand of health systems and social safety nets within the confines of already compressed budgets may not be adequate;
  • Need for a mix of modern and specific strategies on hard-hit sectors and segments of the nation via tax relief and cash transfers (identification issues);
  • Reprioritise revenue and spending objectives as lower revenues resulting from lower imports copulated with supplementary spending requirements for pandemic mitigation are likely to widen the fiscal deficit.

This, in turn, will further aggravate precarious debt situation; Target measures to defer taxes and government fees, defer loan payments, and increase concessional financing for small and medium-sized enterprises; SBP to provide ample liquidity to banks particularly for lending to SMEs as financing needs to remain solvent is likely to grow at a rapid pace,’’ the report said.

Additionally, in the second-round effect, many businesses will face liquidity issues and will turn towards the financial sector for cheaper sources of financing. Global markets will be tight thereby constricting exports and remittances, a fiscal adjustment will be difficult, higher debt accumulation will be problematic, the development will be harder to find financing, revenues will be difficult to increase while expenditure demand will be immense, and in all this, an intricate policy mix has to be in place for stable transition out of the crisis, the report concluded.

The announcement comes as a U-turn as Pakistan had earlier claimed that the CPEC projects will face no delays because of the pandemic. In March, Pakistan Foreign Office spokesperson – Aisha Farooqi spoke about the CPEC projects and how they remain on schedule to be completed.

‘’We are quite confident that we will be able to complete the CPEC projects in time and, going forward, the short-term impact by the spread of COVID-19 will be counterbalanced by effective and swift mobilisation of resources,” she added.’’

In recent weeks, the virus has spread rapidly in Pakistan. First responders to the virus are struggling as they lack adequate supplies to protect themselves. Doctors and nurses recently launched a hunger strike in protest. More than 150 healthcare workers have tested positive for the virus and several have even lost their lives. 

Pakistan’s neighbour and decades old-foe, India, sees the CPEC projects under BRI as a major threat. The fact that the $46bn corridor route passes through the disputed Kashmir region is India’s biggest concern.

India’s opposition to CPEC reflects a concern over the internationalisation of the Kashmir dispute and the growing influence of China in the Indian Ocean, according to the Stockholm International Peace Research Institute.

Additionally, India sees the Gwadar Port in Balochistan, leased to the Chinese for 40 years, into potentially turning into a deep-sea Naval outpost for Beijing thus threatening India’s energy and economic security, as more than two-thirds of India’s petroleum imports pass through the area.

China has tried to play down India’s apprehension about CPEC in Pakistan by claiming to be India’s friend, offering New Delhi to join CPEC and maintaining its status-quo on Kashmir. However, with the delay and increasing costs of the CPEC, this might work in favour of India, in geopolitical terms.

The delay in the CPEC project comes as another major blow to China. Already facing the ire of countries all over the world for mismanagement of the virus and withholding vital information, delays and disruptions in its ambitious project adds insult to injury. After the dust from the pandemic settles, Chinese ambitions will need a major reassessment as the anti-China rhetoric gains momentum.