China is dragging Pakistan in a debt-trap

'Pakistan's fortunes are linked to China's growth'. We are not saying this, Pakistan Prime Minister Imran Khan said this earlier this year. But history has shown that depending on China is not prudent. Pakistan is learning this, but a bit late. China wants a higher interest rate on its loans. It is stalling infrastructure projects until an agreement is reached.

Meanwhile, Islamabad's external debt continues to grow.

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Main Line Project in Pakistan is a railway line that runs all the way from Karachi in South to Peshawar in North. It is the largest Chines initiative in Pakistan. More than 2600 kilometres of railway track is being built at a cost of 6.8 billion US Dollars. Pakistan will bear only 10 per cent of the project cost while the rest of the money will come from China not as an investment, but as loans.

Pakistan wants to pay 1 per cent interest on these loans. But China is playing hardball and has resorted to delay ing tactics. The project is a classic example of how China works.

Refusing to fund its all-weather ally, is bad optics. Agreeing to a bad deal is bad economics. 

So what does China do?

Squeeze Pakistan until it offers better terms.

And China can very well succeed here as Pakistan's railway network is in shambles. It badly needs the project to succeed. Pakistan's Railway Minister claims this initiative will create 1,50,000 jobs. This estimate is unrealistic but Main Line 1 is expected to boost transport. Particularly cargo transport.

Constriction was slated to start from January 2021. But as China is disagreeing to Pakistan's proposal, phase-1 is expected to be delayed. Reeling under the pressure from borrowers Pakistan has approached the G-20. It has secured a relief of 3.2 billion dollars. It offers Islamabad some room to negotiate with Beijing.

But if China refuses to budge, can Pakistan secure more loans? Western countries are hesitant to lend to Pakistan They are worries that their money will be used to repay Chinese loans. So there are chances that Pakistan would agree to Beijing unfavourable deal. This is a step one of what is called a debt trap.

But China can lay this trap without worry because Pakistan's Prime Minister has already tipped his hand. Imran Khan admitted this year, that his country' s fortunes are linked to China's growth.

2020 marks 5 years of China-Pakistan economic corridor. Less than 30 per cent of the projects have been completed. 40 per cent of all energy projects run on coal turning Pakistan into a pollution hub. CPEC was supposed to industrialise Pakistan, turn it into a manufacturing hub.

Instead, economic zones lie vacant. Only one Special Economic Zone in Gwadar is operational.

This episode is a lesson for all countries vying for Chinese funds. These funds have one objective, to lay a debt trap.