Earlier this month, the American ambassador to Pakistan visited the port of Gwadar, the center of China’s Belt and Road Initiative (BRI) projects in the country. The strategic meaning of the visit is obviously not explicit, but as Nikkei Asia points out, U.S. officials had barely set foot there since 2006, and some believe it could indicate a degree of geopolitical hedging from Pakistan. “The establishment in Pakistan appears to be trying to avoid putting all its eggs in the China basket, and to seek closer relations with Washington,” Michael Kugelman, director of the South Asia Institute at the Wilson Center, told Nikkei.
As a one-off, that development might not be highly significant. But looking at the details of the story may also reveal it as part of a wider trend around BRI. “China has been frustrated by cash-strapped Pakistan’s delayed payments to power plants built under [China-Pakistan Economic Corridor],” Nikkei notes. “And Islamabad is reportedly negotiating with Beijing to reduce the cost of a railway known as Main Line-1, the largest CPEC endeavor, to $6.6 billion from $9.9 billion.” If these financial issues and resulting negotiations are part of the cause of potential hedging from Pakistan, then it fits a pattern that’s being recognized elsewhere.
Pakistan’s debt-to-GDP ratio stood at approximately 75% in 2022, with external debt reaching $125.7 billion in March 2023, and soon-to-be-published research from Clement Durif, a junior research fellow at Asia Centre, has found a negative correlation between bilateral relations with China and BRI countries with financial difficulties like Pakistan’s.
Durif’s research focuses on African countries and uses their voting records at the U.N. between 2000 and 2020 as a proxy for overall relations. When they line up with China’s voting record, it’s taken as a sign of good overall relations. When they don’t, it’s taken as bad. Speaking at a webinar hosted by Asia Centre last week, Durif explained that when BRI-involved African countries experienced financial difficulties — relatively high debt-to-GDP ratios, for instance — it tended to make them less likely to vote with China at the U.N. With a large number of the countries studied experiencing such financial difficulties, there was an overall net negative effect: “If loans were intended for [the People’s Republic of China] to gain political leverage in recipient countries, it instead lost them political support because of them,” Durif said.
Other factors were found to play a role in these relationships, too. A widening trade deficit with China negatively affected alignment, whereas increased flow of foreign direct investment improved it. Higher interest rates on loans had a negative impact, longer maturity rates had a positive one. But one broad takeaway is that this is a kind of reversal of the debt trap narrative which has done the rounds in recent years. The increasingly dismissed idea there is that China benefits from saddling countries with loans they cannot afford so that it can seize ports, mines and other strategic assets. But the idea here is that the effect of these countries not being able to pay back loans is strategically harmful to China.
China has recognized this effect and belatedly responded. According to Durif, the period between 2014 and 2016 saw exponential growth of debt-to-GDP levels in countries studied, and this was the time when China lent the most. Then, even prior to COVID-19, China began scaling down lending and took on more cautious practices. Among other things, Durif says it has been deemphasizing infrastructure and promoting instead cooperation in health, technology or climate areas.
However, as the situation in Pakistan might point to, such issues don’t disappear overnight. And this matters. At the same webinar, Alessia Amighini, a non-resident fellow at Bruegel, pointed to how projects like BRI may conversely have influenced Global South countries to remain neutral or reject the U.N.’s (successful) March 2023 resolution against Russia’s invasion of Ukraine. Of 52 countries that remained neutral (by abstaining or being absent) or rejected the resolution, 45 were from the Global South. China has maintained a degree of strategic ambiguity and flexibility around Ukraine, but pushing the world in directions that suit it is important in both big and small geopolitical moments. It needs to get good at it.
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