There are 3 ways we should look at Prime Minister Shehbaz Sharif’s visit to China and CPEC and meetings with President Xi Jingping.

1. China’s position

President Xi has had himself elected president of the Communist Party for the third time. He is emerging as a significant leader in the history of China now, like Chairman Mao.

Aside from PM Shehbaz Sharif, leaders from Tanzania, Vietnam and Germany went on tours to China. This is an important time for China to gather friends to tell the world that it is strengthening relations with other countries.

2. Pakistan’s POV

This is an important time for Pakistan as the government wants to get CPEC back on track. A lot of debts need to be rolled over. Pakistan has loans from China and deposits. It is trying to get extensions on loans. Pakistan’s government is already under a lot of pressure right now, not just from the long march, but the economy as well. It will wrap up its tenure next year in June/July and Pakistan will head into elections.

3. The world is looking on

Pakistan and America are heading towards re-engagement, as we saw with developments over the last few weeks. A lot of people are asking in Washington, ‘What does China see in Pakistan that despite multiple problems, CPEC slowing down, attacks on Chinese people in Pakistan, China is continuing to increase its relations with Pakistan?’ The words “too big to fail” are being used for CPEC.

The world was waiting for developments during this visit to see the outcomes on the loans and economic cooperation. This was because in the last few months, China has negotiated with creditor Western powers (US, France) to reschedule Sri Lanka and Zambia’s loan repayments. The loans were rescheduled to provide those countries relief. So everyone is waiting to see if they will do such a partnership with Pakistan or not.

The tour’s agenda

For Pakistan, the short-term item on the agenda is the balance of payments deposits which the SBP has taken as safe deposits and from Chinese banks this year. Their extensions will be discussed. Will China grant Pakistan more time or demand we return the money because Pakistan’s economy is not in a condition that we repay such massive loans. These loans are usually given for one or two years and their repayment deadlines are approaching.

Then there is talk about the $11.3 billion new projects such as the Karachi-to-Peshawar Main Line 1 (ML 1) railway that has to be upgraded, the KCR, and some energy infrastructure. But no big announcement has been made from Beijing.

I think that because there is political instability in Pakistan and elections are approaching, Chinese rulers will move cautiously on these really expensive projects, which are worth tens of billions of dollars. Pakistan is trying to win government-level approvals on them but I don’t see that happening.

The third long-term point on the agenda being discussed in Pakistan is CPEC’s phase II. The early harvest infrastructure projects – we had to improve our road networks, power infrastructure – have reached completion. They were supposed to benefit our economy in phase II. We had hoped to get foreign direct investment from China. Chinese companies were supposed to set up factories here. There would be jobs for young Pakistanis. We do not see this happening so far.

During Imran Khan’s government we saw them prepare the pitch book. He visited China and met Chinese companies, today PM Shehbaz Sharif met them too. So will Chinese companies invest in Pakistan? The onus is less on the Chinese government and more on Pakistan. Can we provide them that kind of workforce? Or tax relief, better roads, cheap electricity? What can we offer Chinese companies that they be attracted to coming to Pakistan rather than Dubai, Cambodia or Bangladesh? We won’t necessarily see much movement on this front during this visit. These are long term considerations.

Challenges to CPEC

I see three big challenges to CPEC:

1. Pakistan’s current political conditions: We see tension with the Establishment and politicians, a lot of tension between the government and Opposition, we see uncertainty because of the elections - will they happen early, how will they happen? So, will China decide to invest in Pakistan? I do not see this happening. I think it will be business as usual. We’ll have to see.

2. What reforms Pakistan undertakes: The biggest challenge for Pakistan, is whether this government can undertake reforms so that CPEC’s phase II is completed. Can it create one-window operations, raise the workforce, achieve stability in the exchange rate, improve security, so that China speeds up phase II? We need to see what steps are taken on our end and how China responds to it.

3. Global interest rates: World interest rates are going up. Compared to five years or so ago, taking a loan is, for countries like Pakistan, a lot more expensive. You are seeing the impact of this. In energy for example, where Chinese investors have put in money, because our rupee’s value has fallen, it is very difficult for the government to repay investors in dollars. So Pakistan has to be careful about taking on expensive loans going forward. And if we do take loans, the repayment formula must be strict and robust.

Dr. Ammar A. Malik is a Senior Research Scientist at AidData (www.aiddata.org), an international development research lab based at William & Mary University, US.