With US relations turning sour, China to rescue Pak's economy

Ever since US President Donald Trump has tightened the screws on Pakistan over its apparent inability to control the Islamic militants active in the country and its neighbours, it seems inevitable that Pakistan will have to turn to China to look for financial support.

The diplomatic discord between the two nations has intensified following Trump's tweet on January 1, wherein he blamed the US government of 'foolishly' giving Pakistan more than 33 billion dollars in aid over the last 15 years, and later when he cut off USD 2 billion in security assistance to Pakistan earlier this year.

Trump's administration followed up by placing Pakistan under the watch list of Paris based Financial Action Task Force's list of countries with inadequate terrorist financing controls, something that could severely hamper Pakistan's ability to lure in foreign investment.

Yigal Chazan, an associate at Alaco, a London-based business intelligence consultancy, in his column for The Diplomat, has said that Pakistan's debt problems have become worse and compounded by their foreign-exchange reserves dropping 27 per cent in the last year.

To buttress his point, he has cited one recent IMF survey and suggested that the country could be facing default, as the report doubted its ability to balance its books and added that with the USA's influence over World Bank and IMF's decision, Pakistan may well have to turn to the second largest economy of the world for financial assistance.

And it will not be a first, China helping stabilise a distressed Pakistan economy for many a years now, with it being the largest investor for the country last year.

As per reports, Beijing will inject around USD 60 billion into China-Pakistan Economic Corridor (CPEC). New power plants, roads, rail networks and a deep-water port are planned, with the project touted to overturn Pakistan's financial crisis.

However, there are arguments that China's apparent debt-trap diplomacy enables Beijing to dictate the terms of investment projects and exert excessive leverage over its economic partners. Pakistan is particularly exposed because its reliance on Chinese funds to stabilise the economy seems likely to deepen, because of the US's recent stance.

Sri Lanka would provide a reminder of China loan shark tactics as they had to hand over the port of Hambantota on a 99-year lease to clear off loans of around USD 8.8 billion.

On the longer run, it is clear that Pakistan can reap huge benefits from the Chinese economic engagement, but in its haste to attract investment it must not hand over all the cards over to for Beijing to dictate the terms of projects.