Pakistan’s Sharif Looks to China for Boost on Foreign Debut

Pakistan Prime Minister Nawaz Sharif begins a six-day visit to China today as he seeks investment in power and transport projects to revive an economy crippled by electricity shortages and insurgent violence.

In picking Beijing for his first overseas trip since winning May 11 elections, Sharif is signaling that securing Chinese funding ranks among his foreign policy priorities as a slowdown pushes Pakistan toward a fresh International Monetary Fund bailout. Unrest in the western Chinese province of Xinjiang which authorities have in the past linked to Islamist training camps in Pakistan may also be on the agenda.

“Pakistan’s economy is in a critical situation,” Rashid Ahmed Khan, a professor of international relations at the University of Sargodha in Punjab, said July 2. “With private investment flows drying up and Western aid money hard to come by, Pakistan is turning to an all-weather friend with economic and strategic interests in the country’s wellbeing.”

The centerpiece of Sharif’s July 3-8 pitch will be a road-and-rail corridor connecting the Arabian Sea port of Gwadar -- control of which was in February transferred to a company Pakistan named as China Overseas Port Holdings Co. -- with Kashgar in western China.

While Sharif last month called the project a “game changer” capable of generating revenue and jobs for Pakistan, financing and security concerns could prove hurdles. The route would run through Baluchistan province, where anger over exploitation of gas and minerals has spurred a separatist insurgency.

China Crude

“Sharif knows that Gwadar has significant geopolitical and economic importance for China,” Khan said. “It can provide a short route for Chinese crude imports from the Middle East and for its exports to the region.”

China, forecast to overtake the U.S. as the world’s top crude importer in 2014, bought more than 50 percent of its oil from the Middle East last year, customs data show. China provided $248 million to build the first phase of the port facility at Gwadar, according to its official website.

Aside from its trade role, officials in India and the U.S. have seen Gwadar as part of China’s strategic ambition to project its growing naval power into the Indian Ocean. The port was run from 2007 until earlier this year by Singapore’s PSA International Pte.

Returned to power 14 years after being ousted in an army coup, Sharif is confronting two major challenges: A record electricity shortage that triggers outages of as long as 18 hours a day and militancy that has spiked following the killing of the Pakistani Taliban’s No. 2 commander in a U.S. drone missile strike.

Economy ‘Shattered’

In his June budget Finance Minister Ishaq Dar described the economy as “shattered,” pledging to narrow the widest fiscal deficit in over two decades and ease power-sector debt. Pakistan expected to approach the IMF for “anything between $5 billion to $7 billion,” he told Bloomberg two weeks later.

Foreign-exchange reserves have slid over 40 percent from a year earlier, according to the central bank, only enough to cover about two months of imports. Sharif is aiming for 4.4 percent economic growth next fiscal year, up from an estimated 3.6 percent in 2012-2013.

Bombings in two provinces bordering Afghanistan killed at least 45 people at the weekend, while two Chinese were among a party of 10 mountaineers and guides killed last month in what the Taliban said was revenge for the death of its deputy, Waliur Rehman.

Fighter Jets

Sharif is set to meet with at least three of the seven men on the Communist Party’s Politburo Standing Committee, the panel that wields supreme power in China, including President Xi Jinping, Premier Li Keqiang and top legislator Zhang Dejiang, Foreign Ministry spokeswoman Hua Chunying told reporters July 1.

Li visited Pakistan in May. Sharif’s predecessor Yousuf Raza Gilani traveled to Beijing in May, 2011, a trip that led to the announcement of Pakistani purchases of Chinese fighter aircraft. Hua said China supports Pakistan’s goal of building the Gwadar-Kashgar link, calling it a project that “will help both countries as well as the development of the whole region.”

Among the other proposals Sharif will bring to Beijing are for a new 1,100 megawatt nuclear power plant and the release of a $448 million Chinese loan to build a hydropower project, The Express Tribune reported July 2, without saying where it got the information.

China “hopes to promote pragmatic cooperation with Pakistan in various areas,” the Chinese Foreign Ministry’s Hua said today, when asked about the nuclear proposal.

Xinjiang Violence

China helped Pakistan build two atomic reactors at Chashma in Punjab province, while Beijing is assisting in building two more units at the same site. About 120 Chinese companies are operating in Pakistan with Chinese investment touching $2 billion in 2012, according to Pakistan’s foreign office.

Pakistan’s growing dependence on China follows years of strained relations with the U.S. amid the war in Afghanistan and American targeting of Pakistani guerrillas.

Violence in Xinjiang late last month left at least 35 people dead, raising tensions in a region where Chinese authorities have blamed attacks on extremists drilled in Pakistan at camps run by the East Turkestan Islamic Movement.

Recent violence in Xinjiang was instigated by foreign forces, Hua said today. She said Pakistan has made “great efforts to fight terrorism.”

“This is a source of serious concern to China,” said Talat Masood, a retired Pakistani army general and independent political analyst, in an interview July 1. “It has not spoken much in public but for sure in official, private meetings it has expressed concern.”

To contact the reporters on this story: Haris Anwar in Islamabad at hanwar2@bloomberg.net; Augustine Anthony in Islamabad at aanthony9@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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