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Considering that it was not a bilateral visit, there were not many hopes linked with the Prime Minister’s trip to China last week to attend the opening ceremony of the Beijing Winter Olympics. During the PM’s 4-day stay, there was an apparent lack of diplomatic pageantry and acute shortage of specifics (thus far) on any signed MoU’s. Those kinds of optics reinforced the already-held perception that this was a low-key visit.

However, after reading through the joint statement issued by China’s foreign ministry last Sunday following the premier’s meetings with the top Chinese leadership, one gets the impression that Beijing is ready to expand economic cooperation with Pakistan. During the trip, it is now learnt, the “Framework Agreement on Industrial Cooperation” for the China-Pakistan Economic Corridor (CPEC) was signed.

This is significant, because this framework is expected to give direction and meaning to the second phase of the multi-billion-dollar CPEC portfolio. The first phase of CPEC – launched during PML-N tenure, with significant progress – was geared towards removing infrastructure bottlenecks (transportation, energy and connectivity). The second phase is about making industrial investments, including through the SEZs.

After languishing for over three years now, CPEC could sure use some energy to start moving again. However, before making fresh funding commitments in mega projects like ML-1 (Railways), the Chinese side seems keen to review how existing investments have been faring. Among the irritants in that regard is Pakistan government’s inability to create mechanism for payment of dues to Chinese power producers.

Besides, there are several critical issues that need to be addressed, if CPEC is to be put on the map again. One, the deteriorating security situation in Pakistan, as admitted by federal Interior Minister himself on TV, is counter-productive. Last year, the Chinese government was spooked by multiple incidents targeting their projects and personnel. Now local security forces themselves are being targeted.

Two, the macroeconomic situation in the near to medium term is unsuitable for priming the CPEC pump all of a sudden. Pakistan’s economy continues to remain in the IMF incubator, as there are growing concerns over external-account financing and debt sustainability. The tight monetary and fiscal conditions are expected to prevail well into FY23 if Pakistan is forced to take another bailout later this summer.

Three, coupled with economic uncertainty, the domestic political situation remains volatile. Facing discontent over inflation and internal party strife, PM Khan is fighting for political survival. The opposition parties now smell blood. Even if PTI is able to complete its term, it portends more political instability over next 18 months. The Chinese do not have favorites, but they may wait for a competent government.

And then there is some geopolitics at play, too. With US and China engaged in great-power competition, Pakistan cannot afford to take sides. Its economy is vulnerable to West-dominated multilateral financial forums. As China knows this well, it may not want to push the CPEC button too hard at this stage, especially given above-mentioned limitations. Let’s see how things shape up over next three months!

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