US, China lock horns over CPEC’s future

Pakistan is turning into an arena of acute US-China contestation. Pakistan’s decision to approach the IMF for a full-fledged bailout package (instead of Stand-by Arrangement) will accentuate it. The decision to opt for a bailout package implies that with its back against the wall, Imran Khan government may agree to undertake structural reforms under IMF’s monitoring and supervision. The expected bailout would work out to $7.5 billion.

The US will have a big say in the matter. Secretary of State Mike Pompeo has warned that Washington will make sure that the IMF package will not be diverted to pay back Chinese loans. IMF (read US) will want to run a comb through CPEC projects despite the Pakistani contention that Chinese loans are of long-term nature. There is already criticism by ‘westernist’ elites in Pakistan that CPEC stimulates the Chinese economy, not Pakistan’s. It may be a motivated campaign but is emotive and is having some effect that cannot but worry Beijing.

To be sure, a 3-way back-and-forth game involving US, Pakistan and China is looming ahead.

Enter Afghanistan. Pakistan made the announcement on IMF bailout on the eve of the arrival of a US delegation in Islamabad on Monday led by Zalmay Khalilzad, the newly appointed representative of the US secretary of state on Afghanistan. Khalilzad’s mission aims at getting Pakistan to deliver the Taliban at the negotiating table. Khalilzad’s fame of being a ‘Paki-basher’ makes him an improbable choice as emissary to spur a softening of the Pakistani stance. But then, Pakistan is also left in no doubt that there is nothing like free lunch and US attitude toward bilateral ties will critically depend on its utility to achieve the American objectives in Afghanistan.

Khalilzad seems hopeful. He is proceeding to the UAE and Saudi Arabia (US’ oldest partners in the conception of the Taliban in the early 1990s) and to Qatar. It remains to be seen whether Khalilzad gets to meet the Taliban representatives based in Doha.

Enter China. Pakistan is eager to flaunt its ‘China option.’ It disclosed out of the blue on Sunday – perhaps, with prior understanding with Beijing – that a deal has been struck for the supply of 48 high-end reconnaissance and strike drones to Pakistan and for eventual manufacture of such drones jointly between Pakistan Aeronautical Complex Kamra and the Aviation Industry Corporation of China’s Chengdu Aircraft Industrial Company.

When exactly this deal was struck remains unclear. (It has been under discussion since February 2017.) But the Chinese side’s assertion that it is the largest arms deal it ever struck and the timing of the disclosure itself convey a signal to Washington that Pakistan and China are very much ‘iron friends’. Importantly, this signal highlights “mil-to-mil” ties.

(Xi Jinping meets Pakistani army chief Gen. Qamar Bajwa, Beijing, Sept 19, 2018)

Meanwhile, Pakistani army chief General Qamar Bajwa was privileged to receive a ‘special invitation’ to meet Chinese President Xi Jinping in Beijing on September 9. Xi said at the meeting that: a) China and Pakistan are “highly aligned” with each other on major regional and international issues; b) “As long as the high degree of mutual trust and concrete (security) measures are in place, the China-Pakistan Economic Corridor (CPEC) construction will succeed and deliver benefits to the people of the two countries”; c) “At present, the international and regional situation is undergoing complex changes, and the two countries are supporting each other, helping each other and enhancing mutually beneficial cooperation, which have yielded fruitful outcomes.” Such efforts comply with the trend of the times; and, d) The two militaries should further deepen exchanges and cooperation in various fields and at all levels, make efforts to ensure the security of the CPEC and serve as “a reliable safeguard for the common interests and common development of the two countries.”

To be sure, PM Imran Khan’s forthcoming visit to China by end-October has a complex setting. He said on Sunday that Pakistan might turn to IMF but his preference is for funding from friendly countries. “We may go to IMF for a loan to handle the country’s financial issues,” PM Khan said. “But, first we will try to get assistance from other countries as we have requested three countries to deposit money in Pakistan’s State Bank that would help boost national reserves.” He didn’t name the 3 countries but China could be on his mind. The fact of the matter is that the IMF-prescribed structural reforms may cost PM Khan heavily in political terms.

From the Indian perspective, the good part is that PM Modi’s recent decisions defying US sanctions to procure S-400 missile system from Russia and to continue to source oil from Iran beyond the November 4 cutoff date by President Trump imply that there isn’t really any diabolical US-Indian axis working against Pakistan in the current scenario.

(Prime Minister Narendra Modi and Xi Jinping in Wuhan, China, April 27-28, 2918)

Significantly, Beijing too has been promptly acknowledged Modi’s decisions as an assertion of India’s strategic autonomy. People’s Daily and China Daily (here) as well as Global Times (here) positively viewed the development as strengthening multipolarity and the imperatives of strategic convergence between India, Russia and China in the world order.

Nonetheless, Chinese diplomacy faces the challenge of balancing 5 major templates: a) ensuring that its alliance with Pakistan does not suffer erosion; b) neutralizing US’ predatory attempts to complicate Sino-Pakistani relations; c) helping Pakistan to tide over its economic crisis so that the latter can negotiate with the IMF optimally, if not dispense with the need of tied aid; d) preserving CPEC at all costs; e) nurturing the ‘Wuhan spirit’ with Modi and encouraging India to continue to move in the direction of independent foreign policies. Trust Washington to accentuate the contradictions. At the epicentre is a titanic struggle over the future of the CPEC.

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