China's Silk Road Push in Pakistan Edges Out U.S. Investments

  • China FDI totalled $1.82b versus U.S’s $505m since July 2013
  • Pakistan, U.S. relations have long been strained politically

China is overtaking the U.S. as the largest direct foreign investor to Pakistan, with the South Asian nation increasingly favoring its neighbor’s “One Belt, One Road” trade route that’s funneling in billions of dollars and revamping decrepit infrastructure.

With relations frayed between the U.S. and Pakistan, China has been strengthening its ties to the nation of about 200 million people after it pledged two years ago to loan and finance about $55 billion in a so-called China-Pakistan Economic Corridor. U.S. direct investment in Pakistan stood at $505 million from July 2013 through January this year, compared with $1.82 billion that came from neighboring China, according to central bank data.

“As the U.S. looks inward, China is reaching out,” said Bilal Khan, a senior economist at Standard Chartered Plc in Karachi. “Against this backdrop, the U.S. could steadily loose its share in FDI to Pakistan as China’s rises.”

It’s part of Pakistan Prime Minister Nawaz Sharif’s plan to boost economic growth to the highest in about a decade. For the Chinese, the Silk Road plan aims to revive trade across Central Asia and into Europe via a network of railways, ports and highways.

Beijing is also increasing its corporate footprint in Pakistan, with a record 77 Chinese companies registered in the South Asian nation during the last three years, according to the Securities and Exchange Commission in Islamabad.

Even the cash coming in from the U.S. isn’t fresh and is usually reinvestments from companies already based in Pakistan, such as tobacco company Philip Morris International Inc.’s $105 million injection of funds to improve manufacturing facilities and install new machinery last year.

This is despite large multinational firms, such as Proctor & Gamble Co. and General Electric Co., having a foothold in the country -- the latter in January supplied seven locomotives to Pakistan Railways as part of a $400 million 10-year deal for the eventual purchase of 55 train units.

“We are not on their radar,” M. Abdul Aleem, chief executive officer of the Karachi-based Overseas Chamber of Commerce and Industry, which represents 195 foreign firms, including 31 from the U.S., said of American investors. “They tend to stay away when it comes to Pakistan.”

At The Crossroad

The China-Pakistan Economic Corridor lies “right at the crossroad” of two major networks China is building, said Chen Fengying, an expert on global economy with the China Institute of Contemporary International Relations. 

Bilateral investment has grown rapidly also because the two countries have built up trust over the years, she said. “Pakistan is the only country being called as an “all-weather strategic partner’ by the Chinese government, signaling a sense of unwavering support under all conditions.”

China’s government plans to hold a summit, called the Belt and Road Forum for International Cooperation, in Beijing in May involving about 20 heads of state.

Meanwhile, political analysts say there is more than simple economics to the recent slowdown in U.S. investment in Pakistan. Shaista Tabassum, chairwoman of the international relations department at the University of Karachi, said the two countries are moving further apart.

“It is moving slowly down,” Tabassum said about the two nations’ relations. “CPEC has many economic benefits coming, which Pakistan expected the United States should have given to it.”

Strained Relations

Ties between the countries have long been uneasy and complex -- Pakistan is accused of harboring militants carrying out attacks in neighboring Afghanistan and India, and the U.S. has demanded it take action. Pakistan has consistently denied using proxy forces to influence foreign policy objectives.

There are also concerns U.S. President Donald Trump may cut economic and military funding to Pakistan, which is the sixth largest recipient of American aid. Trump’s fiscal 2018 budget proposal -- entitled “America First” -- called for “deep cuts” to foreign assistance with a 28.5 percent funding reduction for international programs, including the State Department and the U.S. Agency for International Development.

However, Pakistan’s central bank chief spokesman Abid Qamar said in an interview in Karachi that China’s confidence and inflows into Pakistan will encourage others.

“We expect CPEC related economic activities will in fact revive the interest of foreign investors in Pakistan,” he said.

— With assistance by Yinan Zhao

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