China and Pakistan

September 2017. The 2018 report dedicated a paragraph highlighting the project as enhancing

“sustainable infrastructure” and “climate resilience”.²⁰ The project was also included in the 2017 annual report of AIIB, which classified the project as a Sustainable Infrastructure priority project, bringing the China-led MDB closer to the ubiquitously recognized sustainable development goals and environmental/climate practices.²¹ The logic of this project could be understood as China’s support in this project coming from outside the World Bank to influence within.

3.1 China and Pakistan

Pakistan is a big part of the Belt and Road Initiative, and China’s umbrella program in Pakistan since 2015, the China-Pakistan Economic Corridor (CPEC), is also one flagship program that was initiated to connect the Asia and Europe trade routes. The program provides enormous kinetic energy to the needed infrastructure projects in Pakistan to improve its economy and also strategic advantages and geographical benefits for China to increase its influence in the region through accessibility. However, in discussion of the overall geopolitical situation and the Sino-Indo conflict, media coverages have reported and quoted officials’

opinions that the CPEC loan adds a lot of financial pressure to Pakistan in repaying the debts, which would cause Pakistan to lose its strategic advantage and independence to China while Pakistan might have to concede some of its decision-making power on security issues and strategic bases to ease its financial tension.²²

Controversy goes the same amount with the North Indus Cascade where China decided to pour its funds in building a string of hydropower dams after signing the MoU with Pakistan

20 World Bank. 2018. World Bank Annual Report 2018. Washington, DC: World Bank. doi: 10.1596/978- 1-4648-1296-5. License: Creative Commons Attribution–NonCommercial–NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

21 AIIB. 2018. Financing Asia’s Future: 2017 AIIB Annual Report and Financials. AIIB, Beijing. CC BY-NC-ND 3.0 IGO.

22 Eur Asian Times Desk. (2020, December 30). Is Pakistan “Drowned In Debt” And Losing Its Political & Strategic Autonomy To China? EurAsian Times. https://eurasiantimes.com/is-pakistan-drowned-in-debt-and-losing-its-political-strategic-autonomy-to-china/

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in 2017. Like the grand Tarbela Dam project that has been ongoing since 1968 and its more recent 4th and 5th extension, the string of dams aims to address the energy shortage in Pakistan. Although facing opposition from India who claims sovereignty to a part of Pakistan where the dams lie, one of the dams, the Dasu dam, still managed to pass World Bank approval for additional financing to its first stage because of its relatively free of territory dispute location.²³ The World Bank has approved a USD 700 million financing to the project in March 2020, emphasizing the decision being made to alleviate COVID impact and the World Bank Pakistan country director Illango Patchamuthu providing a timely rationale for the approval, that ‘Pakistan’s energy sector is aiming to move away from high-cost and inefficient fossil fuels towards low-cost, renewable energy to power the national grid’ and that ‘the project alleviates the stress on the country’s current account balance.’²⁴

The support of the World Bank on Pakistan’s hydropower projects also includes the Tarbela Dam extensions, the 4th and the 5th, with the latter being co-financed by the World Bank and the AIIB. As the derivative of the flagship World Bank hydropower project in Pakistan, the Tarbela Dam project, the 4th extension was successfully implemented and widely acclaimed. Also, because of the substantial scale of the project, the many stakeholder countries might also indicate potential supporters of the project while it was going through the approval process. For example, the British Trade Commissioner to the Middle East, Afghanistan and Pakistan expressed his appreciation of the UK consulting company, Mott MacDonald, participating in the 4th extension project and also recognized the project’s success in delivering results efficiently, which contributed to the possibility of carrying out

23 Rajesh Sinha. (2020, December 30). Is Pakistan “Drowned In Debt” And Losing Its Political & Strategic Autonomy To China? EurAsian Times. https://eurasiantimes.com/is-pakistan-drowned-in-debt-and-losing-its-political-strategic-autonomy-to-china/

24 Andolu. (2020, April 1). WB approves additional financing of $700m for Dasu power project. The Nation.

https://nation.com.pk/01-Apr-2020/wb-approves-additional-financing-of-dollar-700m-for-dasu-power-project

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the 5th extension project.²⁵ One could imagine that as deep as China is entangled in Pakistan’s development projects, there should also be a fair amount of advantages for China while implementing the construction. According to the WAPDA (Pakistan Water & Power Development Authority) website, the Civil Work Contract and the E&M Work Contract of the 4th Extension were both awarded to Chinese companies,²⁶ and although WAPDA and the World Bank did not clearly indicate in the project documents,²⁷ the Work Contracts of the 5th Extension should most likely be also awarded to the same companies since it is still marked under the 4th Extension project of the World Bank.

There are mixed opinions on whether China has started to reconsider its BRI and loan projects on Pakistan. A report by Asia Times was widely syndicated that China is backing away from its Pakistan BRI projects due to a number of reasons including Pakistan’s enormous debt, low project implementation efficiency and political conflicts.²⁸ However, Pakistan’s key local online media The Express Tribune reported from an opposite perspective, listed multilateral donors and other international bonds with China as the overall contributors to Pakistan’s debt trap situation, so that China is actually not worried about getting too involved in the investment in Pakistan but instead maintains to carry out projects and give loans there.²⁹ Either opinion, China is definitely still finding ways other than bilateral funding to channel the funds to Pakistan. Aside from the Tarbela 5 Hydropower Extension project and the National Motorway M4 project in 2016, AIIB has approved (as an indicator for Chinese

25 Muhammad Hamza. (2019 June 30). British Trade Commissioner Appreciates Tarbela 4th Extension Project.

Technology Times. https://www.technologytimes.pk/2019/06/30/tarbela-4th-extension-project/

26 Tarbela 4th Extension Hydropower Project. Project. Water & Power Development Authority.

https://www.wapda.gov.pk/index.php/projects/hydro-power/o-m/tarbela-4th-extension-hydropower-project.

27 Tarbela 5th Extension. Project. Water & Power Development Authority.

https://www.wapda.gov.pk/index.php/projects/hydro-power/ready-for-construction/tarbela-5th-extension

28 FM Shakil. (2020, December 31). China slowly retreating from Pakistan's Belt and Road. Asia Times.

https://asiatimes.com/2020/12/china-slowly-retreating-from-pakistans-belt-and-road/.

29 Shakeel Ahmad Ramay. (2021, January 4). Despite odds, China continues to invest in Pakistan. The Express Tribune.

https://tribune.com.pk/story/2278520/despite-odds-china-continues-to-invest-in-pakistan

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supported projects) 4 co-financed projects in 2019 and 2020. Since Pakistan still needs China to fulfill its commitment for carrying out the CPEC, its support for China in multilateral institutions is simply assumed.

In the latest World Bank data (until November 13, 2020) for voting shares, Pakistan shares 0.49% of the total share, same with Thailand’s share, which represents midsized constituents in the bank.³⁰ The Philippines also holds a fairly similar 0.42% voting share.

Utilizing those midsized members’ support in the Bank, China could pivot towards larger constituents such as the US and Japan, which holds 15.63% and 7.6% of the total share, respectively.

Following the same logic of checking the annual report for data showing the loans in East Asia and the Pacific, this thesis also went through World Bank annual reports from 2013-2020 to organize a table of how loans to South Asia fared over the years. Also same with the South East Asia and the Pacific, there was a spike in FY16 when commitments to the area bluntly increased almost USD 1,600 million³¹. Although in 2017 we saw a decrease of commitments in the area, the Bank managed to see through the approval of the additional finance to Tarberla 4th Extension project, which IBRD committed USD 390 million, over 17% of its total annual commitment to the region.

Table 3. 2 World Bank’s Commitments and Disbursement to the South Asia Region for

30 World Bank. (2021). IBRD Subscriptions and Voting Power of Member Countries. WBG Finances.

https://finances.worldbank.org/Shareholder-Equity/IBRD-Subscriptions-and-Voting-Power-of-Member-Coun/rcx4-r7xj/data

31 *Simply calculating IBRD commitments since the loan of the project under discussion was committed by IBRD.

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Fiscal 2013-2020

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Commitments

IBRD 378 2,077 2,098 3,640 2,233 4,508 4,011 5,565 IDA 4,096 8,458 5,762 4,723 3,828 6,153 4,849 6,092

Disbursements

IBRD 1,103 1,165 1,266 1,623 1,454 1,698 2,598 3,158 IDA 2,724 4,271 3,919 4,462 3,970 3,835 4,159 5,235 Source: Organized by the author with reference to World Bank annual reports from 2013-2020 In 2015, Water, Sanitation, and Flood Protection as the top lent sector to the region took up 17% of the total loan to the region. The next year, Water and Energy each took up over 20% of the total loans to the region, making them the top 2 invested sectors in the region. In 2017, the second-most invested sector was Energy and Extractives, taking up 14% of the approved loans that year. In 2018 and 2019, Energy maintained among the top two lent sectors in the region, positively reflecting the ongoing CPEC and North Indus Cascade project support from China in Pakistan. One point worth mentioning is that in 2017, the year the Additional Financing to PK: Tarbela 4th Extension Hydropower Dam project got approved, the annual World Bank report highlighted the World Bank’s behavior of ‘supporting policy reforms’ in Pakistan that ‘the World Bank is supporting the government’s energy policy to reduce the cost of electricity production and to improve the financial sustainability of the power sector through a series of Power Sector Reform Development Credits, investment operations, and technical assistance.’³²

Looking at the data until the most recent fiscal year, the two regions that the Philippines

32 World Bank. 2017. World Bank Annual Report 2017. Washington, DC: World Bank. doi: 10.1596/978- 1-4648-1119-7. License: Creative Commons Attribution–NonCommercial–NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

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and Pakistan are from, East Asia and the Pacific and South Asia, are listed as the top regions that the World Bank lends to.³³ Considering the geographical, geopolitical, and economic proximities of the two regions with China mentioned above, the member states of these two regions, which contains a fair amount of midsized constituents to the World Bank, would most likely form coalition with China in the World Bank, no matter during the decision-making process or while imposing soft influence to the Bank. The next section will look at some examples of China and its allies trying to influence the course of the Bank through the projects and their rhetoric.