Alliances Shifting in South Asia: India-US Versus China-Pakistan

CPEC is destabilizing South Asia
December 10, 2021 Updated: December 11, 2021

News Analysis

India is preparing to fight a war on two fronts, while Pakistan is discovering that the cost of the China-Pakistan Economic Corridor (CPEC) includes crippling debt, loss of U.S. alliance, and potential conflict with India.

In 2018, the World Bank warned countries participating in China’s Belt and Road Initiative (BRI) that the project has been known to cause debt risks, social risks, corruption, and stalled or frozen infrastructure projects. Add in increased terrorism, political interference by the military, and China’s tensions with India and the United States—this describes the impact of CPEC on Pakistan.

Former U.S. Ambassador Alice Wells, head of the South Asia and Central Asia Bureau, told the Wilson Center that the Chinese regime is exploiting Pakistan. At that time, Pakistan’s debt to China had already risen to $15 billion, not including an additional $6.7 billion of commercial debt. Projects were being quoted at inflated prices, and after the work was started, the price was raised even more.

The work to upgrade the railway from Karachi to Peshawar was originally supposed to cost $8.2 billion. Pakistan’s Ministry of Railways announced that the price had been negotiated down to $6.2 billion. But it was later reported that the price had risen to $9 billion. In spite of Pakistan’s high unemployment, CPEC employs mostly Chinese workers. Beijing’s “no strings” lending has fostered corruption, and the lack of transparency makes it difficult to find out exactly what Pakistan owes, what has been spent, and how many Chinese workers are in Pakistan.

In Balochistan, where Gwadar Port—the terminus of CPEC—is located, anti-corruption journalists have been threatened and even murdered. According to Pakistani journalists, there has been no independent reporting on CPEC, and the only reporters who have been granted access to Gwadar Port were from Chinese or Pakistani state-run media.

While scrutiny of CPEC is not permitted in Pakistan, Chinese authorities and investors are fully aware of the mounting disincentives to keep pouring money in. CPEC projects slowed after Pakistan’s 2018 elections due to perceived political fragility, increased terrorist attacks, corruption, lack of profitability, and economic recession. By 2019, CPEC investments and projects had ground to a near standstill.

In 2020, Asim Ayub, the project director of the CPEC Industrial Cooperation, reported that when the draft of the proposed industrial cooperation for the coming year was forwarded to the Chinese, it was received with little enthusiasm. Even worse, the next Joint Cooperation Committee (JCC) meeting was postponed. It seemed that Beijing was no longer as excited about continuing with CPEC.

CPEC was meant to restart with a bang in 2021. In reality, however, projects remain unfinished and many seem to not be moving forward. Gwadar Port is the most important component of CPEC and yet, in the city of Gwadar, locals have been unable to get drinking water. Fearing attacks on the project, the Chinese demanded increased security and a fence surrounding the port. Baloch nationalists protested, however, amid rumors that the area would be fenced off and then placed under direct, federal control.

Laborers walk through the Gwadar Port in Pakistan, a multi-billion dollar infrastructure project that China has invested in as part of its Belt and Road Initiative. (Amelie Herenstein/AFP/Getty Images)
Laborers walk through the Gwadar Port in Pakistan, a multi-billion dollar infrastructure project that China has invested in as part of its Belt and Road Initiative, in this undated photo. (Amelie Herenstein/AFP/Getty Images)

As a result of Beijing’s urging, a CPEC authority was created in Pakistan to coordinate CPEC projects. The CPEC authority was enshrined in law, and a retired general, Asim Saleem Bajwa, was appointed as the head. Now locals fear that discretionary control over the $70 billion worth of projects will shift from the civilian government to the military. Furthermore, Bajwaa has been accused of amassing a fortune in undisclosed wealth and offshore assets during his tenure as CPEC head.

In the beginning phases of CPEC, Beijing would first release funds and then construction would begin. However, Beijing has become more cautious about the risks in Pakistan and changed the model: construction must first begin before the funds will be released. The problem for many projects is that Islamabad lacks the money to begin construction and, thus, projects stagnate.

The benefits to Pakistan are difficult to see. CPEC loans are opaque and many of the projects, in addition to being unfinished, are of questionable value. Because of its inability to meet CPEC debt payments, Pakistan had to turn to the International Monetary Fund (IMF) for a three-year $6.3 billion bailout. Even in trade, the Chinese regime is exploiting Pakistan. Pakistan’s 2020 exports to China were $1.87 billion, while imports from China were $12.49 billion.

A threat for the United States and regional stability is that a retired general oversees CPEC and most of the projects are being administered through the army. This has strengthened the military’s role in civil society, weakening Pakistan’s democracy. Meanwhile, an expanding Pakistani army and the Sino-Pak-Taliban trio has India on edge.

India rejected participation in China’s BRI and sees Chinese involvement in Pakistan as a threat. A portion of CPEC passes through Gilgit-Baltistan, part of the greater Kashmir disputed territory. As a result, the area has seen an increase in terrorist/separatist activity. In addition to having to deal with rising violence, New Delhi claims that some CPEC projects are on Indian soil. The CCP rejects this claim.

Indian Army Chief General M.M. Naravane, at an annual press conference, called the “increased cooperation between Pakistan and China, both in military and non-military fields,” a “two-front situation,” which the army had to prepare for. The Indian Air Force (IAF) chief, Marshal R.K.S. Bhadauria, similarly said that the air force did not have adequate size to face a two-front menace.

India’s perceived threat from Pakistan and China—both of which India has fought wars with in the past—has driven India to increase the size of its military and to cooperate with the United States. The Indian military is even deploying U.S. Chinook helicopters to confront China in the border areas.

Epoch Times Photo
A U.S. military Chinook helicopter is seen landing at Forward Operating Base in Arghandab District in southern Afghanistan on July 29, 2011. (Romeo Gacad/AFP/Getty Images)

India and the United States, along with Japan and Australia, are members of the Quadrilateral Security Dialogue—the Quad—a defense pact designed to counter communist China’s expansion in the Indo-Pacific region. The United States designated India as a Major Defense Partner in 2016. India was also elevated to Strategic Trade Authorization tier 1 status, which grants India license-free access to a variety of U.S. military and dual-use technologies.

U.S.-India defense trade cooperation includes the Logistics Exchange Memorandum of Agreement (LEMOA), Communications, Compatibility and Security Agreement (COMCASA), as well as the Industrial Security Agreement (ISA). U.S. defense trade with India was $20 billion in 2020.

CPEC was meant to be the flagship of Xi Jinping’s BRI, but as of 2021, it is flailing. Projects are stalled, half finished, and in many instances, proving untenable. Pakistan is saddled with massive debt and unemployment. The country is still running a tremendous trade deficit with China. India is arming itself, preparing for a two-front war. And the United States is losing one ally, while courting another.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Antonio Graceffo, Ph.D., has spent more than 20 years in Asia. He is a graduate of the Shanghai University of Sport and holds a China-MBA from Shanghai Jiaotong University. Graceffo works as an economics professor and China economic analyst, writing for various international media. Some of his books on China include "Beyond the Belt and Road: China’s Global Economic Expansion" and "A Short Course on the Chinese Economy."