CPEC miscalculation: how Pakistan built infrastructure but missed development
The debate surrounding the China-Pakistan Economic Corridor (CPEC) has become trapped between two extremes. One side portrays it as a transformational success that modernized Pakistan’s infrastructure. The other treats it as the source of many of the country’s current economic difficulties. Both perspectives miss the larger lesson.
The real story of CPEC is not about China, nor is it primarily about debt. It is about how Pakistan managed one of the largest development opportunities in its history and failed to translate that opportunity into sustained economic growth, industrial competitiveness and broad-based prosperity.
With an investment envelope approaching USD 62 billion, Pakistan was offered something few developing countries receive: access to large-scale capital to address critical infrastructure bottlenecks. Roads were built, power plants were constructed, transmission systems expanded, and Gwadar Port was developed. Yet, despite these investments, Pakistan today faces rising electricity tariffs, growing circular debt, weak industrial competitiveness and a Gwadar that remains far below its potential.
The central problem was not a shortage of investment. It was a failure of strategy.
The power sector provides the clearest example.
When CPEC began, Pakistan was suffering from severe electricity shortages. New generation capacity was urgently needed. However, policymakers treated power generation as the solution rather than one component of a larger system. Generation capacity expanded rapidly through projects such as Sahiwal and Port Qasim, but transmission upgrades, distribution reforms, loss reduction and market development failed to keep pace.
The result is that Pakistan now possesses substantial installed capacity while consumers continue paying for generation whether it is dispatched or not. Capacity payments have become one of the largest distortions in the economy, contributing significantly to circular debt and rising tariffs.
The coal projects illustrate the consequences of planning infrastructure in isolation.
Much of the public debate has focused on whether particular projects were overpriced. Those questions deserve independent scrutiny, but they miss the more important issue. Even if every project had been competitively procured, Pakistan would still face many of the problems that exist today because the underlying framework was flawed.
The decision to rely heavily on imported coal embedded long-term foreign exchange exposure into the power sector. Every depreciation of the rupee increased electricity costs. Inland coal transportation costs became permanent features of tariffs. Port infrastructure and logistics costs were incorporated into the system for decades. Consumers ultimately assumed risks that functioning markets would normally allocate more efficiently.
More importantly, the contracting process produced electricity tariffs that gradually became uncompetitive relative to regional peers. Industrial consumers increasingly found themselves paying electricity prices often approaching twice those faced by competitors in Bangladesh, Vietnam, India, Indonesia and many parts of China.
This may be the most damaging legacy of the entire exercise.
The power projects were justified on the basis that they would support industrialization and export growth. Instead, the resulting tariff structure became one of the reasons why industrialization failed to materialize at the scale originally envisioned. Energy-intensive industries became less competitive. Downstream manufacturing struggled to develop. Export-oriented investors increasingly looked elsewhere. The very infrastructure intended to support industrial growth became a constraint on that growth.
This failure helps explain why Gwadar never fulfilled its promise.
Gwadar was never intended to be merely a port. The original vision encompassed an integrated ecosystem consisting of a deep-water port, industrial zones, logistics services, export-oriented manufacturing, urban development and regional trade connectivity. The port itself was only the anchor.
The economic activity was supposed to be the destination.
Yet Pakistan focused overwhelmingly on physical infrastructure. Roads were built. Port facilities were developed. Master plans were produced. But the industrial ecosystem required to generate cargo, investment and employment never emerged on the scale required.
The fundamental question was always simple: what industries would locate in Gwadar and why?
The answer increasingly became difficult because many of the conditions necessary for competitiveness never materialized. Investors require affordable energy, reliable utilities, skilled labour, predictable regulation, efficient customs systems and access to markets. Many of these elements remained underdeveloped.
The failure of Gwadar and the failure of the power sector are therefore not separate stories. They are manifestations of the same planning failure. In both cases, Pakistan built assets before creating the economic foundations necessary to support them. The port arrived before the industries. The power plants arrived before the demand. The contracts arrived before the markets.
Political and social considerations compounded these difficulties.
Balochistan’s security challenges long predate CPEC and stem from decades of political, economic and governance failures. However, policymakers underestimated the importance of ensuring that local communities became visible beneficiaries of development. While major investments were announced and strategic ambitions emphasized, many residents continued to see limited improvements in employment opportunities, public services, water supply, education and local business development.
The result was a growing perception that the benefits of development were flowing elsewhere.
This perception became particularly damaging because infrastructure projects ultimately depend on local legitimacy. Security measures can protect installations, but they cannot create public support. That support emerges when communities believe that they are stakeholders in economic progress.
The recurring attacks on CPEC-related personnel and infrastructure cannot be understood solely through a security lens. They must also be viewed within the broader context of long-standing grievances, uneven development and the failure to create sufficiently visible local economic benefits. Terrorist violence is never justified, but neither can policymakers ignore the developmental context within which such instability persists.
The broader lesson extends beyond Gwadar and beyond the power sector.
Pakistan repeatedly assumed that infrastructure would automatically create economic activity. In reality, successful ports emerge where trade exists, successful industrial zones emerge where firms can compete, and successful logistics hubs emerge where production is already occurring.
Infrastructure facilitates growth; it does not create growth on its own.
Countries that successfully leveraged large-scale infrastructure investment simultaneously strengthened institutions, improved governance, created competitive markets, developed export industries and established mechanisms that rewarded efficiency. Pakistan largely focused on the construction phase while postponing many of these complementary reforms.
As a result, the country captured only a fraction of the benefits that were available.
The greatest failure of CPEC was therefore not excessive borrowing, nor even expensive power projects. The greatest failure was the inability to convert infrastructure investment into competitive industrial growth. Pakistan spent a decade building assets while neglecting many of the institutional, commercial and governance reforms required to make those assets productive.
Gwadar remains a port searching for an industrial base. The power sector has become a source of rising costs rather than a foundation for competitiveness. Regions that were supposed to become stakeholders in development often remain unconvinced that development is occurring for their benefit.
The lesson is clear. Future investment programmes must focus not merely on what is built but on the economic ecosystems that emerge around those investments. Competitive markets, accountable institutions, affordable energy, export-oriented industrialization, and local participation matter as much as physical infrastructure.
Without those reforms, Pakistan risks repeating the same cycle regardless of who provides the financing.
The challenge has never been attracting capital. The challenge is converting capital into prosperity.
Copyright Business Recorder, 2026