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Why CPEC Went Wrong for Both Pakistan and China

Signed in 2015, many among the Pakistani intelligentsia had perceived that the China-Pakistan Economic Corridor (CPEC) was a watershed moment for their country. The prevailing thought was that CPEC would herald an enormous and positive economic shift for Pakistan. It was even pegged at one point as China’s own “Marshall Plan” for Pakistan and, via its wider Belt and Road Initiative, many other developing states.

However, by 2019, the reality had dawned in Pakistan that CPEC was not delivering on the hopes people had for the program. Rather, CPEC did not herald an economic transformation in Pakistan, but it beset the country with more debt and underutilized infrastructure.

Today, key international organizations, such as the International Monetary Fund (IMF), want Pakistan to rein in CPEC activity due to the debt load the initiative is adding to the country’s beleaguered fiscal state. Should Pakistan persist with CPEC programs, the IMF expects visibility on the program’s terms.

So, what went wrong? Why did CPEC ‘fail’ to deliver on the hopes Pakistani intelligentsia had for the much-celebrated and anticipated initiative? Did China ‘fail’ in creating its own “Marshall Plan?”

CPEC Was Flawed, but Not Necessarily Malicious

Certainly, one can expect some among Pakistan’s intelligentsia to be weary of the Chinese, at least from an economic collaboration standpoint. Given how CPEC added to some of Pakistan’s fundamental fiscal woes (most notably debt), suspicion of Beijing is an understandable response.

However, CPEC’s failure is not due to Chinese maliciousness or selfishness. Rather, CPEC failed because it was fundamentally too big a program for either Beijing or Islamabad to properly handle. The lack of ability here is not from an implementation standpoint, but rather, a fundamental issue: Incomplete vision.

To understand this point, one must briefly visit the actual Marshall Plan.

On the surface, the Marshall Plan have seemed like a relatively benevolent American effort to revitalize Western Europe and East Asia (especially Japan). Indeed, the economic outcome of the Marshall Plan does point to a benign intent. Washington poured today’s equivalent to over $200 billion U.S. into key war-torn regions to restore their industries, rebuild their infrastructure, and reactivate their military strength. The U.S.’ allies and former enemies went from broken to resurgent.

It is no secret that the point of the Marshall Plan was to help the U.S. build bulwarks against the rise and growth of global Communism (led by the Soviet Union and China). On the surface, one could say that this was a fair trade: Washington helps rebuild London, Frankfurt, Tokyo, Paris, and so on, and they, in return, stand with the U.S. to resist Moscow and Beijing.

However, the Marshall Plan was not generous. It was a gargantuan trade, one that saw Western Europe transfer its implicit sovereignty to the U.S. From a security standpoint, this trade-off was apparent in the North Atlantic Treaty Organization (NATO). Then French president Charles de Gaulle explicitly called out this reality when he announced France’s withdrawal from NATO in 1966. But NATO only illuminated the surface of the implicit sovereignty transfer – its real impact was felt economically.

Not only was the U.S. Dollar driving the bulk of trade across the Atlantic and Pacific after World War Two, but it was the reserve currency of the world. When Nixon opted to unpeg the Dollar from gold, the world had to follow suit. However, there was a deeper aspect to the rise of U.S. economic influence.

By investing in or co-rebuilding the war-torn regions, Western Europe and Japan’s key domestic economic actors were now tied to America. They needed access to American markets and American capital. Thus, they would exert influence on the political scenes of their countries. To be clear, it was not a subordinated relationship, but undoubtedly, Washington’s voice had to be heard, and then addressed. As a result, the U.S. has many powerful allied states to support its initiatives (albeit with some negotiation or trade-offs).

Basically, at its core, the Marshall Plan was not just an economic program. It was a delivery vehicle for an intricate and long-term vision of how Washington wanted to shape key regions. The U.S. understood that effecting substantive change in how the old Colonial powers functioned required concessions (perhaps to wean these countries’ dependencies on their colonies). And, in return, the ruling establishments of these countries understood, and consciously agreed to, what Washington wanted from them.

In contrast, CPEC was empty of a strong vision. Even if one accepts that Beijing was benevolent, then – at best – CPEC was a brute-force method to accelerate Pakistani production. Basically, the idea may have been to rapidly build-up Pakistani energy and infrastructure. In turn, the Pakistani private sector can then leverage the glut of capacity to start manufacturing products more affordably, especially at scale. Pakistan would then be able to generate foreign currency and, potentially, escape its debt problem.

However, this brute-force method assumes that Pakistan’s leadership understands what it was supposed to be doing in parallel to CPEC. For there to be more Pakistani manufacturers, the country would also have to invest in educating and upskilling the population. Indeed, despite being materially war-torn after WW2, Europe and Japan had highly skilled populations. American money could literally go into the right hands!

Yet the ‘receptive vision’ was totally absent in Pakistan. Rather, the attitude – especially among some in the Pakistani political class – was that CPEC would just make things happen. As if, there was no real work required in properly leveraging the capital injection.

So, it is easy to see where CPEC failed on the Pakistani side. But even if one assumes China had a brute-force mentality to CPEC, how did Beijing fail? Well, simply put, it did not work to change the establishment – or at least, the establishment’s thinking – through CPEC.

This perspective may sound crass. However, when the U.S. designed and employed the Marshall Plan, it forced significant changes in how Britain, France, Germany, Japan, the Netherlands, and others could now operate in the world. The U.S. exerted significant pressure on the Colonial powers to let their colonies see through self-determination, independence, and – eventually – admission into the United Nations. It then shaped the rise of the modern ‘Western world’ to, fundamentally, stop an ‘Eastern threat.’

Basically, the European leaders went from thinking in terms of “X” to, after the Marshall Plan, thinking in terms of “Y.” However, when it came to CPEC, the Chinese did not care to turn the Pakistani establishment form its “X” to the “Y.” Pakistan remained stuck at “X” (or, worse, may have regressed to “W” or “V” as it seeks further U.S. and Western support for its economic woes).

If Washington was in Beijing’s position, and with China’s strategic challenges, then Washington will have certainly, without doubt, worked to alter the Pakistani establishment. And if it cannot change the thinking, it would, in all likelihood, have forced a change in the actors themselves.

It is unclear if China’s reluctance to go that far in Pakistan was due to not understanding the situation, or, perhaps, an intentional policy. Indeed, China wants to paint only the West (especially the U.S.) has some overbearing, interfering power. Beijing does not want to be seen in the same light. It may lack the capacity to carry out such far-reaching changes in other countries, especially one as complex as Pakistan. Finally, the Chinese could simply be uninterested in contesting against the Americans at that high a level.

Ultimately, Beijing is primarily focused on its economic interests. It does not really have the same global-scale vision as Washington. For example, brands like McDonalds carry a cultural significance. They herald changes in a society’s lifestyle, income levels, relationship with the West, and many other attributes. So, for the U.S., the spread of McDonalds is more than just selling burgers and fries. In contrast, for China, the spread of Xiaomi or even TikTok (which does have a cultural impact) is about the trade benefit, not about any fundamental shift in how people should live and think.

Indeed, if not for their tension in East Asia, one could argue that China was perfectly content with working within the framework of U.S-led economics. In fact, China had prospered under that very system. But now, the U.S. does not want China’s economic weight to go unabated. Even if China does not have a global view of the world, its interest in its own vicinity overlaps with America’s interests in the Pacific. Due to this key overlap, China is thrusting itself into a cold confrontation with the U.S.

In any case, CPEC – or any other Chinese program of this nature – will not succeed in Pakistan. The latter’s leadership and policy capability are too weak. They are not based on a fundamental agreement on how the country ought to run, but just whimsical statements to appease the public. Be it as a democracy or as a dictatorship, the Pakistani leader of the day is a result of a tenuous power-sharing deal between several key pillars of the Pakistani state (i.e., the leading political parties, the military, and at times, the judiciary).

These pillars are not aligned on a fundamental vision of Pakistan. Thus, the governments they will always produce are, by nature, disconnected from such questions. Ironically, the only time these pillars seem to ‘unite’ is whenever the U.S. enters the scene, e.g., during the War on Terror in the 2000s and part of the 2010s, and the Soviet Occupation of Afghanistan in the 1980s. What does it say about a country that can only unite when an external actor (preferably with money) mobilizes it?

 

 

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