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Peacekeeping troops from China, deployed by the United Nations Mission in South Sudan (UNMISS), patrol outside the premises of the UN Protection of Civilians (PoC) site in Juba, South Sudan, on 4 October 2016. AFP/Albert Gonzalez Farran
Report 288 / Africa

China’s Foreign Policy Experiment in South Sudan

China, traditionally averse to intervening abroad, is testing the role of peacebuilder in South Sudan, where it has unique leverage. This could portend a growing global security role, but further Chinese engagement will likely be tempered by self-interest, capacity constraints and aversion to risk.

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Executive Summary

China’s longstanding principle of non-interference in other states’ internal affairs is evolving with its growing global footprint. As Chinese overseas investment and business links grow in scope and depth, Beijing faces increasing threats to its citizens, economic interests and international reputation. That, in turn, has confronted China with the inherent limitations of its traditional hands-off foreign policy posture. How it responds over time will have a profound impact on Beijing’s international role. The most prominent test case appears to be Africa and, within the continent, South Sudan, where Chinese measures to protect its citizens and economic interests, coupled with its support for an end to the war and pursuit of humanitarian objectives, seem a calculated trial run for a more proactive global role.

China first experimented with deeper involvement in Sudan in response to powerful international criticism (culminating in calls to boycott the 2008 Beijing Olympics) of its support for Khartoum, which was fighting a brutal counter-insurgency campaign in Darfur. Using its influence with the Sudanese government and in the UN Security Council, China helped ensure deployment of UN peacekeepers to Darfur in 2008. Later, when Libya’s civil war erupted in 2012, China’s evacuation of its citizens generated national pride and increased both its people’s and its investors’ expectations about Beijing’s global profile. In both instances, China extended the boundaries of its time-honoured diplomacy, suggesting growing willingness to take action when its interests are threatened.

When South Sudan’s civil war broke out in late 2013, Chinese advocates of a more flexible interpretation of the non-intervention policy saw an opportunity to try new approaches to protect their nation’s interests. Several factors were at play. Huge investments made the state-owned China National Petroleum Corporation (CNPC) both an economic and political actor. At the same time, China’s interests were aligned with those of others – mediators and Western powers – seeking to end the conflict. Working together with the Horn of Africa’s regional body – the Intergovernmental Authority on Development (IGAD), charged with mediating South Sudan’s peace process – and Western actors, Chinese policymakers believed they could intervene constructively while managing reputational risks.

This was a step beyond its traditional approach: Beijing could claim broad adherence to the non-interference principle even as it used its influence to bring warring parties together and bridge differences between Western actors and South Sudanese leaders. It engaged in the peace process held in Ethiopia, hosted discreet talks among warring factions in Sudan, shaped UN Security Council action, sent peacekeepers to the UN peacekeeping mission in South Sudan (UNMISS) and joined the August 2015 peace agreement oversight body.

This is a crucial time for peacemaking in South Sudan and a crucial time for China to test its newfound role. It’s important to get both efforts right.

In short, China might still oppose interference in others’ affairs, but its definition has become more elastic. It continues to draw a line at intruding on matters of domestic governance; opposes regime change or unilateral military intervention; and believes that showing respect, rather than exerting pressure or inflicting punishment, is how to elicit cooperation and improvement in governance. Having itself been a victim of sanctions and public opprobrium, it favours more discreet persuasion. But direct involvement can be justified when civil conflicts cross borders, threaten regional security and stability or create large humanitarian crises, and when regional and local authorities and the UN have granted their imprimatur. In such cases, China tends to support political dialogue without imposing outcomes, save when those directly relate to the safety of its citizens or investments.

If China’s steps are tentative, there is good reason. It is aware of its newcomer status to international peace and security efforts, particularly via multilateral institutions, and is careful not to overreach. It is actively learning from its own experiences and the successes and missteps of other would-be peacemakers. Its diplomatic corps is not yet sufficiently staffed or trained. But its considerable economic and political influence mean that, when it steps in, it inevitably brings leverage to the table that traditional mediation efforts – whether in South Sudan or elsewhere – sometimes lack.

Despite differences in approach, so far collaborating in South Sudan has benefited China, Western countries, their African partners and the South Sudanese people. They should continue along this path. This is a crucial time for peacemaking in South Sudan and a crucial time for China to test its newfound role. It’s important to get both efforts right.

Beijing/Nairobi/Juba/Brussels, 10 July 2017

I. Introduction

China’s involvement with Sudan’s southern region began when it forged a partnership with Khartoum to develop its oil industry in the late 1990s. For much of the previous decade the West had worked to isolate the Sudanese government for human rights abuses and support for terrorism.[fn]For previous reporting on China’s involvement in South Sudan, see Africa Reports N°186, China’s New Courtship in South Sudan, 4 April 2012; N°39, God Oil & Country: Changing the Logic of War in Sudan, 10 January 2002. For recent work on South Sudan, see Africa Reports N°236, South Sudan’s South: Conflict in the Equatorias, 25 May 2016; N°243, South Sudan: Rearranging the Chessboard, 20 December 2016.Hide Footnote U.S. sanctions, and the country’s prolonged civil wars (1955-1972 and 1983-2005) – fought in the vicinity of major oil deposits, mostly in the south – deterred investors.[fn]For a summary of U.S. sanctions against Sudan, see “Brief Timeline of Key of Key Sanctions Events in Sudan”, Center for Global Development, 6 October 2011; Crisis Group Africa Briefing N°127, Time to Repeal U.S. Sanctions on Sudan?, 22 June 2017.Hide Footnote

In March 1997, the state-owned China National Petroleum Corporation (CNPC) and a consortium of mostly Asian oil companies signed an oil development deal with the government.[fn]Luke Patey, The New Kings of Crude: China, India, and the Global Struggle for Oil in Sudan and South Sudan (London, 2014).Hide Footnote Then new to overseas investment and operations and less daunted by security and political risks than most companies, CNPC obtained concessions for largely untapped oil reserves with limited competition. Other Chinese companies followed, leading to closer bilateral political and diplomatic ties.

Khartoum’s enemies, particularly the Sudan People’s Liberation Movement/Army (SPLM/A) fighting the government in the South, said China was enabling an autocratic regime and tied the Chinese-financed oil investments to mass displacement, gross human rights violations and environmental degradation.[fn]Crisis Group Report N°39, God, Oil and Country: Changing the Logic of War in SudanGod, Oil and Country: Changing the Logic of War in Sudan, 10 January 2002; “The scorched earth: oil and war in Sudan”, Christian Aid, 13 March 2001; “Sudan: The Human Price of Oil”, Amnesty International, 4 May 2000; “Sudan, Oil, and Human Rights”, Human Rights Watch, 24 November 2003.Hide Footnote The government sought to prevent Chinese contact with Southern rebels, and Beijing largely obliged.

Keen to tap into an underdeveloped market with, at the time, few competitors, Chinese nationals and companies flocked to South Sudan after it achieved formal independence in July 2011.

The 2005 Comprehensive Peace Agreement (CPA), which ended the Second Sudanese Civil War and paved the way for the South’s independence, dramatically changed the situation.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 2. Also see, The New Kings of Crude, op. cit.Hide Footnote Chinese businesses trickled into the South’s capital, Juba, soon after the CPA was signed, and, unbeknownst to Khartoum, the China National Petroleum Corporation surreptitiously dispatched employees to learn more about the new government. It took the Chinese government longer to adjust.[fn]Crisis Group interview, Chinese businessman, Juba, April 2016.Hide Footnote Salva Kiir, then Sudan’s first vice president and now South Sudan’s president, bluntly reminded Chinese leaders during his 2007 visit to Beijing that most oil fields lie in the South and the CPA guaranteed its right to secede. Beijing opened a consulate in Juba the following year.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 3.Hide Footnote

Keen to tap into an underdeveloped market with, at the time, few competitors, Chinese nationals and companies flocked to South Sudan after it achieved formal independence in July 2011. But the region soon proved volatile and risky for businesses.[fn]Crisis Group interview, Chinese businessman, Juba, April 2016.Hide Footnote In January 2012, Juba shut down oil production after negotiations over pipeline fees with Khartoum deadlocked. Production did not restart until April 2013.[fn]“Two Sudans’ oil disputes deepens as South shuts down wells”, The Guardian, 26 January 2012; “South Sudan restarts oil production”, Financial Times, 7 April 2013.Hide Footnote Civil war broke out in December that year and disrupted production again. Oil workers had to find shelter in UN bases until companies could airlift them to safety.[fn]Crisis Group Africa Report N°217, South Sudan: A Civil War by Any Other Name, 10 April 2014, pp. 15-17.Hide Footnote Chinese nationals scrambled to flee the war zone; their shops were looted and business projects halted.[fn]Crisis Group interviews, Chinese officials, Juba, Beijing, 2016.Hide Footnote Beijing made the unprecedented decision to step in, with three related aims: (1) protect Chinese citizens and economic interests; (2) support an end to the war; and (3) serve humanitarian objectives.[fn]Crisis Group interviews, Chinese officials, Juba, 2014-2016.Hide Footnote Although this was an emergency response, it also became a calculated trial run for a more proactive role in step with China’s expanding overseas footprint and international stature.

This report begins with a review of the evolution of China’s non-interference principle. It analyses China’s motivation, objectives and methods for supporting the South Sudan peace process, as well as its interaction with warring parties and mediators. It studies how China – a relatively new, albeit influential arrival to international peace processes – reinforces, complements, or contradicts traditional diplomatic approaches. It also analyses lessons from the South Sudan experience about China’s evolving understanding of its role in the world and its interpretation of non-inter­ference. This report is primarily based on interviews with policymakers, diplomats, company executives and academics in Beijing, Shanghai, Juba, Addis Ababa, Nairobi and Washington. Many requested that their names be withheld.

II. Evolution of Non-interference

China’s proactive approach to South Sudan appears to be a significant departure from its longstanding principle of non-interference.[fn]安惠候,“不干涉原则与’新干涉主义’”, 《外交季刊》 [An Huihou, “Non-Interference Principle and ‘neo-interventionism’”, Foreign Policy Journal], vol. 104 no.4 (2012); 王嵎生, “中国外交的变与不变(上)”, 《解放日报》[Wang Yusheng, “Changes and continuation of Chinese diplomacy (First Half)”, PLA Daily, 29 October 2012]. An Huihou is the former Chinese ambassador to Egypt and Wang Yusheng is the former Chinese ambassador to Nigeria.Hide Footnote In fact, despite official rhetoric suggesting an unchanging doctrine, China’s interpretation of non-interference has evolved in a way that mirrors that of its definition of national interests and objectives.[fn]Proponents of a more flexible approach argue that non-interference must evolve along with China’s growing global footprint and expectations it will protect its nationals and investments overseas. Furthermore, if interpreted strictly, non-interference would compel China to accept outcomes deriving from other international actors’ interventions that are ineffective or not in China’s interests. They also argue that China’s “free riding” on global stability supposedly provided by others is neither sufficient nor sustainable. Crisis Group interviews, Chinese officials in the foreign ministry and State Council, diplomats and scholars, Beijing, Shanghai, Juba, and Addis Ababa, February-March 2014, January-April 2016. Also see, 催洪建, “‘不干涉’ 的安全观该更新了” [Cui Hongjian: “The ‘non-interference’ security concept should be updated”], Global Times, 28 July 2012; 王逸舟, 《创造性介入:中国外交新取向》[Wang Yizhou, Creative Involvement: A New Direction in China’s Diplomacy] (Beijing, 2011). For more on the evolution of the Chinese approach to peacekeeping prior to 2000, see Crisis Group Asia Report N°166, China’s Growing Role in UN Peacekeeping, 17 April 2009, pp. 3-5.Hide Footnote Even as the theoretical debate continues, Beijing has charted a middle path maintaining the broad non-interference principle while stretching its interpretation and experimenting with various ways of applying it.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote

A. China Goes Out

Beginning in the 1990s, China became rapidly integrated into the world economy. In 1996, then-President Jiang Zemin first called for companies to “Go Out” and invest; in 1999, the Communist Party of China (CPC) formally adopted the “Go Out” strategy, supported by state financial institutions.[fn]Financial institutions supporting the “Go-Out” strategy (走出去战略; Pinyin: Zǒuchūqù  Zhànlüè) include China Development Bank (CDB), the Export Import Bank of China (China Exim Bank), policy banks such as Bank of China, and the China-Africa Development Fund. 陈杨勇,江泽民’走出去’战略的形成及其重要意义,人民网 [Chen Yangyong, “The creation and significance of Jiang Zemin’s ‘Go Out’ strategy”], People’s Daily online, 10 November 2008; “China goes global with development banks,” Bretton Woods Project, 5 April 2016; Karl P. Sauvant and Victor Zitian Chen, “China’s Regulatory Framework for Outward Foreign Direct Investment”, Columbia University, 22 February 2014.Hide Footnote Annual overseas direct investment grew from $2.7 billion in 2002 to $170.11 billion in 2016.[fn]The commerce ministry began recording outbound direct investment statistics in 2002. “2010 Statistical Bulletin of China’s Outward Foreign Direct Investment”, Ministry of Commerce of the People’s Republic of China, 16 September 2011. “MOFCOM Department Official of Outward Investment and Economic Cooperation Comments on China’s Outward Investment and Cooperation in 2016”, Chinese commerce ministry, 18 January 2017. By 2015, nearly 30,000 enterprises had invested overseas. “Report on Development of China’s Outward Investment and Economic Cooperation 2015”, Chinese commerce ministry, December 2015.Hide Footnote In Africa, Chinese direct investment grew from $1 billion in 2004 to $24.5 billion in 2013.[fn]Lihuan Zhou and Denise Leung, “China’s Overseas Investments, Explained in 10 Graphics”, World Resources Institute, 28 January 2015.Hide Footnote Although the over-stretched foreign ministry has no exact tally, the number of citizens residing abroad is believed to be about five million and rising, including some one million in Africa.[fn]Jonas Parello-Plesner and Mathieu Duchâtel, “How Chinese Nationals Abroad Are Transforming Beijing’s Foreign Policy”, East Asia Forum (www.eastasiaforum.org), 16 June 2015.Hide Footnote

Driven by energy needs and backed by the state, national oil companies led the “Go Out” march. Because the most readily accessible oil deposits already had been exploited, Chinese companies often ended up in fragile states, taking on political and security risks to outflank competition from better funded, better equipped, more experienced – but also more cautious – Western oil majors. Mining and construction companies joined in, likewise often operating in underdeveloped and unstable regions.[fn]Crisis Group Asia Report N°153, China’s Thirst for Oil, 9 June 2008.Hide Footnote

Even so, when overseas interests were in jeopardy, “rather than trying to influence outcomes in a crisis overseas, Beijing preferred withdrawal”. [fn]Mathieu Duchâtel, Oliver Bräuner and Zhou Hang, “Protecting China’s Overseas Interests”, Stock­holm International Peace Research Institute, June 2014, p. 47.Hide Footnote From 2006 to 2011, China conducted ten large-scale evacuations of nationals from foreign countries due to riots, wars or natural disasters, typically with minimum military participation.[fn]“近年来中国的重大撤侨行动”, 新华网 [“China’s major operations to evacuate nationals in recent years”], Xinhua News online, 31 March 2015.Hide Footnote The choice to withdraw rather than intervene was dictated by both principle and pragmatism. A former special representative for African affairs said, “Interference has to be backed up with capability. Although China was a big power, its capability to project power was not sufficient”.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, September 2014.Hide Footnote

B. Darfur: “Cleaning up the Mess”

China’s initially reluctant engagement with the Sudanese government over the Darfur war represented an early and notable departure from non-intervention and toward engagement with multilateral peace and security efforts.

In 2003, Darfur rebels took up arms against the Sudanese government. Khartoum and allied militia groups responded with a brutal counter-insurgency campaign.[fn]Crisis Group Africa Briefing N°14, Sudan’s Other Wars, 25 June 2003; Crisis Group Africa Reports N°76, Darfur Rising: Sudan’s New Crisis, 25 March 2004; N°80, Sudan: Now or Never in Darfur, 23 May 2004; N°83; Darfur Deadline: A New International Action Plan, 23 August 2004.Hide Footnote Beijing’s close economic and political ties with Khartoum, particularly via the oil industry, led to Western accusations that it was bankrolling and protecting a genocidal regime.[fn]China invested billions of dollars in Sudan’s oil industry and imported 60 per cent of Sudan’s crude oil before 2011. China became Khartoum’s largest arms supplier around 2004 and helped Sudan build its domestic arms manufacturing industry. It was responsible for more than 70 per cent of total small arms and light weapons (SALM) transfers to Sudan between 2001 and 2008. Beijing also was seen as Khartoum’s protector in the UN Security Council. Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 20; “Arms, Oil, and Darfur: The Evolution of Relations between China and Sudan”, Small Arms Survey, Sudan Issue Brief, Number 7, July 2007; “Supply and Demand: Arms Flow and Holdings in Sudan”, Small Arms Survey, Sudan Issue Brief, Number 15, December 2009.Hide Footnote Activists called for a boycott of the 2008 Beijing Olympics, China’s purported coming-of-age show. Denying any responsibility for the Darfur war, yet fearing a public relations crisis, Beijing sought to “clean up the mess”.[fn]The foreign ministry argued the Darfur issue dated back to 1916, when it was under British control, and said: “It would be too far-fetched to blame China”. “外交部部长助理翟隽就苏丹达尔富尔问题举行中外媒体吹风会 [“Assistant Foreign Minister Zhai Jun Briefs Chinese and Foreign Media on the Darfur Issue in Sudan”], press release, Chinese foreign ministry, 12 April 2007. Crisis Group interview, Chinese scholar on Africa studies, Shanghai, March 2016.Hide Footnote In May 2007, it appointed Liu Guijin, a seasoned diplomat, as its special representative for African affairs and the Darfur issue.[fn]“China appoints Darfur post”, Associated Press, 10 May 2007.Hide Footnote

In 2007, through public statements and private messaging, Beijing persuaded Sudanese President Omar al-Bashir to accept UN peacekeepers, hinting that Khartoum’s obstinacy could cost it China’s support at the UN.[fn]This was not an empty threat: abstentions by China and the U.S. on a 2005 UN Security Council vote to refer the situation in Darfur to the International Criminal Court allowed it to pass. Crisis Group Africa Briefings N°28, The AU's Mission in Darfur: Bridging the Gaps, 6 July 2005; N°43, Getting the UN into Darfur, 12 October 2006; Crisis Group Africa Reports N°105, To Save Darfur, 17 March 2006; N°134, Darfur’s New Security Reality, 26 November 2007; N°152, Sudan: Justice, Peace and the ICC, 17 July 2009; Crisis Group Report, China’s Growing Role in UN Peacekeeping, op. cit.Hide Footnote Chinese diplomats helped broker agreement for an African Union/UN hybrid mission with peacekeepers from developing nations to allay Bashir’s fear that Western forces would be used in the service of regime change.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016. Former U.S. Special Envoy to Sudan Andrew Natsios said China’s influence was a “critical factor” leading to Sudan relenting. Andrew Natsios, “Statement to the Senate Foreign Relations Committee”, 11 April 2007.Hide Footnote After the International Criminal Court (ICC) ordered Bashir’s arrest in March 2009, the envoy assured him: “China did not support ICC’s decision” but also advised him not to expel humanitarians or condone violent attacks against Westerners.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote

During the 2005 CPA’s implementation, Beijing also supported negotiations over the division of oil revenues between Khartoum and the Southern Sudan regional government.[fn]While most oil is in the south, it is exported via a pipeline through Sudan. For detailed analysis of China’s role in the oil negotiations, see Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 26-31.Hide Footnote China acted as an influential party at the table, even as it shied away from full-fledged mediation.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote In the process, Beijing accumulated experience, gained regional and international players’ trust and built up capability and confidence in mediation, paving the way for its later engagement in South Sudan.

C. Libya: Catalyst for Change

In February 2011, conflict in Libya led to a massive operation to evacuate Chinese nationals working in construction and other sectors. The ten-day evacuation was the largest in Chinese history: 35,860 nationals. For transport and escort, the People’s Liberation Army and Navy (PLA/N) dispatched aircraft and frigates that sailed through the Red Sea and the Suez Canal to the Mediterranean for the first time. A dozen government agencies, nine embassies, commercial airlines and state-owned enterprises participated in the operation; multiple countries in Europe, the Middle East and North Africa facilitated the transit.[fn]马利(主编),《国家行动 -利比亚的撤离》 [Ma Li (ed.), National Operation – the great eva­cu­ation from Libya] (Beijing, 2011), pp. 199-201. “外交部:中国撤离在利比亚公民行动实现 ‘四个第一’”, 新华网 [“Foreign Ministry: China’s evacuation of nationals in Libya realises ‘four firsts’”], Xinhua News online, 6 March 2011.Hide Footnote

State media hailed the evacuation as “an unprecedented” display of military might, diplomatic leverage, financial prowess and mobilising skills.[fn]“特写: ‘回家的感觉太好了!’ – 中国撤离在利比亚人员行动圆满结束”, 新华社 [“Special report: ‘It feels too good to be home!’ – Chinese operation to evacuate nationals from Libya ends in perfect success”], Xinhua News, 6 March 2011. 王逸舟, 《创造性介入:中国外交新取向》[Wang Yizhou, Creative Involvement: A New Direction in China’s Diplomacy] (Beijing, 2011), p. 75.Hide Footnote The impressive operation inspired national pride but also raised expectations that China would protect its citizens elsewhere. Later, this would be cited as a factor justifying intervention in South Sudan.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March-April 2016.Hide Footnote

The Libya evacuation also exposed the limits of China’s ability to protect its investments. Although its citizens were brought home safely,[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 9.Hide Footnote Chinese infrastructure projects worth over $18.8 billion were damaged by fighting, NATO airstrikes, looting and vandalism.[fn]马宁, “利比亚动荡 中国企业利益损失几何?”, 新华网, [Ma Ning, “Libya Turmoil: How much did Chinese companies lose?”], Xinhua News, 25 March 2011; “陈德铭:中国在利比亚项目损失严重”, 凤凰网, [“Chen Deming: China’s projects in Libya suffer severe loss”], Ifeng, 7 March 2012.Hide Footnote Oil imports from Libya to China fell from 150,000 barrels per day in 2010 to just 19,000 by 2014.[fn]“China”, U.S. Energy Information Administration, 14 May 2015, p. 10. “Libya is a major energy exporter, especially to Europe”, U.S. Energy Information Administration, 21 March 2011.Hide Footnote Beijing, like many other countries, was convinced that NATO’s Libya campaign exceeded the UN Security Council’s authorisation (which passed with China’s abstention) and resulted in regime change “without any legal or institutional proceedings”.[fn]Crisis Group interview, senior Chinese foreign ministry official, Beijing, February 2014. In May 2011, then-Chinese Ambassador to the UN Li Baodong twice stated China’s opposition to the NATO campaign, saying it was based on an “arbitrary interpretation” of UN resolutions. United Nations Security Council 6528th meeting, UN Document S/PV.6528, 4 May 2011. United Nations Security Council 6531st meeting, UN Document S/PV.6531, 10 May 2011. Chinese scholars spoke of a sense of “deception and betrayal” by the West, and blamed Western military intervention for the ensuing chaos in Libya. Zheng Chen, “China and the responsibility to protect”, Journal of Contemporary China, vol. 25, no. 101 (2016), p. 693. Ruan Zongze, “Responsible Protection: Building a Safer World”, China International Studies, vol. 34 (May/June 2012).Hide Footnote

Libya focused the attention of Chinese foreign policy decision-makers and thinkers and sharpened the debate on the contours of non-interference. Many began to argue that China needed to engage actively in global security affairs to prevent such chaos from arising in the first place and to shape outcomes.

III. South Sudan: The Pilot Project

South Sudan’s civil war began in December 2013 with fighting and ethnically-targeted killings in the capital, Juba.[fn]Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote Violence soon spread across the country. Rebels with the Sudan People’s Liberation Movement/Army – In Opposition (SPLM/A-IO) targeted and destroyed some oil infrastructure and killed South Sudanese workers on Chinese-owned oil facilities. Chinese workers were evacuated in emergency conditions.[fn]“97 Chinese workers evacuated from South Sudan to Khartoum”, Xinhua, 25 December 2013.Hide Footnote The Horn of Africa regional body, the Intergovernmental Authority on Development (IGAD), immediately launched mediation efforts between the government and the rebels in an attempt to stop the war and prevent neighbouring states from being pulled into a regional conflict. Both China and Western states backed these efforts. IGAD’s chief mediator, Seyoum Mesfin, a former Ethiopian foreign minister and ambassador to China, provided Beijing a known and credible entry into the mediation. China’s interests in South Sudan and strong relations with the regional mediators made South Sudan an ideal testing ground for Beijing’s increasingly nuanced approach to non-interference.

A. Chinese Interests on the Ground

Although South Sudan accounts for only 2 to 5 per cent of China’s annual oil imports, oil is front and centre among Beijing’s concerns.[fn]“China”, U.S. Energy Information Administration, updated 14 May 2015.Hide Footnote While the volume may appear small, its political and geopolitical significance is not.

Sudan was the Chinese oil industry’s first overseas success and retains symbolic importance. It was there that China’s oil corporation and its subsidiaries cut their teeth on international operations, proved their mettle and gained operational experience.[fn]The New Kings of Crude, op. cit., p. 111.Hide Footnote The China National Petroleum Corporation (CNPC) also demonstrated its ability to enhance China’s energy security, winning Beijing’s support for further expansion. As oil prices soared between 1998 and 2003, output from Sudan “contributed significantly to the company’s growth”.[fn]Crisis Group interview, CNCP official, Juba, April 2016.Hide Footnote The Khartoum refinery became a frequent stop for visiting Chinese government and party officials.[fn]The New Kings of Crude, op. cit., pp. 101-102.Hide Footnote

After the 2005 peace agreement, when it appeared likely South Sudan would gain independence, CNPC deepened its engagement with Juba – at first secretly, for fear of offending Khartoum.[fn]Crisis Group interview, Chinese businessman with first-hand knowledge, Juba, April 2016.Hide Footnote But CNPC and its partners found building relations with South Sudan challenging. Juba drove a hard bargain when it came to restructuring contracts and the volatile political environment undercut production.[fn]Crisis Group interviews, officials in the petroleum ministry, businesspeople, Juba, 2013-2016.Hide Footnote As noted, the government shut down operations in January 2012 over deadlocked talks with Sudan on oil transit fees.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 20-31.Hide Footnote Boom-time was over and the immediate loss of almost all government revenue was partially covered through loans taken against future oil production whose cost continues to be paid.[fn]Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote South Sudan’s economic downturn had begun.

Although oil flow resumed in April 2013, the civil war that broke out in December shut down production in three fields in Unity state (the larger Upper Nile state fields remained operational).[fn]Both are near the border with Sudan and near areas where fighting has taken place. “South Sudan restarts oil production”, Financial Times, 7 April 2013. Crisis Group interview, CNPC managers, Juba, April 2016.Hide Footnote The global decline in oil prices in 2014, combined with the war, presented a dual challenge for the oil companies. In January and February 2016, when benchmark crude oil prices dipped to lows below $30 per barrel, CNPC lost nearly $2 million a day, although it still is banking on South Sudan stabilising and oil prices have since increased.[fn]Crisis Group interviews, CNPC managers and Chinese diplomats, Juba, April 2016.Hide Footnote

Although CNPC officials routinely downplay the company’s influence on Beijing’s decision-making, executives of national oil majors are prominent members of the elite decision-making class. The Communist Party’s Central Organisation Department appoints these top executives, who typically hold vice ministerial rank. It is not uncommon for oil company executives to ascend to prominent political positions.[fn]Crisis Group Asia Report N°275, Stirring up the South China Sea (IV): Oil in Troubled Waters, 26 January 2016, p. 5. Zhou Yongkang, CNPC general manager 1996 to 1998, played a crucial role in CNPC’s venturing into Sudan. He became a member of the Politburo Standing Committee in 2007 and security czar. In retirement, he was arrested on corruption charges in 2015. “Profile: China’s fallen security chief Zhou Yongkang”, BBC, 11 June 2015.Hide Footnote Although CNPC is primarily a profit-seeking corporation, it can be called upon by the party to fulfil policy or political goals such as employment and diplomacy. Diplomats said CNPC was asked to absorb the loss and stay put in South Sudan. The company in turn sought and expected protection from the Chinese state.[fn]Crisis Group interviews, Beijing, March 2016; Addis Ababa, April 2016; Chinese scholar, Shanghai, April 2016.Hide Footnote

Operational costs, with cheap rent and labour, were low and profit margins were as high as 50 per cent before the current economic crisis.

Oil companies were not alone in investing in South Sudan. Other companies followed suit, accompanied by Chinese loans.[fn]In January 2012, Kiir received Li Yuanchao, member of the Politburo, in Juba. The two sides discussed additional loans potentially guaranteed against future oil reserves. Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 10-11.Hide Footnote Bilateral trade reached $534 million in 2012; by 2013, roughly 100 Chinese companies were registered in South Sudan, covering energy, engineering, construction, telecommunications, medical services, hotels, restaurants, and retail.[fn]“中国和南苏丹合作简介”[“Brief introduction to China-South Sudan Cooperation”], official website of the Economic and Commercial Counsellor’s Office of the Chinese Embassy in South Sudan, updated 8 December 2013.Hide Footnote Some saw South Sudan as a “paradise for investors”: a country rich in oil income, with huge infrastructure needs, nearly no industry and no Western competition.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016. Zhong retired from the position in August 2016.Hide Footnote Operational costs, with cheap rent and labour, were low and profit margins were as high as 50 per cent before the current economic crisis.[fn]Crisis interviews, Chinese businessmen, Juba, April 2016; correspondence, Chinese businessmen, July 2016.Hide Footnote

Yet risks also are plentiful. Beyond war and political instability, robberies, kidnapping and petty crime threaten property and personal safety. Both government and rebel groups have sought to protect Chinese businesspeople and infrastructure, expecting (and sometimes receiving) financial benefits in exchange.[fn]Crisis Group interviews, South Sudanese government officials and rebel leaders, Juba, Addis Ababa, 2014-2015.Hide Footnote But the government, which has been running a deficit and mortgaging future oil revenue since 2012, is chronically delinquent on contractual and loan payments. Investors are therefore increasingly hesitant to make substantial investments.[fn]Crisis Group interviews, Chinese businessmen in construction, telecommunications, and hospitality, Juba, April 2016.Hide Footnote

B. A Pilot Project for Diplomacy

When civil war broke out in December 2013, CNPC evacuated many employees on company airplanes. Other Chinese citizens fled via self-organised caravans. Although not specifically targeted, Chinese retail shops and restaurants were looted or burned down in the fighting.[fn]Crisis Group interviews, CNPC managers and other Chinese businessmen, Juba, April 2016.Hide Footnote

Chinese officials debated whether to leave or stay with lessons from Libya fresh in their minds. Another withdrawal would mean leaving oil fields and other investments behind, likely to be damaged by war; it also would mean forfeiting economic and political leverage to influence events.[fn]Crisis Group interviews, Chinese diplomats and scholars with state-affiliated think-tanks, Beijing, January-March 2016.Hide Footnote Diplomats said Beijing was also driven by “a sense of responsibility” to preserve South Sudan’s economic future, which lives or dies with the oil industry.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote Zhong Jianhua, who replaced Liu as special representative on African affairs in 2012, arrived in Nairobi as IGAD launched its mediation process. In response to IGAD’s request for China’s engagement, Beijing stepped up its involvement. Between 2014 and the signing of a peace agreement in August 2015, China was consistently engaged and supportive of the mediation process.

For Beijing, South Sudan became a real-world laboratory to test the boundaries of its non-interference principle. It did so in what, domestically, was a relatively less contentious arena: unlike conflicts and disputes in Asia, Africa seldom falls under Beijing’s domestic media spotlight or becomes the subject of nationalist passion. A Chinese scholar on African affairs said:

China can afford to stomach the cost of trial-and-error of new approaches in Africa. China hopes to form “Chinese solutions”. In comparison, Myanmar and the South China Sea are much more sensitive and mistakes there are much more costly to China.[fn]Crisis Group interview, Chinese scholar on African affairs at a government-affiliated think-tank, Beijing, January 2016.Hide Footnote

As a result, the foreign ministry’s Africa Department has more room to manoeuvre, undertake policy initiatives and delegate authority and influence to the field.[fn]Crisis Group interview, Chinese foreign ministry official, Beijing, March 2014.Hide Footnote Diplomats in Juba and Addis Ababa were ready to engage with the South Sudan mediation, which one diplomat described as “a pilot project for Chinese diplomacy”. It was expected that this experience would shape the debate in Beijing about non-interference and thus contribute to formulating “Chinese solutions”.[fn]Crisis Group interview, Chinese diplomat, Addis Ababa, April 2016.Hide Footnote

IV. China in Action

The government sees itself as a newcomer to conflict resolution, and is viewed as such by partners. Though vaguely defined and still evolving, an outline of what “Chinese solutions” might look like is beginning to emerge from its engagement with South Sudan.

A. Chinese Solutions

1. Setting the table, not forcing outcomes

China appears most comfortable in the role of a table-setter, leveraging its political and economic influence to bring parties together. Its flexibility in providing aid has helped ensure the quick release of small in-kind donations covering transportation and accommodation for participants in negotiations.[fn]“During mediation between Darfur and Sudanese government for example, Chinese funding support always came in handy. It allowed people to travel and convene,” said a UN official involved in the process. Crisis Group interview, Addis Ababa, April 2016.Hide Footnote But Beijing, is only slowly becoming comfortable with directly setting agendas, proposing terms in agreements or drafting documents – and even then tends to do so behind the scenes.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

Beijing displayed such table-setting to good effect in January 2015 when Sudan-South Sudan relations were strained over support for one another’s rebels.[fn]Tensions between the two Sudans escalated in December 2014 as Sudan’s defence minister, Abdel Rahim Hussein, and intelligence chief, Mohamed Atta, claimed that Juba had continued to harbour and support Sudanese rebel groups. Atta warned South Sudan that any incursion by rebel forces from its territory would be treated as an “assault”, and threatened to pursue rebels inside South Sudanese territory. In response, SPLA spokesperson Philip Aguer said Khartoum’s comments amounted to a declaration of war. “Khartoum again warns Juba against supporting Sudan’s JEM rebels”, Sudan Tribune, 17 December 2014. “Sudan warns South Sudan against ‘hostile moves’ by rebels in its territory”, Reuters, 17 December 2014.Hide Footnote Leveraging its longstanding ties with the Sudanese government, Beijing sent Foreign Minister Wang Yi to convene a “special consultation meeting” in Khartoum that included South Sudan’s warring parties, Ethiopia, Sudan and IGAD.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Juba, April 2016.Hide Footnote Zhong Jianhua, then special representative of the Chinese government on African affairs said:

We hoped to help elevate Sudan’s international status. Choosing Khartoum gave the Sudanese government considerable recognition and encouragement. We acknowledged Sudan’s role in addressing the conflict and believed that it should play an important role. Sudan very much welcomed the decision and felt that we paid enough respect by making it the host.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

The meeting did not produce concrete resolutions, but Beijing secured renewed commitments to oil infrastructure security, melding its economic interests with those of Sudan and South Sudan. It “put Sudan and South Sudan on notice … China sent a message to the Sudanese government that supporting conflict in South Sudan would go against Chinese interests. Western countries were not in a position to do so”.[fn]Crisis Group interview, senior U.S. official, Washington, May 2016.Hide Footnote The event also “made IGAD refocus its attention and added new momentum to the peace process”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote Chinese influence encouraged Khartoum to exercise restraint in South Sudan, which also helped set the Sudanese government up in 2016 for its negotiations over sanctions relief from Washington, which was counselling the same approach.

Beijing considered this a “ground-breaking” initiative. “It was the first time that we called upon leaders of countries in the region to discuss conflict resolution in another country”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote Western and African partners increasingly have urged Beijing to take on more responsibility, given its permanent seat on the UN Security Council and leverage over parties concerned.[fn]“South Sudan’s famine is China’s chance to lead”, Bloomberg, editorial, 27 February 2017.Hide Footnote According to one UN official: “It can punch way more weight … China can put its foot down on deadlines. It can be tougher. It can insist on implementation”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

2. Chinese interests as global interests

China was as surprised as the rest of the world when the civil war began, and scrambled to secure its oil infrastructure in the volatile Greater Upper Nile region. Some installations were destroyed in the first weeks of the war and opposition forces threatened to attack and destroy others.[fn]The war started in Juba and quickly spread throughout Greater Upper Nile. Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote

China hedged between the government and SPLM/A-IO (the rebel grouping negotiating with the government), providing financial and other support to both parties conditioned upon their guaranteeing the security of oil infrastructure or, in the case of the rebels, not attacking it. Beijing may have overestimated the SPLM/A-IO’s capabilities after the first few months of war; it was in the rebels’ interests to overstate their ability to threaten the fields, a case they continue to make.[fn]Attacking the oil fields again would have put them at odds with Khartoum, which was their primary source of arms. Crisis Group interview, SPLM-IO member, December 2016.Hide Footnote

China, alongside most of the international community, also overestimated SPLM/A-IO leader Riek Machar’s command and control over the forces operating in his name. When Johnson Olony, a rebel turned government general in 2013, defected (again) to the opposition in 2015, his first act was to march on the oil fields – flouting Machar’s agreement with the Chinese.[fn]Crisis Group Africa Report N°228, South Sudan: Keeping Faith with the IGAD Peace Process, 27 July 2015, p. 14.Hide Footnote His forces briefly captured Melut town and were poised to launch an offensive on the well-defended Palioch oil fields nearby. Chinese and Western diplomats rushed to avoid an oil shutdown amid calls to pull out foreign workers.[fn]Crisis Group interviews, U.S. officials, Washington, May 2015.Hide Footnote In the end, Olony’s forces were turned back by South Sudanese government forces. But the incident demonstrated the limits of China’s arrangement with Machar.

The wider international community supported China’s efforts to protect oil infrastructure; few could envision war-ravaged South Sudan rebuilding without oil revenue.[fn]Crisis Group interviews, Western and regional diplomats, Addis Ababa, 2014-2015.Hide Footnote However, China was the only actor prepared to provide direct help to keep the oil flowing. Quiet understandings with both the government and rebels offered China the prospect of benefits beyond wartime security – good relations with Juba and, on the ground, with the leadership of oil-producing states that former rebels would have governed had the peace agreement been fully implemented.[fn]Crisis Group Report, South Sudan: Rearranging the Chessboard, op. cit. The 2015 IGAD peace agreement provided that the two major oil-producing states of South Sudan were to be governed by Machar’s rebels. “Agreement on the Resolution of Conflict in the Republic of South Sudan”, IGAD, 17 August 2015, pp. 17-18.Hide Footnote

3. African solutions to African problems

China has called for “African solutions to African problems”, an approach that gives Beijing’s policy considerable room to evolve.[fn]Premier Li Keqiang debuted China’s commitment to the concept in May 2014. “第十五届’蓝厅论坛’在外交部举行, 外交部长王毅发表主旨演讲” [“The 15th ‘Lanting Forum’ takes place in the foreign ministry; foreign minister Wang Yi delivers keynote speech”], press release, Chinese foreign ministry, 26 November 2015; Crisis Group interviews, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote In South Sudan, it insists on IGAD’s lead role and is reluctant to reach for the reins even when the process falters. “We have to let local people decide their own fate, even though they might end up with nothing”, said a senior diplomat.[fn]Crisis Group interview, Beijing, March 2016.Hide Footnote It also can be swayed by African endorsements. In May 2011, following fighting in Abyei, a region disputed between Sudan and South Sudan, an African Union (AU) Peace and Security Council communiqué helped put an end to Beijing’s resistance to the idea of intervention by external actors. China subsequently voted at the Security Council in June to authorise peacekeepers for Abyei.[fn]As one diplomat said: “When China and Russia saw it was African text, they were okay”. Crisis Group interview, EU diplomat, Addis Ababa, April 2016; “Communiqué: The Peace and Security Council of the African Union (AU), at its 280th meeting held on 20 May 2011, in Addis Ababa, considered the implementation status of the Comprehensive Peace Agreement (CPA) in Sudan”, PSC/PR/BR (CCLXXX), 20 May 2011; “Communiqué of the Consultative Meeting between Member of the Council of the United Nations and the Peace and Security Council of the African Union”, United Nations, 21 May 2011. “Resolution 1990 (2011)”, S/RES/1990 (2011), 27 June 2011.Hide Footnote

Western diplomats found that the most effective way to win China’s (and Russia’s) approval of – or acquiescence to – Africa-related UN Security Council resolutions is to obtain backing from the body’s African members.[fn]Crisis Group interview, Western diplomat, Addis Ababa, April 2016.Hide Footnote When African council members are divided, for instance over whether to support an arms embargo for South Sudan, China has urged the bloc to find a common position it can support.[fn]Crisis Group interview, Western diplomat, Juba, June 2016.Hide Footnote

That said, there are signs China’s approach is evolving. As it becomes more familiar with, and invested in, international peace and security mechanisms, it has begun to try to shape regional positions behind the scenes rather than passively follow them. This has been most notable with respect to Sudan and South Sudan.

4. Persuasion not punishment

China typically resists sanctions, shuns open criticism and prefers behind-the-scene persuasion. Itself once a target of sanctions, Beijing retains an ideological aversion to them, seeing them as instruments of Western coercion.[fn]Crisis Group interview, Chinese scholar, Beijing, 26 January 2016.Hide Footnote It also argues sanctions rarely achieve the intended effect and often backfire.[fn]Crisis Group interview, Chinese diplomat, 21 April 2016.Hide Footnote In practice, however, China has often adopted a more nuanced approach.

When sanctions are discussed, China occasionally mediates between the government and Western powers. “The Troika often raised the threat of sanctions”, a Chinese diplomat recounted, “China would play the role of ‘good cop’ to ease tensions”, urging patience from Western partners while counselling the targeted party to make concessions.[fn]Crisis Group interviews, Chinese diplomats, April 2016. The U.S., UK and Norway, have operated as one unit when mediating conflicts in and between the two Sudans, coordinating policymaking and speaking with one voice. The term “Troika” first surfaced in early 2001 as the three countries began to pursue concerted efforts in the Sudan peace process.Hide Footnote Functioning as messenger rather than enforcer allows Beijing to leverage its political influence without risking it.[fn]Other governments – including Ethiopia, Japan and Uganda, among others – have played this role with the South Sudanese government in recent years. Crisis Group interviews, Juba, Addis Ababa, 2014-2016.Hide Footnote China has used this approach on several occasions in recent years, including in efforts to secure the release of some of the thirteen senior SPLM members Kiir arrested and accused of plotting a coup in 2013.[fn]“S. Sudan releases two political detainees, calls for ceasefire”, Sudan Tribune, 27 December 2013; “Communiqué of the 23rd extra-ordinary session of the IGAD assembly of heads of state and government on the situation in South Sudan”, communiqué, IGAD, Nairobi, 27 December 2013; “Direct talks on South Sudan open in Ethiopia”, BBC, 5 January 2014; “South Sudan rejects call to free detainees as troops defect”, Bloomberg, 6 January 2014.Hide Footnote

On 3 April 2014, with four still in custody (and as war and atrocities continued) the U.S. announced a sanctions regime on South Sudan.[fn]“Executive Order – Blocking Property of Certain Persons With Respect to South Sudan”, the White House, 3 April 2014.Hide Footnote Chinese diplomats subsequently met with senior South Sudanese officials, including Kiir, advising flexibility and pragmatism rather than “taking the West head-on”.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote Juba announced the remaining detainees’ release on 25 April “to promote peace and reconciliation”.[fn]“South Sudan frees alleged rebel leaders”, Al Jazeera, 25 April 2014.Hide Footnote Although the U.S. imposed individual sanctions the following month due to alleged involvement in atrocities and for undermining peace negotiations, they targeted lower ranking individuals than initially envisaged.[fn]“John Kerry visits South Sudan, warns gov’t and rebels to avert ‘genocide’”, Associated Press, 2 May 2014; “U.S. sanctions both sides of South Sudan conflict”, Reuters, 6 May 2014. The U.S. had threatened to sanction top leaders on both sides but instead sanctioned two operational generals. The number later rose to six, the most senior sector commander.Hide Footnote

China’s somewhat ambivalent relationship to sanctions is evidenced by its record at the Security Council. On 3 March, China voted in favour of a U.S.-sponsored resolution laying the groundwork for targeted sanctions in advance of a 5 March peace process deadline.[fn]UNSC S/2015/2206, 3 March 2015.Hide Footnote Initially, China objected, due to ongoing negotiations, but it ultimately voted in favour, to “send a unified message”.[fn]“中国反对通过联合国南苏丹制裁决议” [“China opposes passing UN resolution imposing sanction on South Sudan”], BBC, 27 February 2015; “UN sets up sanctions regime for S. Sudan”, VOA News, 3 March 2015. The resolution also established a UN Panel of Experts to provide regular reporting to the Security Council on South Sudan.Hide Footnote Subsequently activists called for sanctioning both Kiir and Machar. In talks with the U.S., Beijing agreed not to block Washington’s efforts to sanction moderately high-ranking commanders in July 2015 in return for taking more senior officials off the sanctions list.[fn]Crisis Group interview, Addis Ababa, 22 April 2016.Hide Footnote This allowed Beijing to both stand with the international community and mollify Juba. Before the vote, South Sudan’s Vice President James Wani relayed Kiir’s “high regards and sincere gratitude” for Beijing’s “objective stance” to the Chinese ambassador.[fn]“南苏丹副总统瓦尼紧急约见马强大使” [“South Sudanese Vice President Wani requests emergency meeting with Ambassador Ma Qiang”], Chinese embassy in Juba, 3 March 2015.Hide Footnote

The flexibility also reflects back-and-forth between the capital, more concerned about principles, and the field, more preoccupied with influencing developments on the ground. With intimate knowledge of the conflict, peace process and parties involved and influenced by daily interactions with other international players, frontline diplomats may see the utility of sanctions. “Sometimes in order to have the process moving, you need to show teeth. Ultimately you need some leverage”.[fn]Crisis Group interview, Chinese diplomat, Addis Ababa, April 2016.Hide Footnote While never quite identical, the diplomats’ views also began to converge with those of counterparts in Beijing in seeing sanctions, or their threat, “as leverage to influence future behaviour instead of punishment for past behaviour”.[fn]The first round of U.S. and UN sanctions were for past human rights abuses and ceasefire violations, and not designed to shape future behaviour. Crisis Group interview, senior U.S. official, Washington, May 2016.Hide Footnote

5. Development-focused governance vs. liberal democratic governance

Beijing generally sees underdevelopment as the root cause of instability and believes its governance model better suited to cure this than Western democracy.[fn]Crisis Group interviews, Chinese diplomats, Juba and Addis Ababa, April 2016. Liu Guijin, speech, “Protecting Interests and Nationals in Africa: Chinese and European Approaches and Experiences”, CICIR-SIPRI, Beijing, 12 September 2014. Also see, “Peacekeeping, Mediation, Assistance, Escort, Development – Wang Yi Talks about Five Keywords of China’s Assistance to Peace and Security in Africa”, Chinese foreign ministry, 11 August 2016.Hide Footnote As one diplomat said: “People don’t have enough to eat. Most are illiterate. Does Western democracy really work [in South Sudan]?”[fn]Crisis Group interview, Juba, April 2016.Hide Footnote Some Chinese analysts believe the West places “too much emphasis” on “procedural legitimacy” at the cost of stability, which they argue requires a strong regime, especially in nation-building’s early stage.[fn]Crisis Group interview, Chinese analysts of African affairs at a state-affiliated think-tank, Beijing, January 2016.Hide Footnote

China believes its own post-Mao model of governance and development – a hybrid of planned and market economy under one-party rule – fits the Horn of Africa and is more appealing than Western democracy.[fn]Crisis Group interview, senior Chinese diplomat, Juba, April 2016.Hide Footnote As one scholar put it, African nations (or at least their leaders) are attracted to the Communist Party’s ability to make decisions, mobilise resources and speedily launch ambitious endeavours thanks to its concentration of power and absence of effective dissent.[fn]Crisis Group interview, Chinese scholar on Africa Studies, Beijing, January 2016. The Ethiopian People’s Revolutionary Democratic Front is among the most enthusiastic African adherents to aspects of the Chinese model. Others include ruling parties in South Africa, Zimbabwe and Namibia. Yun Sun, “Political Party Training: China’s Ideological Push in Africa?”, Africa in Focus, Brookings Institute, 5 July 2016.Hide Footnote

Rather than pushing its model, Beijing soft-sells it. An official said: “We don’t have slogans like the West does. We only share experiences”.[fn]Crisis Group interview, Liu Guijin, former special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote Between 2010 and 2013, the Communist Party organised workshops for senior SPLM cadres in Juba and Beijing on topics including poverty alleviation, social and economic development, public opinion guidance and party-building.[fn]Zeng Aiping, “China-Africa Governance Exchanges and Experiences”, Chinese Institute of International Studies (www.ciis.org.cn), 3 December 2015.Hide Footnote The embassy also “explained China’s governance principle and practice” to South Sudanese officials.[fn]Crisis Group interview, Chinese diplomat, Juba, April 2016.Hide Footnote

B. China’s Assets

Chinese diplomats and African officials also say Beijing has gained the trust of parties because it is seen as the most neutral among mediators.[fn]Crisis Group interviews, Beijing, Juba, Addis Ababa, January-April 2016.Hide Footnote Its interests are clear and, rather than pushing particular paths, it is more focused on the end state of peace and economic stability. Beijing assiduously avoids the appearance of taking sides, shuns public denunciation and is reluctant to resort to pressure or punishment. As its primary concern appears to be protecting its commercial interests, maintaining amicable relations with all sides constitutes a hedge against risks: “keeping a low profile” helps ensure it “makes no enemies”.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016.Hide Footnote Moreover, loans and assistance typically come with no strings attached, which governments see as welcome alternatives to Western donations that are tied to human rights conditions or governance standards.

There are historical affinities as well. China shares with many African countries “painful memories” of humiliation and oppression by Western powers,[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote a similarity that both helps guide Beijing’s approach and appeals to its African counterparts. All in all, this combination of factors provides Chinese diplomats with access to important players, access often appreciated by its Western partners, who are frustrated and concerned about their own lack of leverage.[fn]Crisis Group interviews, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote

Even as it deepened ties with Juba, Beijing maintained close relations with Khartoum. Its access to both sides was valuable to the IGAD mediation.

South Sudan is a case in point. Initially, its leaders viewed Beijing with suspicion and resentment due to its support for Khartoum. However, after the 2005 peace agreement, pragmatism drove both Beijing and Juba to establish and solidify political, economic and party ties. Kiir visited Beijing in 2005 and 2007. Even as it deepened ties with Juba, Beijing maintained close relations with Khartoum. Its access to both sides was valuable to the IGAD mediation.[fn]Crisis Group interview, U.S. official, Washington, May 2016.Hide Footnote

1. Economic leverage

Oil accounts for almost all South Sudan’s exports.[fn]At independence, oil accounted for 98 per cent of government revenue. “South Sudan – Over­view”, World Bank, updated 9 April 2016.Hide Footnote The consortium led by China’s oil corporation accounts for most of the investment in its oil industry; its withdrawal would render it impossible to maintain production levels and could prompt a collapse of the formal economy. Therefore, Beijing’s message to Juba was relatively clear-cut, “if you want us to stay, you have to keep us safe …. In the short run, you must ask the troops to safeguard our oil fields. In the long run, you have to stop fighting and implement the ceasefire”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016.Hide Footnote

Beijing delivered a similar message to the opposition, and secured an unwritten promise that it would not attack the oil fields.[fn]The promise was cemented through ongoing engagement with senior rebel leaders and financial inducements. Crisis Group interviews, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016; SPLM/A-IO officials, Addis Ababa, 2014-2015; Nairobi, 2016.Hide Footnote China’s National Petroleum Corporation “at the Chinese government’s behest” continued production and, at some points, paid Juba higher-than-market prices, even when running a loss.[fn]Crisis Group interviews, Chinese diplomats, Juba and Addis Ababa, April 2016. China was granting such terms in hopes of renewing its contracts and winning future concessions.Hide Footnote

In the same spirit, Beijing leveraged its loan policy. Before the civil war, the Ex-Im Bank had pledged loans and credit for at least three projects; it subsequently held off from disbursing the money because of the conflict and related economic challenges.[fn]Crisis Group interview, Chinese businessman, Juba, 12 April 2016; Peter Bashir Gbandi, South Sudanese acting foreign minister, Juba, 13 April 2016. See also, “进出口银行与南苏丹签署融资合作文件” [“Ex-Im bank and South Sudan sign financing cooperation document”], China Ex-Im Bank, 28 July 2014; “Republic of South Sudan Staff Report for 2014 Article IV: Debt Sustainability Analysis”, International Monetary Fund (IMF), 2 December 2014; “Even China has second thoughts on South Sudan after violence”, Los Angeles Times, 20 February 2014.Hide Footnote Other loans and investments also are on hold. China insists that: “Without peace, our money would go down the drain”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

Ultimately, Beijing’s economic clout translates into political influence, and both Juba and the opposition have learned to respect China’s interests and messaging.[fn]Crisis Group interviews, Chinese, Western and African diplomats, Juba and Addis Ababa, April 2016.Hide Footnote This extends to Khartoum, according to one UN official: “Whatever China said was listened to very carefully [by] both Sudan and South Sudan”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

2. Humanitarian assistance

Beijing has skilfully tailored the timing and manner of delivery of modest donations to produce maximum impact. Since the outbreak of civil war, China has provided at least $49 million in humanitarian assistance, with $10 million going to the World Food Programme (WFP), other in-kind aid and occasionally as emergency cash.[fn]For a breakdown of major pledges totalling $21 million between December 2013 and July 2014, see Zhou Hang, “China’s emergency relief to South Sudan”, The Diplomat (http://thediplomat.com), 26 October 2014. Additionally, China has pledged or delivered humanitarian assistance of at least $29 million and 8,750 tons of food since then. “China pledges 10 mln USD aid to South Sudan”, Xinhua, 24 August 2016; “China to provide S. Sudan with financial, food aid amid famine; envoy”, Xinhua, 26 April 2017; “China contributes US$5 million to WFP’s emergency operation in South Sudan”, press release, World Food Programme, 6 June 2017.Hide Footnote

While comparatively small,[fn]By comparison, the U.S. – the single largest contributor – has pledged $2.4 billion in humanitarian assistance since late 2013 for aid to South Sudanese in-country and in refugee camps in neighbouring countries. “South Sudan – Crisis: Fact Sheet #8 Fiscal Year (2017)”, United States Agency for International Development 25 May 2017.Hide Footnote assistance tends to be free from restrictive regulations, conditionality, or domestic media scrutiny, affording Beijing flexibility and manoeuvring room that OECD Development Assistance Committee member states typically lack; by the same token, China can be more responsive to Juba’s requests. For example, China provided food, shelter and water for the temporary SPLA-IO military assembly areas used when its members returned to Juba to form the transitional government. It worked in coordination with Western countries that could not provide such assistance to a military encampment but could transport soldiers to Juba.[fn]This was permissible in-line with the Troika’s approved mandate to spend funds in support of implementation of the August 2015 peace agreement.Hide Footnote “The embassy drew a list of things needed worth about $1 million. We built prefabricated houses, provided generators, mosquito nets … [which were] in place just in time for the return of the 1,300 soldiers”.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote

Juba has been more likely to listen to China – which has turned a blind eye to human rights violations – than to Western countries, whose relationships with the government dramatically deteriorated in recent years. This appears to have been the case with regards to ensuring continued humanitarian access; access to rebel-held areas. The Chinese ambassador secured Juba’s consent for China to support UN WFP operations and its agreement to the WFP’s sensitive cross-line food deliveries to rebel-held areas. A Chinese diplomat said:

I went to talk with the foreign minister and the minister of humanitarian affairs. I told them that China was going to give the government $8 million in humanitarian assistance. I also said we can’t neglect people in the three northern states and that China wanted to provide them $5 million of food assistance.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote

C. China’s Limitations

1. Experience and capability

Compared with its Western counterparts, the Chinese foreign ministry is only in the early stages of building institutional infrastructure, acquiring expertise and establishing its authority on matters related to conflict resolution. “The British and French have been here more than 100 years. We are learning. For many years we were very careful and only interested in economic and trade issues” said a senior diplomat in Addis Ababa.[fn]Crisis Group interview, Addis Ababa, April 2016.Hide Footnote

Beijing also is handicapped by a shortage of field capacity. Embassies across Africa face a dramatic increase in their workload as the number of nationals and companies grows, but without a concomitant increase in staff or resources.[fn]Crisis Group interview, Liu Haifang, Associate Professor, Peking University, Beijing, January 2016.Hide Footnote When the civil war broke out in 2013, the Chinese embassy in Juba had about twenty staff, compared with about 300 American and local employees in the U.S. embassy.[fn]Crisis Group interview, Chinese diplomat, Beijing, March 2016. U.S. figure is from “Report of Inspection Embassy Juba, South Sudan, Report Number ISP-I-13-29A”, United States Department of State and the Broadcasting Board of Governors Office of Inspector General, May 2013.Hide Footnote Supporting South Sudan’s peace efforts placed additional demands on the mission, but it was not given supplementary resources. The Chinese special envoy does not have a dedicated support team; instead, he relies on desk officers at the Western Asia and North Africa Department when in Beijing, and on embassies while in the field.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Addis Ababa, April 2016. For a sense of the scope of the U.S. diplomatic effort, see Princeton N. Lyman and Robert M. Beecroft, “Using Special Envoys in High-Stakes Conflict Diplomacy”, Special Report 353, United States Institute of Peace, October 2014.Hide Footnote

2. Expertise

Chinese diplomats also suffer from a relative paucity of first-hand information. The foreign ministry is one of the very few reservoirs of expertise and field intelligence, yet positions in Africa are less coveted than those in Europe or North America, resulting in a comparatively shallow bench for talent. Diplomats rarely have the freedom, time or authority, to go on fact-finding trips.[fn]Crisis Group interviews, foreign ministry officials, Beijing, March 2014, Addis Ababa, April 2016.Hide Footnote Nor does China possess a network of field-based NGOs to complement diplomats’ knowledge.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Addis Ababa, 22 April 2016. Ambassador Liu Guijin said early in his involvement in Darfur he had read everything China had produced on Sudan, but was “shocked” that his Western counterparts “even knew how many concubines each of them [rebel leaders] had and which one was pretty”. Crisis Group interview, Beijing, March 2016.Hide Footnote Western NGOs on the ground are often nervous about engaging China, fearful that sensitive information could be passed on to Juba (a concern many also express about IGAD member states).[fn]Crisis Group interviews, NGO staff, Juba, 2014-2016.Hide Footnote

Outside the foreign ministry, conflict resolution is a nascent discipline and country-specific expertise remains underdeveloped. Although African studies has gained prominence in recent years in think-tanks, most are state-affiliated and the field is underfunded and overlooked compared with U.S.-China relations or hot-button issues in Asia. African studies have tended to focus on broad cross-cutting subjects, rather than country-specific analysis. Moreover, field research by scholars faces both funding constraints and bureaucratic hurdles – a trip abroad of more than five days requires special approval.[fn]Crisis Group interviews, scholars in think-tanks and universities, Beijing, January 2016 and March 2017.Hide Footnote “China has increasing political will but feels constrained …. It doesn’t have many experts who truly understand South Sudan. The reservoir of expertise in China is small”.[fn]Crisis Group interview, scholar in a state-affiliated think-tank who specialises in Sudan and South Sudan, Beijing, January 2016.Hide Footnote

3. The costs of peacemaking

China has paid a price – both economic and in terms of human lives – as a result of its greater role in peacemaking in South Sudan. In 2014, a $38 million, multi-year arms contract between the South Sudanese government and the China North Industries Corporation (NORINCO) was made public.[fn]“China halts arms sales to South Sudan after NORINCO shipment”, Bloomberg, 30 September 2014.Hide Footnote Senior diplomats said the contract was signed before the war began and that NORINCO, although a state-owned enterprise, was seeking profit rather than advancing any state agenda.[fn]Crisis Group interviews, Beijing, March-April 2016. China’s ministry of foreign affairs (MFA) does not have formal authority over state-owned enterprises. The largest, including China North Industries Corporation (NORINCO), are overseen by the State-owned Assets Supervision and Administration Commission (SASAC), which is of equal bureaucratic rank with the MFA.Hide Footnote The embarrassment caused by the publicity led China to halt the remainder of the contract on grounds it was “inappropriate”.[fn]“China halts arms sales to South Sudan after NORINCO shipment”, Bloomberg, 30 September 2014.Hide Footnote It was the first public indication that China was willing to sacrifice economic gains – in this case a relatively small contract – in the interest of its peacemaker role. Whether this becomes more standard policy remains to be seen.

China’s peacekeeping role also has security implications. Following rushed evacuations and fearful for its workers’ safety, China included protection of workers on oil installations in the UN peacekeeping mission’s mandate in 2014.[fn]S/RES/2155 (2014), 27 May 2014.Hide Footnote Backing this up with action, China deployed its first-ever peacekeeping infantry battalion to South Sudan in January 2015.[fn]Previously, China had 350 engineers, medical and other non-combatant personnel in the mission. The additional 700-strong battalion made UNMISS home to the largest number of Chinese peacekeepers. “Chinese peacekeepers start deployment in South Sudan”, Reuters, 16 January 2015. “UN Mission’s Contributions by Country”, United Nations, 31 July 2016.Hide Footnote But when fighting broke out in Juba in July 2016, Chinese peacekeepers were caught in the crossfire. Five were wounded and two eventually died.[fn]Luo Zheng, “艰难一日,我南苏丹维和步战车遇袭事件始末” [“A hard day: recount of the attack on Chinese peacekeeping infantry fighting vehicle in South Sudan”], China Military, 19 July 2016.Hide Footnote The deaths shocked the nation and the soldiers were publicly mourned.[fn]“维和英雄李磊忠魂归乡 万余群众冒雨相送” [“Peacekeeping hero Li Lei’s soul returns home, thousands brave rain to attend funeral ceremony”], Xinhua, 22 July 2016; “南苏丹维和士兵中秋为两位牺牲战友摆碗筷” [“Peacekeepers in South Sudan set the table for two deceased comrades for Mid-Autumn Festival dinner”], China Central Television, 16 September 2016.Hide Footnote Nonetheless, Beijing subsequently reaffirmed its growing commitment to multidimensional peacekeeping operations.[fn]“综述:中国愿为联合国维和事业作出更大贡献” [“Review: China is willing to make greater contribution to UN peacekeeping”], Xinhua, 28 July 2016.Hide Footnote China is expanding the peacekeeping categories in which it is deploying troops and making multi-year commitments to seven missions.[fn]Crisis Group interview, Chinese diplomat, New York, February 2017.Hide Footnote It also is exploring how it can further develop its role and has set up a task force supported by the $1 billion UN Peace and Development Fund that President Xi announced in September 2015.[fn]Remarks by H.E. Xi Jinping President of the People’s Republic of China at the United Nations Peacekeeping Summit, 28 September 2015; “China to set up $1b peace fund”, China Daily, 29 September 2015.Hide Footnote

V. Road Ahead: Collaboration and Competition

China and the West have largely worked collaboratively on South Sudan and their approaches broadly have complemented each other – providing a model for future cooperation. Beijing’s softer, more private forms of persuasion benefit from the contrast with the Troika’s (the U.S., UK and Norway) harder line. Both Chinese and U.S. diplomats express optimism regarding prospects for coordinated and complementary efforts and are in close contact. Yet overarching U.S.-China tensions colour this engagement and IGAD and its member states must also ensure they do not get dragged into geopolitical rivalries that could undermine their peace efforts.

A. Different Approaches on Economic Issues

Coordination likely will prove more challenging on questions of governance and accountability, and collaboration will coexist with competition. On economic issues, challenge likely will intensify as South Sudan faces a politically-induced economic crisis (prolonged instability has cut oil production by nearly half; international oil prices have fallen; the country experiences hyper-inflation; and corruption is rife)[fn]“Press Release: IMF staff completes 2016 Article IV Mission to South Sudan”, International Monetary Fund, 1 June 2016.Hide Footnote and needs budget support to cover a $300 million fiscal gap in FY 2016-17.[fn]Before the civil war, donors almost never provided direct budget support and development aid was administered through the UN, NGOs or private contractors. Very little of this proved effective, making donors even more wary. “South Sudan seeks $300 mln in external support for budget”, Reuters, 29 August 2016.Hide Footnote Western donors seek to leverage Juba’s requirement for a fiscal bailout to extract commitments to economic reform and fiscal responsibility.[fn]There are questions as to whether the new U.S. administration will pursue the same policy. In 2012, it was reported that South Sudan’s elite had stolen $4 billion. “South Sudan officials have stolen $4 billion: president”, Reuters, 4 June 2012.Hide Footnote While Western nations insist any rescue package “will come with extremely intrusive demands” (which Juba rejects),[fn]Crisis Group interview, EU official, Addis Ababa, April 2016. These conditions include revenue and spending transparency to ensure a bailout does not line the pockets of corrupt officials or finance more violence. “What we want to see is real-time information on how much the government is getting, how much and where it is spending. We do not want to tell it where to spend. We want to ensure that money is not going into some elite’s bank accounts. We can’t justify spending our taxpayer dollars that way”. Crisis Group interview, senior U.S. official, Washington DC, May 2016.Hide Footnote Beijing is uncomfortable with what it deems direct interference in South Sudan’s domestic affairs and demurs on demanding fiscal transparency.[fn]In this, it is shaped by its own unhappy experience, having faced its share of Western criticism over its lack of transparency on military spending. Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016; Chinese analyst at a state-affiliated think-tank, Beijing, January 2016; senior U.S. official, Washington, May 2016.Hide Footnote For now, China generally has hewed the Western line, echoing the IMF’s advice to the government and refrained from pledging more credit or loans.[fn]Crisis Group interview, senior U.S. official, Washington DC, May 2016.Hide Footnote But some Western countries fear China could unilaterally help Juba, weakening their leverage.

B. Strategic Cooperation on Political and Security Issues

On political and security issues, China prefers to work through regional actors rather than directly with the West. That is the case with South Sudan’s Joint Monitoring and Evaluation Committee (JMEC), for instance, which oversees the peace agreement and embodies “three-party [China-Africa-West] cooperation under a multilateral framework” that Beijing feels “comfortable with”.[fn]Crisis Group interviews, Chinese diplomats, Juba, April 2016.Hide Footnote A Chinese representative is present at JMEC meetings, but “only listens”, one African diplomat noted.[fn]Crisis Group interview, African JMEC member, Juba, April 2016.Hide Footnote At the same time, China has calibrated its contribution to maintain sway, providing financial and material support, and ensuring Chinese personnel are in influential positions.[fn]Crisis Group interview, senior African diplomat and senior Chinese diplomat, Juba, April 2016. “中国政府向JMEC提供30万美元资金支持” [“Chinese government offers $300,000 financial support to JMEC”], Chinese embassy in Juba, 18 April 2016. Crisis Group interview, UN official, Addis Ababa, April 2016; Chinese diplomat, Juba, April 2016.Hide Footnote

Mechanisms like JMEC allow China to justify a form of intervention under the mantra of “African solutions for African problems”. It likely will continue insisting on IGAD’s lead role, even as Western diplomats express doubt about the regional grouping’s commitment.[fn]China is comfortable working through IGAD, particularly given its close relations with Ethiopia, the organisation’s chair. Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote This approach enables China to both secure its influence within boundaries acceptable to its African partners and cooperate with the U.S. While this offers prospects for cooperation, it also carries the risk that South Sudan could suffer from any broader deterioration in U.S.-China relations.

VI. Conclusion: Engagement with Chinese Characteristics

Although China remains largely risk-averse, the degree of its involvement in South Sudan would have been “beyond imagination” even a few years ago.[fn]Chinese diplomats and scholars, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote Its experience in the field will continue to inform the debate in Beijing about what level and kind of policy approach is possible, consistent with the non-interference principle.

The new boundaries of Beijing’s interpretation of this principle are yet to be officially delineated, but its rhetoric and actions in South Sudan suggest a rough outline. Specifically, Beijing appears to see direct involvement as legitimate when:

  • Civil conflicts threaten to spill over across borders, jeopardise regional security and stability and cause large-scale humanitarian crises. They are then “no longer internal political affairs but regional security affairs”.[fn]Crisis Group interviews, Chinese scholar, Beijing, 26 January 2016; Liu Guijin, former special representative of the Chinese government on African affairs, Beijing, March 2016. Also see 王逸舟, “创新不干涉原则,加大保护海外利益的力度”, 《国际政治研究》 [“Introduce new ideas on the non-interference principle, increase efforts to protect overseas interests”], International Political Studies, (Feb. 2013), p. 3.Hide Footnote
     
  • UN authorisation, regional approval and local consent are obtained.[fn]For instance, during the Darfur crisis, Beijing conditioned its involvement on “AU approval, UN resolution, and the Sudanese government’s acceptance”. Crisis Group interviews, Liu Guijin, former special representative of the Chinese government on African affairs, Beijing, March 2016; Zhang Chun, Senior Fellow, Centre for Africa and Middle East Studies, Shanghai Institutes of International Studies, Shanghai, March 2016. Also see Wang Yizhou, “New Direction for China’s Diplomacy”, Beijing Review, 8 March 2012.Hide Footnote
     
  • Actions are taken to facilitate political dialogue without imposing outcomes. “We would not meddle with … who should be the president and who should not. We only care about achieving a ceasefire and getting everyone to the table”.[fn]Crisis Group interview, Zhong Jiahua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

In contrast, Beijing sees intervention as illegitimate interference when:

  • Attempts are made to influence domestic politics, such as dictating regime types, siding with political parties or figures or shaping political outcomes.[fn]Crisis Group interviews, Chinese scholar, Beijing, January 2016; Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016; Also see Lu Shaye, “中非新型战略伙伴关系的几点思考” [“Some Thoughts on the New Strategic Partnership between China and Africa”], speech given at the Institute of International Strategy at the Party School of the Central Committee of the CPC, Beijing, 19 September 2012.Hide Footnote
     
  • Demands are made on governance issues, such as revenue, spending, political freedom and accountability.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016.Hide Footnote
     
  • Intervention is made unilaterally or with a minority group of nations without UN authorisation or regional consent.
     

Finally, China considers that a “red line” is crossed with the initiation of:

  • Unilateral military intervention in a country’s domestic affairs.
     
  • Regime change.[fn]Crisis Group interview, Chinese foreign ministry official, Beijing, March 2014.Hide Footnote

For the most part, China’s engagement is driven by self-interest although to a lesser degree it has taken into account the desire to export its own governance and development model and shape global norms. Such a distinction increasingly may blur if Beijing comes to see cultivating local political allies who share its views as the most effective means to protect Chinese interests and if it gains the confidence and capability to do so. In South Sudan and the wider Horn of Africa, where Beijing senses political affinity with governments, China has been discreetly promoting its model of governance and development through exchanges and training while resisting actions advancing Western values and political models.

Rather than the hard-edged doctrine its official rhetoric may suggest, non-inter­ference is likely to remain elastic and will continue evolving as China balances newfound activism and traditional risk-avoidance and maintains theoretical flexibility to accommodate experimentation.

China increasingly is being called upon to act, perhaps more than it would like.

As this evolution occurs, contradictions and tensions are bound to surface, in South Sudan and elsewhere, among competing Chinese interests, but also between China’s approach and values and those espoused by the West. At a minimum, Beijing will need more sophisticated expertise on peace and security issues, including peacebuilding and complex emergencies. China has a ready-made rationale and means for doing so – its increased engagement in UN peacekeeping as well as the China-UN Peace and Development Trust Fund, which could be accompanied by funding for more training, research and international exchange opportunities for Chinese practitioners and scholars.[fn]President Xi announced on 28 September 2015 that China would establish a $1 billion China-UN peace and development fund. Subsequently, on 7 May 2016 representatives of China and the UN signed an agreement China would provide $200 million in annual funding over ten years for a UN Peace and Development Trust Fund. “China signs agreement with UN to finance peace, security activities”, Xinhua, 7 May 2016.Hide Footnote China increasingly is being called upon to act, perhaps more than it would like. South Sudan is a first test case and, so far, it has illustrated a simple point: that, by working together and melding their at times distinct approaches, China and the West can form a more effective force for stability than either could separately.  

Beijing/Nairobi/Juba/Brussels, 10 July 2017

Appendix A: Map of South Sudan

Map of South Sudan. International Crisis Group/KO, July 2017.
A Chinese worker sits near trucks carrying goods during the opening of a trade project in Gwadar port, some 700 kms west of the Pakistani city of Karachi on November 13, 2016. AAMIR QURESHI / AFP
Report 297 / Asia

China-Pakistan Economic Corridor: Opportunities and Risks

The China-Pakistan Economic Corridor, opened in 2015, could bring needed jobs and investment to Pakistan. But many projects also risk widening social divides and heightening political tensions along the route. With Beijing’s support, Islamabad should seek the public’s input to ensure equity in economic gains.

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What’s new? Pakistani leaders say the China-Pakistan Economic Corridor (CPEC), launched in 2015, is a “game changer” for the country’s ailing economy. But opaque plans for the corridor, the upheaval likely to affect locals along its route, and profits flowing mostly to outsiders could stir unrest. The government has repressed CPEC critics.

Why does it matter? CPEC could help revive Pakistan’s economy. But if it moves ahead without more thorough debate in parliament and provincial legislatures and consultation with locals, it will deepen friction between the federal centre and periphery, roil provinces already long neglected, widen social divides and potentially create new sources of conflict.

What should be done? The government that assumes power after the July 2018 elections should encourage debate about CPEC; consult with business leaders, civil society and locals affected; ensure landowners receive fair compensation; encourage hiring local labour; and allow space for dissent. Beijing and Chinese companies involved should support such measures.

Executive Summary

Envisaged in mid-2013 and launched in April 2015, the China-Pakistan Economic Corridor (CPEC), a set of projects under China’s Belt and Road Initiative, marks a new era of economic ties in a bilateral relationship historically defined by security cooperation. Pakistan’s economy clearly needs reform to better serve its people, and many officials say CPEC will help in this regard. But as currently rolled out, the corridor risks aggravating political tension, widening social divides and generating new sources of conflict in Pakistan. The government that assumes power after Pakistan’s July elections should mitigate these risks by being more transparent about CPEC plans, consulting all stakeholders, including smaller provinces, the business community and civil society, and addressing concerns that the corridor subordinates Pakistan’s interests to those of China. For its part, Beijing also should consult stakeholders in regions that will host CPEC projects it agrees upon with Islamabad. It should encourage Chinese companies to display sensitivity to residents of those areas, including by hiring local labour.

CPEC, which comprises loans, investments and grants that could grow to around $60 billion, travels a 2,700km route. It starts on the Pakistani Arabian Sea port of Gwadar, in Balochistan province, climbs along the Karakoram highway through the Khunjerab pass in Gilgit-Baltistan, before crossing into the Kashgar prefecture in China’s Xinjiang region. Within Pakistan’s territory, the economic and development project prioritises transport infrastructure, industrial development, energy and Balochistan’s strategically located Gwadar port. Agricultural modernisation and production form another critical component.

The Pakistan Muslim League-Nawaz (PML-N) government, which came to power after elections in 2013 and stepped down on 31 May 2018, depicted CPEC as a leap forward both in relations with China and for the country’s economic development. Contenders to national office from across the political spectrum have broadly endorsed this view. Yet some high-level officials and prominent voices in Pakistani business are concerned about the failure to protect local economic interests, high guaranteed returns on equity to Chinese investors and unaffordable national debt.

While it is too early to assess if CPEC can deliver the economic gains Islamabad promises, the project risks inflaming longstanding tensions between the centre and smaller federal units and within provinces over inequitable economic development and resource distribution. Less-developed federal units such as Balochistan and Sindh contend that the corridor’s route, infrastructure and industrial projects will mostly benefit Punjab, already the country’s wealthiest and politically powerful province. Yet, even in Punjab, locals could forcibly resist the state’s acquisition of land for CPEC’s agricultural projects.

CPEC’s Long-Term Plan (2017-2030) was formulated by the centre with little input from local leaders, business or civil society actors.

In Balochistan, CPEC is exacerbating existing grievances among a population whose perceptions of exploitation and neglect by the centre, together with authorities’ suppression of dissent, have long fuelled an insurgency. The province will receive no direct financial benefits from Gwadar port, a key CPEC project, which means local anger at Islamabad is likely to intensify. Instead of developing a sleepy fishing village into a bustling commercial hub as pledged by Islamabad and Beijing, the project is producing a heavily militarised zone, displacing locals and depriving them of economic lifelines. In Sindh’s Tharparkar district, coal-based CPEC power projects are not only damaging the environment, but are also displacing locals from their homes and could destroy livelihoods.

Many of these problems stem from opaque policy formulation, and the failure to heed regional and local concerns. CPEC’s Long-Term Plan (2017-2030) was formulated by the centre with little input from local leaders, business or civil society actors. It was not disclosed until December 2017 – and then only in broad strokes – after the rollout of some major elements had already begun. From the project’s entry point, Gwadar, to its exit point, in Gilgit-Baltistan, the state’s response to local dissent and alienation has been an overbearing security presence, marked by army checkpoints, intimidation and harassment of local residents, and crackdowns on anti-CPEC protest.

Perceived geopolitical gains could also take precedence over economic ones. Pakistan’s military establishment views a deeper economic relationship with China, even if tilted in Beijing’s favour, as a counterpoint to rising U.S. diplomatic and economic pressure to end support to Afghanistan- and India-oriented militant proxies. But as it expands its economic footprint in the country, Beijing, too, seems increasingly concerned about the threats posed by such proxies to its national and regional security interests. Moreover, unequal gains, combined with perceptions that CPEC projects undermine the economic, social and political interests of key stakeholders, could aggravate anti-Chinese sentiment within Pakistan. There already have been several attacks on Pakistanis employed in CPEC projects.

Islamabad should ensure that CPEC’s directions and priorities address the country’s economic and political interests, including by taking the following steps:

Build political consensus on the project’s direction, including by fostering debates in the national and provincial legislatures, to ensure that there are equitable gains for all provinces; and stop arrests, harassment and other coercion of critics.

  • Consult economists, chambers of commerce, the Pakistan Business Council, trade associations and other business community stakeholders, and incorporate measures to address their concerns in a new framework for CPEC special economic zones and development projects.
     
  • Hire local labour and ensure that CPEC projects apply labour protections and practices.
     
  • Consult extensively with local communities about the potential costs and benefits of major development projects and devise an appropriate compensation and resettlement plan for all those displaced, including not just formal landowners but also those with the informal land ownership common across Pakistan. If needed, parliament should consider relevant reforms to the 1894 Land Acquisition Act.

Beijing and Chinese firms should:

  • Consult and engage the full spectrum of Pakistani stakeholders, from competing elites to the grassroots, as CPEC projects are identified and/or implemented, and prioritise job creation for locals.
     
  • Conduct comprehensive risk and political analysis of CPEC projects to ensure that benefits are shared equitably between competing interests.
     
  • Complement such efforts with effective and extensive communication with Pakistani stakeholders at the local, regional and national levels, so as to illustrate common interests.

For all the risks and challenges, CPEC offers an opportunity to upgrade Pakistan’s aging and dysfunctional infrastructure, and revive a flagging economy. But to deliver on these promises, both Islamabad and Beijing need to implement it with considerably more sensitivity and consultation than they have displayed thus far, with provinces and the communities most affected given a greater voice in shaping CPEC projects. Locals need to see dividends; benefits that overwhelmingly flow to outsiders would aggravate social and political divides, fuelling tension and potentially conflict. As Pakistan’s democratic transition approaches another milestone, with a second consecutive elected government completing a full term, its successor should seize the opportunities of a fresh mandate, shape public debate on CPEC and adopt related policies that put the well-being of Pakistani citizens at their core.

Brussels, 29 June 2018

Construction work taking place in the port of Gwadar, in the southernmost tip of Pakistan, 04 October 2017. CHRISTINE-FELICE ROHRS/DPA

I. Introduction

Security cooperation has long defined Pakistan’s relationship with China, with economic ties lagging far behind military engagement. Since 2015, such ties, focused on the China-Pakistan Economic Corridor (CPEC), a set of projects that are part of Beijing’s Belt and Road Initiative, have assumed new significance.[fn]For analysis of China’s Belt and Road Initiative, see Crisis Group Asia Commentary, “The Twists and Turns along China’s Belt and Road”, 2 October 2017; and Crisis Group Europe and Central Asia Report N°245, Central Asia’s Silk Road Rivalries, 27 July 2017. “Pak-China bilateral ties are time tested: Our relationship has attained new heights after the China-Pakistan Economic Corridor that is a game changer for the region and beyond”, stated then Prime Minister Shahid Khaqan Abbasi. Quoted in “Long Term Plan for China-Pakistan Economic Corridor (2017-2030)”, Ministry of Planning, Development and Reform, Government of Pakistan and National Development and Reform Commission, People’s Republic of China (2017), at www.cpec.gov.pk.Hide Footnote Pakistan’s political leadership calls CPEC a “game changer” that would bring prosperity by revitalising a fragile economy. Its military, which dominates foreign, defence and security policy, perceives closer ties with China as an opportunity to offset rising tensions with the U.S. over Pakistan’s support for Afghanistan- and India-oriented militant groups.[fn]For Crisis Group analysis of military-led security policy and militant proxies, see Asia Reports N°279, Pakistan’s Jihadist Heartland: Southern Punjab, 30 May 2016; N°271, Revisiting Counter-Terrorism Strategies in Pakistan: Opportunities and Pitfalls, 22 July 2015; N°255, Policing Urban Violence in Pakistan, 23 January 2014; N°242, Pakistan: Countering Militancy in PATA, 15 January 2013; N°178, Pakistan: Countering Militancy in FATA, 21 October 2009; N°164, Pakistan: The Militant Jihadi Challenge, 13 March 2009.Hide Footnote For China, geopolitical ambitions, sustained by greater connectivity and trade infrastructure across the region, drive the evolution of the relationship.[fn]Crisis Group discussions, Chinese and Western analysts, Beijing, Hong Kong, Shanghai and Washington, March-May 2018; Andrew Small, The China-Pakistan Axis: Asia’s New Geopolitics (London, 2015); “China’s diplomatic efforts to promote energy and resources cooperation along the ‘One Belt and One Road’”, CIIS Report No. 5, China Institute of International Studies, May 2015; Daniel Markey and James West, “Behind China’s gamble in Pakistan”, Council on Foreign Relations, 12 May 2016; Li Qingyan, “Opportunities and Challenges for Constructing CPEC: Regional and National Economic Perspectives”, China International Studies, vol. 62, January/February 2017; “Opportunities and Challenges of Implementing the ‘Belt and Road’ Initiative”, CIIS Report, vol. 17, China Institute of International Studies, April 2017; Huang Ying, “B&R, AIIB: Opportunities for Enhancing FDI in South Asia”, Contemporary International Relations, vol. 27, no. 1, January/February 2017; Michael Kugelman, “The China-Pakistan Economic Corridor: What It is, How It is Perceived and Implications for Energy Geopolitics”, in Asia’s Energy Security and China’s Belt and Road Initiative, NBR Special Report no. 68, National Bureau of Asian Research, November 2017; Andrew Small, “The Backlash to Belt and Road”, Foreign Affairs, 16 February 2018.Hide Footnote

This report examines CPEC’s economic and development projects within Pakistan, discusses whether it will bring the broad economic revival that Pakistani leaders claim it will generate, and assesses its political and security costs for Pakistan. It analyses CPEC’s impact on domestic stability and security, particularly the potential for heightened tensions between the federation and federal units, between Islamabad and Gilgit-Baltistan, and on conflict dynamics within provinces. It does not analyse in detail Beijing’s Pakistan policy or its options for CPEC. The report is based on interviews with officials, economists, politicians, security analysts, journalists, activists and other stakeholders in the federal capital, Islamabad, as well as in Balochistan, Punjab and Sindh, conducted from November 2017 to January 2018.

II. The Beijing Connection

A. Balancing Geopolitics and Economics

Geopolitics and security dynamics have long determined the contours of Pakistan’s China policy, with mutual animosity toward India a major factor. In the 1950s, Pakistan anchored its foreign policy in close relations with the U.S., while China and India established strong ties in the Non-Aligned Movement. When a border dispute triggered the 1962 war and unravelled the Sino-Indian relationship, Islamabad seized the opportunity to forge stronger ties with Beijing, including settling their own border dispute by ceding Gilgit-Baltistan’s Shaksgam valley to China.[fn]Until 2009, Gilgit-Baltistan was officially called the Northern Areas.Hide Footnote During Pakistan’s 1965 war with India, China provided it limited military but significant diplomatic support. After Pakistan’s loss in the 1971 war with India, resulting in East Pakistan’s secession and the formation of Bangladesh, military ties between Islamabad and Beijing deepened and soon came to define the relationship, including China’s eventual support for Pakistan’s nuclear weapons program.[fn]A prominent Chinese academic argues that for Beijing this relationship’s objective “has not been to strengthen the two countries’ welfare interests but to strengthen them against common threats. It should be described as a shield to protect their traditional security interests rather than a bridge to lead to common prosperity and wealth”. Quoted in Small, The China-Pakistan Axis, op. cit., p. 25. Paul K. Kerr, Mary Beth Nikitin, “Pakistan’s Nuclear Weapons”, Congressional Research Service, 1 August 2016, p. 3.Hide Footnote

Economic ties were also historically shaped by strategic priorities such as road connectivity in the border region of Gilgit-Baltistan and Xinjiang. Built in the 1970s, the Karakoram highway connects Pakistan’s north, via Gilgit-Baltistan, through the Khunjerab pass, to Xinjiang’s Kashgar prefecture, rising to 4,700m above sea level in rough mountainous terrain.[fn]The 1,300km road, officially called National Highway 35 but commonly known in Pakistan as the Karakoram highway, was built between 1959 and 1986. The 887km highway starts in Punjab’s Hasan Abdal district, and then traverses Khyber Pakhtunkhwa and Gilgit-Baltistan; the remaining 413km are in Chinese territory, where the road is designated China National Highway 314.Hide Footnote

Yet Pakistan’s alliance with China has thus far yielded few economic benefits. Not only does China-Pakistan trade lag far behind Sino-Indian trade, it is also outstripped by Chinese trade with similar-sized and even smaller economies than Pakistan’s, such as those of the Philippines and Vietnam.[fn]Small, The China-Pakistan Axis, op. cit. Small, The China-Pakistan Axis, op. cit.Hide Footnote

Moreover, Pakistan’s trade deficit with China has tripled over the last five years, reaching around $12 billion in 2017.[fn]Pakistani exports to China increased from $0.5 billion in 2006-2007 to $1.47 billion in 2016-2017. Chinese exports to Pakistan jumped from $4 billion to $14.56 billion in the same period. “Trade bodies meet commerce officials over China FTA concerns”, The News, 28 March 2018; “All set for signing of revised FTA with China”, Dawn, 20 March 2018; “Pak-China FTA”, Dawn, 10 February 2018.Hide Footnote Leading economists and representatives of Pakistan’s business community see the country’s Free Trade Agreement (FTA) with China, signed in 2006 and operational the following year, as disproportionately benefiting the latter.[fn]Crisis Group interviews, economists, representatives of business and industry and the finance sector, Lahore and Karachi, November-December 2017.Hide Footnote Chinese goods have flooded Pakistani markets because the FTA’s concessions mainly favour China and also because Pakistan’s liberal import policy, including low duties and general sales tax, keep down the prices of Chinese machinery and other imports.[fn]In the FTA, Pakistan’s concession list covered 59 per cent of Chinese imports, while China’s concession list covered 5 per cent of Pakistani imports. Hussain H. Zaidi, “Revising FTA may not make a big difference”, Dawn, 19-25 February 2018. See also Ehsan Malik, “Don’t let Chinese imports kill Pakistan’s local industry”, Dawn, 20 May 2018. Malik is CEO of the Pakistan Business Council.Hide Footnote Meanwhile, high Chinese tariffs make it hard for Pakistani exports to penetrate the Chinese market. A former State Bank governor pointed out: “Part of the problem is our own policies, but the Chinese haven’t done what they could have”.[fn]Crisis Group interview, Shahid Kardar, Lahore, November 2017.Hide Footnote

Islamabad is renegotiating the FTA, seeking safeguards for local industries and incentives for exports and Chinese measures to facilitate duty-free import of some 70 Pakistani items. China has reportedly agreed to liberalise 90 per cent of tariff lines, among other measures to appease Pakistani industry.[fn]“China urged to encourage imports from Pakistan”, Dawn, 17 January 2018; “Pakistan, China agree on terms of FTA phase II”, The Nation, 26 May 2018.Hide Footnote A prominent economist described Islamabad’s efforts to renegotiate the FTA as “locking your door after everything’s already been stolen”.[fn]Crisis Group interview, Faisal Bari, Lahore, November 2017.Hide Footnote That said, improved conditions would benefit Pakistan’s economy.

Pakistani policymaking is still shaped by the ostensible strategic dividends of a close relationship with China as a counterpoint to India and a means of deflecting U.S. pressure.

Economic ties appear to have gained more importance since CPEC was launched in 2015, as part of China’s Belt and Road Initiative, an ambitious program to invest as much as $1 trillion in new transport and trade infrastructure connecting China to the rest of the world.[fn]Crisis Group Report, Central Asia’s Silk Road Rivalries, op. cit.Hide Footnote Islamabad and Beijing conceived CPEC in mid-2013 and formally launched it in April 2015 as a $45 billion economic and development package including loans, investments and grants that could grow to around $60 billion. Some Chinese analysts now consider it the “flagship” of the Belt and Road.[fn]In late April, Ahsen Iqbal, then minister for interior, planning and development, disclosed that the two countries had spent $29 billion on CPEC projects by that month. “PM hails CPEC as springboard for development”, Dawn, 24 April 2018; Ruan Zongze, “Belt and Road Initiative: A New Frontier for Win-Win Cooperation”, China International Studies, July/August 2017.Hide Footnote

Despite this new emphasis on economic ties, Pakistani policymaking is still shaped by the ostensible strategic dividends of a close relationship with China as a counterpoint to India and a means of deflecting U.S. pressure. A Lahore-based business leader with close knowledge of Pakistan’s dialogue with China said, “as Pakistan gets more isolated internationally, we’re hoping that China will give us a veto [exercise a veto on Pakistan’s behalf] in the UN Security Council, diplomatic and moral support, as well as put pressure on India. That’s what the military wants”. A senior journalist who has long covered security issues said, “the military sees CPEC as a counterforce to a hostile U.S. and India. It will latch on to China even if the deals [under CPEC] are unfair to Pakistan”.[fn]Crisis Group interviews, Lahore, November 2017.Hide Footnote

Pakistan’s ties with China have weathered political instability, including previous regime changes and coups, but the removal of former Prime Minister Nawaz Sharif in July 2017 has slowed the pace of CPEC projects, and damaged investor confidence, local and Chinese.[fn]A Lahore-based business representative who strongly supports CPEC said: “The day the JIT [joint investigation team] was formed [to investigate Sharif], I told people not to invest in Gwadar”. Crisis Group interview, Lahore, November 2017. The Supreme Court used a controversial constitutional provision, Article 62 (1) (f) [requiring that parliamentarians be sadiq (truthful) and ameen (trustworthy or righteous)], to disqualify Sharif from holding public office. The judgment, given in a case related to leaked records of offshore assets disclosed in the Panama papers, was based on Sharif’s failure to disclose employment in his son’s Dubai-based firm in his 2013 election nomination papers even though he did not take a salary. The Supreme Court’s verdict was based on the findings of the JIT that had two military representatives, one each from Military Intelligence (MI) and Inter-Services Intelligence (ISI). At the time of the verdict, Sharif’s relations with the military had soured as he tried to expand civilian control over national security and foreign policy, particularly attempting to improve relations with India. Aqil Shah, “Pakistan’s court sets a dangerous precedent”, The New York Times, 28 July 2017; “Nawaz Sharif steps down as PM after SC’s disqualification verdict”, Dawn, 28 July 2017; Article 62: Qualifications for membership of Majlis-e-Shura (parliament), constitution of Pakistan.Hide Footnote Although China insists that political changes in Pakistan have no impact on the bilateral relationship, a senior Sindh official who interacts regularly with Chinese officials and investors said, “the Chinese were disappointed when Nawaz Sharif was ousted; they don’t like this political merry-go-round”.[fn]Crisis Group interview, Karachi, December 2017. A senior Chinese foreign ministry official said, “it makes no difference (to China) who comes in (government) and who goes out as both countries have brotherly relations”. “Change of govt in Islamabad won’t affect CPEC: China”, Dawn, 3 November 2017Hide Footnote A political economist added, “CPEC has been on hold since Nawaz Sharif’s dismissal; the Chinese are waiting to see what happens after the elections.”[fn]Crisis Group interview, Karachi, January 2018.Hide Footnote Polls are scheduled for 25 July 2018.

B. The Jihadist Factor

The military’s support for Islamist militants and their political fronts, both to protect its jihadist proxies and to destabilise the civilian government, could frustrate Pakistan’s hopes that China would help to neutralise U.S. pressure. Most recently, these fronts include two new Islamist groups, the Barelvi Tehreek-i-Labaik Ya Rasool Allah (or Labaik), and the Milli Muslim League, a political front for the anti-India Lashkar-e-Tayyaba/Jamaat-ud-Dawa; both contested 2017 by-elections in Peshawar and Lahore.[fn]In November 2017, Labaik occupied a road and bridge linking Islamabad and Rawalpindi, which hosts the army’s headquarters, gravely undermining the PML-N government’s credibility as access to the federal capital was barred by violent Labaik protesters. The government’s public standing was further eroded after it had to agree to Labaik’s demands for the resignation of Law Minister Zahid Hamid, held responsible for an election reform bill which the protesters believed weakened the oath taken by legislators on the finality of the prophethood. The siege ended after a military-brokered deal, with a serving major general signing it as guarantor. “Faizabad sit-in ends as army broker’s deal”, Dawn, 28 November 2017.Hide Footnote A retired top intelligence official said, “there’s a misperception about being able to handle the fallout of the games we play. We assure Beijing, ‘don’t worry’, but then look at our record. The immediate objective might have been to undermine Nawaz Sharif, but we won’t be able to manage the fallout”.[fn]Crisis Group interview, Lahore, November 2017.Hide Footnote

China is particularly concerned about links between militants in Pakistan’s tribal borderlands and disgruntled Uighurs organised as the East Turkestan Islamic Movement (ETIM) in Xinjiang Uighur Autonomous Region.[fn]Crisis Group Report, Central Asia’s Silk Road Rivalries, op. cit.Hide Footnote After the 11 September 2001 attacks in the U.S., ETIM members found sanctuary along with other jihadist groups in Pakistan’s Federally Administered Tribal Areas (FATA). Pressured by China, the Pakistani military moved against Uighur militants, claiming to have eliminated them, though many appear to have crossed the border into Afghanistan after the Pakistani military’s 2015 operation in FATA’s North Waziristan.[fn]No political party, not even the Islamists, condemns reports of Chinese abuses of Uighur rights or military action against the Uighurs. Crisis Group interview, Ahmed Rashid, journalist and author, Lahore, November 2017. “Bombing of Chinese separatists shows how Trump’s Afghan war changed”, The Washington Post, 11 February 2018; “Pakistan says ‘almost all’ Uighur militants eliminated”, Reuters, 2 September 2015; “China leans on Pakistan to deal with militants”, Time, 10 April 2009; “Pakistan announces it has defeated ETIM. So what?”, The Diplomat, 22 October 2015.Hide Footnote

China’s patience with the military’s support for jihadist proxies may be waning.

According a senior ex-intelligence official, “the [Pakistani] military and Chinese perceptions on the jihadi proxy issue will diverge and become an issue but the India factor will prevail and limit any serious Chinese pressure”.[fn]Crisis Group interview, Lahore, November 2017.Hide Footnote Indeed, Beijing has repeatedly blocked the U.S.-backed Indian bid at the United Nations to list Masood Azhar, the leader of the anti-India jihadist Jaish-e-Mohammed, as a “global terrorist”.[fn]“China blocks Indian bid to list Masood Azhar as global terrorist”, The News, 2 November 2017. Also Crisis Group Report, Pakistan’s Jihadist Heartland, op. cit.Hide Footnote

That said, China’s patience with the military’s support for jihadist proxies may be waning. At the September 2017 BRICS (Brazil, Russia, India, China, South Africa) summit in China’s city of Xiamen, those countries expressed concern over “the security situation in the region and violence” because of several transnational organisations – these included Pakistan’s Lashkar-e-Tayyaba, Jaish-e-Mohammed and a close ally, the Afghan Haqqani network.[fn]“Brics name Pakistan-based militant groups as regional concern”, Reuters, 4 September 2017.Hide Footnote China’s decision to support the Financial Action Task Force (FATF)’s move to “grey-list” Pakistan – in other words to include it in the list of countries with weak “anti-money laundering” (AML) and “countering financing of terrorism” (CFT) regimes – during the task force’s plenary session in February this year is yet another signal that it shares, at least to some degree, U.S. and Indian concerns about Pakistan-based jihadist groups.[fn]Pakistan will be included in the watch list in June 2018. It was first put on the list during 2012-2015, but for failure to curb money laundering. The charge of terror financing is now included. China first reportedly opposed the U.S.-sponsored motion, backed by the UK, France and Germany, to include Pakistan in the watch list and then withdrew its objection during the second vote called by the U.S. Crisis Group discussion, analyst, Washington, April 2018; “Pakistan set to be placed on FATF grey list in June”, Dawn, 24 February 2018; “Economic fallout of being on grey list”, Dawn, 5-11 March 2018.Hide Footnote

Warning that Pakistan faced international isolation because it had failed to end state support for such groups, former Prime Minister Nawaz Sharif said that allies like China were concerned.[fn]“We have isolated ourselves”, Sharif warned, because “militant groups are active”, adding, “President Xi has said it”. Cyril Almeida, “For Nawaz, it’s not over till it’s over”, Dawn, 12 May 2018.Hide Footnote There are even signs that the coming together of U.S. and Chinese positions on these proxies might inspire a rethink in the military command about the institutional costs of such support – the first step toward policy change – given the possible impact on Pakistan’s already troubled economy of a FATF grey-listing (and possible blacklisting).[fn]The military leadership, in closed-door discussions, has acknowledged that Islamabad will have to respond to Beijing’s concerns. In a briefing to a hand-picked group of journalists and security analysts, army chief Qamar Javed Bajwa, reportedly declaring his intention to eliminate all militant and jihadist groups in Pakistan, said that the military would heed China’s advice to peacefully resolve differences, including over Kashmir, with India. Suhail Warraich, “The Bajwa doctrine”, The News, 18 March 2018; “The ‘Bajwa doctrine’”, Dawn, 25 March 2018.Hide Footnote

C. Security Challenges for Chinese Nationals and Projects

As China’s economic footprint expands in Pakistan through CPEC, so, too, do concerns about security threats to its interests and personnel. While exact numbers are not available, there are an estimated 30,000 Chinese nationals living in Pakistan. The numbers of Chinese visiting Pakistan on short term, including tourist visas (often used to bypass bureaucratic hurdles in obtaining business visas) could be as high as 70,000. “With large numbers of Chinese citizens coming into Pakistan”, said a senior police official in Lahore, “security challenges are becoming graver”.[fn]Crisis Group interview, Lahore, November 2017. According to a Chinese analyst, there are approximately 10,000 Chinese employed in CPEC projects, and a further 9,000 participating in other construction projects. Crisis Group interview, Beijing, April 2018. “Massive Chinese investments a boon for Pakistan”, Economist, 8 September 2017; “Braving security fears, Chinese seek ‘Silk Road’ riches in Pakistan”, Reuters, 28 August 2017.Hide Footnote

In October 2017, the Chinese embassy in Islamabad claimed there was a militant threat against the ambassador and requested additional security. In December, the embassy said it had received “some information that the security of Chinese institutions and personnel in Pakistan might be threatened”.[fn]“Chinese embassy warns of threat to envoy”, The Nation, 22 October 2017; “Chinese citizens in Pakistan warned of possible terror attacks”, Dawn, 8 December 2017.Hide Footnote Chinese firms and analysts see a need to train and employ more private security personnel and enhance security protocols.[fn]Zi Yang, “China’s Private Security Companies: Domestic and International Roles”, China Brief, vol. 16, issue 15, 4 October 2016; Fu Xiaoqiang, “Holistic Counter-terrorism Efforts and Better Protection of Overseas Interests”, Contemporary International Relations, March/April 2018.Hide Footnote

A report by a leading Chinese think tank warned that CPEC risks becoming a new arena for competition among deeply divided political parties, levels of government, the military and civilians, and ethnic groups in Pakistan; other Chinese analysts concurred.[fn]“Opportunities and Challenges of Implementing the ‘Belt and Road’ Initiative in South Asia”, Research Report Vol. 17, China Institute of International Studies, April 2017; Crisis Group discussions, Chinese analysts, Beijing and Shanghai, March-May 2018.Hide Footnote

Deeming it a national security priority, the Pakistani military has sought more control over key parts of the project. Along with thousands of police and paramilitary officers, a Special Security Division, comprised of 15,580 army personnel and the Maritime Security Force, are tasked with protecting Chinese workers and CPEC projects.[fn]“Over 92,000 foreigners visit Pakistan since launch of CPEC”, The News, 5 March 2018; “Murder of Chinese man was inside job, says police official”, Dawn, 8 March 2018.
 Hide Footnote
This larger military footprint is alienating locals even as CPEC strains relations between the federal units and the federation.[fn]

III. Demystifying CPEC

A. A Conceptual Leap?

A Pakistan Business Council representative argued that, “CPEC is primarily a geopolitical project. Economics have merely been added on to it”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote But not all business leaders are as sceptical. Given the fragility of Pakistan’s economy, some believe that CPEC could have a useful “demonstration effect, indicating to other investors that Pakistan is a safe and attractive destination for foreign direct investment”.[fn]Arif Rafiq, “The China-Pakistan Economic Corridor: Barriers and Impact”, U.S. Institute of Peace, 25 October 2017.Hide Footnote The CEO of a major Karachi-based business conglomerate described CPEC as a “win-win” that will provide Pakistan “much-needed project financing lines to make up for its infrastructure shortages”, and attract other countries’ suppliers and financial institutions to do business in the country. A senior partner at a leading corporate services firm said that once Chinese industrial units were set up in Pakistan, instead of merely exporting raw materials, the country could export high-value products to China.[fn]Arif Habib, “Why CPEC is a no-brainer”; Shabbar Zaidi, “Reality versus myth”. Texts of speeches in “CPEC 2018 Summit: Supplement”, reprinted in Dawn, 22 May 2018.
Crisis Group interview, Lahore, December 2017.Hide Footnote

Politicians across the political spectrum also are mostly supportive. The leader of the opposition in the Senate noted that CPEC could encourage the modernisation of manufacturing; Punjab’s chief minister believed that CPEC would help create jobs.[fn]Punjab Chief Minister Shahbaz Sharif said, “Pakistan has a huge youth bulge that can benefit from opportunities coming this way thanks to CPEC. If not given opportunities, our youth will be pushed into a bloody revolution”. Sherry Rehman, “CPEC: A momentum for prosperity”, texts of speeches in “CPEC 2018 Summit”, op. cit.
 Hide Footnote
In its annual credit analysis for Pakistan, Moody’s Investors Service concluded that, if successfully implemented, CPEC could transform Pakistan’s economy by stimulating local and foreign investment.[fn]“Moody’s reaffirms Pakistan’s rating, but vulnerabilities remain”, Dawn, 22 May 2018.Hide Footnote

Still, analysis of the economic promise and impact of CPEC – as well as its ability to support a broad set of economic goals and an Islamabad-devised integrated strategy to develop the economy – is hampered by the opacity of its formulation and rollout. Pakistan’s Planning Commission reportedly presented China with a full menu of projects for financing, with little apparent consideration for how these would be best sequenced. The menu includes everything from investment in the power sector to road and rail infrastructure, industrial cooperation and agricultural development. A former Planning Commission head described it as a “kitchen sink approach”.[fn]Crisis Group interview, Nadeem ul Haque, Lahore, November 2017.Hide Footnote

CPEC’s Long-Term Plan would speed up Pakistan’s industrialisation and urbanisation.

There has been little input from key stakeholders, whether parliament, chambers of commerce or civil society organisations.[fn]Crisis Group interviews, business leaders, chambers of commerce representatives, civil society activists, Lahore, Karachi and Islamabad, November 2017-January 2018.Hide Footnote A major daily noted: “The ambitious CPEC partnership has deepened doubts about the willingness of the Pakistani state to be transparent and its ability to negotiate the best possible economic terms in every deal”.[fn]Editorial, “Balancing ties”, Dawn, 7 March 2018.Hide Footnote

CPEC’s Long-Term Plan (2017-2030), released in December 2017, defines the project broadly as “a growth axis and a development belt”, with “the comprehensive transportation corridor and industrial cooperation between Pakistan and China as the main axis” and “concrete economic and trade cooperation” as “the engine”. The plan names four priorities in Pakistan – the Gwadar port, energy, transport infrastructure and industrial cooperation, which would speed up Pakistan’s industrialisation and urbanisation. According to CPEC’s timelines, short-term projects would be completed by 2020; medium-term projects, including the industrial system, close to completion by 2025; and long-term projects in place by 2030.[fn]The belt, consisting of CPEC’s “core zone”, would include all four Pakistani provinces, the federal capital territory, Islamabad, and Gilgit-Baltistan, and Xinjiang in China. “Long-Term Plan for China-Pakistan Economic Corridor”, op. cit. The Long-Term Plan’s memorandum of understanding was signed on 21 November 2017. A major daily had published a leaked version of the Long-Term Plan in May 2017. “Exclusive: CPEC master plan revealed”, Dawn, 15 May 2017.Hide Footnote Yet the plan provides barely any details on planned and proposed projects and agreements.

The seventh meeting of the CPEC Joint Coordination Committee, which reviews and approves CPEC projects, took place in November 2017. The committee’s discussions reportedly suggest a potential shift from concessional loans for energy and infrastructure projects to commercially viable projects that would not qualify for concessional loans.[fn]Crisis Group interview, Naheed Memon, chairperson, Sindh Board of Investment, Karachi, December 2017. Memon was part of the Sindh delegation to the Joint Cooperation Committee meeting.Hide Footnote Since sovereign guarantees would likely apply to such commercial loans, it would further increase Pakistan’s national debt. Yet detailed information is limited. A senior journalist investigating CPEC said, “we still know very little about CPEC. The material that would tell us more is still vigorously concealed”.[fn]Crisis Group interview, Khurram Hussain, Karachi, December 2017.Hide Footnote Another analyst commented, “the launch of the detailed CPEC plan neither adds anything new to our understanding of the project nor helps remove the concerns of critics regarding the overall impact of the project”.[fn]Mushtaq Rajpar, “CPEC concerns”, The News, 21 December 2017.Hide Footnote

The government is largely responsible for this lack of transparency. But though individual parliamentarians have raised concerns about inequitable distribution of CPEC projects and resources, all the major opposition parties have also supported CPEC and been reluctant to discuss it in parliament. Committee chairs and ranking members have failed to promote open debate or exercise oversight over one of Pakistan’s most ambitious economic and geostrategic undertakings.

A power plant in Tharparkar District, Sindh Province, February 2018. INTERNATIONALCRISISGROUP/2018

B. Power Production and Debt

Islamabad has encouraged CPEC investment in power production, with power projects included in its first (“early harvest”) phase.[fn]For example, in 2016 the Karot hydropower project was initiated as the first investment by China’s Silk Road Fund. Ruan, “Belt and Road Initiative”, op. cit.Hide Footnote To attract Chinese investment, most plants are being built with Chinese equipment and many will be Chinese-owned. More wattage for the national grid will certainly help reverse the decline in economic productivity caused by long power outages. Yet the pace of implementation has been slow at best.[fn]The Planning Commission initially said CPEC’s energy component would generate 17,000 megawatts by 2020, but the current pace suggests only half that output would be in place by then. Rafiq, “The China-Pakistan Economic Corridor”, op. cit.Hide Footnote Moreover, International Monetary Fund (IMF) assessments show that Pakistan’s repayment obligations, including the payment of debts and guaranteed rates of return on equity for investors (17 per cent for power projects), “will likely offset a significant share of these [foreign direct investment and other external funding] inflows, such that the current account deficit would widen”. It warned, “Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves and significant implications for economic growth”.[fn]In 2018, Pakistan’s current account deficit will be around $16.6 billion; according to IMF estimates, its gross international reserves were $12.7 billion by mid-February 2018, while foreign exchange liabilities were $13,496 billion. Rejecting criticism that CPEC was a debt trap at the April 2018 CPEC summit, then Planning, Development and Reform Minister Ahsen Iqbal said, “out of the total package, an estimated amount of 34 billion [U.S. dollars are] in the form of investment by Chinese companies in the energy projects in Pakistan”. According to a former Pakistani finance minister, if Pakistan has to return $100 billion in principal and interest over the next twenty years, it would amount to $4-5 billion annually. Abdul Hafiz Sheikh, “Is Pakistan ready to make the right choices?”, text in CPEC 2018 Summit, op. cit. According to IMF, estimates of annual outflows for CPEC-related investment and government-to-government loans would reach $3.5 billion by 2024-2025. “IMF warns of looming CPEC bill”, Dawn, 17 October 2016. “IMF projects gross external financing needs at $24.464 billion in FY2018”, The News, 16 March 2018; Editorial, “IMF warning”, The News, 12 March 2018; “Govt to secure $1,5bln commercial loan in April to shore up reserves”, The News, 28 March 2018; “Sheer size of CPEC portfolio appals IMF”, The Express Tribune, 13 December 2017; Ishrat Hussain, “Financing burden of CPEC”, Dawn, 11 February 2017. Hussain is a former governor of Pakistan’s State Bank.Hide Footnote

These assessments reflect that in its bid to attract investment, Pakistan offers overly generous terms to foreign (including Chinese) investors. These will be unaffordable if the increased power generation does not yield the expected economic growth. If, and when, Islamabad seeks another IMF bailout, the IMF will likely demand greater transparency in CPEC energy and other projects’ financing, so as to assess the impact of expensive Chinese loans on Pakistan’s balance of payment crisis.[fn]See “Pakistan needs IMF support, Mulk warned”, The Express Tribune, 5 June 2018; and “Pakistan refutes IMF as it eyes bonds, China funding”, Bloomberg, 8 March 2018.Hide Footnote

The new plants are in any case inadequate since an aging and inefficient power infrastructure will remain unreformed. Domestic industries and consumers will also continue to pay more, because of a tariff policy that is overly generous to foreign investors and reflects rising expenditure on security for CPEC projects and personnel (discussed below).[fn]In August 2017, the National Electric Power Regulatory Authority allowed power producers to charge consumers 1 per cent of capital cost in nineteen CPEC power projects for 20-30 years, for the provision of security to Chinese personnel and projects. Jawad Syed, “Terrorising the Belt and Road: A Critical Analysis of Security Threats to Chinese Nationals and Businesses in Pakistan”, working paper, Lahore University of Management Sciences, China-Pakistan Management Initiative, November 2017. “If energy input costs don’t come down, we can’t benefit”, said a senior Pakistan Business Council representative. Crisis Group interview, Lahore, November 2017.Hide Footnote

C. Special Economic Zones and Industrial Cooperation

Special Economic Zones (SEZs) and industrialisation are among the key areas of cooperation, and possibly the most critical for economic growth and job creation. Of several provincial economic zones Pakistan has proposed so far, China has agreed to first develop one each in Sindh, Khyber Pakhtunkhwa and Punjab. Work has already begun on the largest, the M3 industrial city in Punjab’s Faisalabad district.[fn]The other provincial SEZs are Dhabeji Industrial Park in Thatta, Sindh, and Hattar Industrial Estate-II in Khyber Pakhtunkhwa. Other approved SEZs include one each in Azad Jammu and Kashmir (Mirpur), Gilgit-Baltistan (Moqpondass SEZ) and FATA’s Mohmand agency (Mohmand Marble City). Islamabad is pushing for two federal SEZs, in Port Qasim, Karachi and in Islamabad (ICT Model Industrial Zone). “China to continue concessional financing under CPEC”, Dawn, 22 May 2018; “Govt keen to launch Islamabad, Karachi SEZs this year”, Dawn, 2 February 2018; “Due to delay, Centre plans to take over development of economic zones”, The Express Tribune, 14 January 2018; “Three economic zones set to take off under CPEC”, The Express Tribune, 13 November 2017.Hide Footnote

Special economic zones were integral to China’s 1980s economic reforms, subject to free-market and export-oriented policies and measures such as tax benefits and preferential treatment of foreign investment.[fn]Frank Holmes, “China’s new special economic zone evokes memories of Shenzhen”, Forbes, 21 April 2017.Hide Footnote For CPEC, Pakistan’s GSP+ access to the EU will likely attract Chinese investors and producers, as will tax rebates and other incentives.[fn]The EU granted Pakistan GSP+ access to its markets in December 2013, including zero tariffs on 20 per cent of Pakistani products and preferential rates for 70 per cent.Hide Footnote If Pakistani producers and labour benefit, the zones, coupled with pro-export and growth reforms, could indeed create opportunities for Pakistan.

If not, they could undermine existing domestic industry. Information is scarce about how the zones will relate to the rest of the economy, which could slow other investments. For example, producers would be hesitant to establish factories or mills if a nearby CPEC zone produces similar goods but with the benefit of tax, duty and other concessions. An industrialist complained: “There’s no mechanism for such information flows. If the Chinese plan to set up something that competes with me, I’ll find out too late”.[fn]Crisis Group interviews, Lahore, December 2017. According to CPEC’s Long-Term Plan, CPEC will “encourage various forms of Chinese enterprises to enter the Pakistani market”. “Long-Term Plan for China-Pakistan Economic Corridor”, op. cit.Hide Footnote Whether these zones will ultimately produce products that can compete in the international market, including against Chinese manufactures is also debatable.

Much depends on Pakistan’s regulatory framework, where there have been few changes to level the playing field. Pakistan’s more than 60 industrial zones (unrelated to CPEC) have done little to increase industrial competitiveness, and the most prominent industries, such as textiles and automobile manufacturers, survive on subsidies and other forms of protection, with few incentives to be competitive. Pakistani policy is skewed toward imports, given a one-time 6 per cent import duty, rather than production. Manufacturing accounts for 13 per cent of the economy but almost 60 per cent of the tax burden.[fn]Statistics provided by Pakistan Business Council, Karachi, December 2017.Hide Footnote “China is not contracted to make Pakistan more competitive”, said a senior Lahore Chamber of Commerce member. “We have to do that ourselves”.[fn]Crisis Group interview, Lahore, November 2017.Hide Footnote

IV. CPEC: End to End

A. Strains on the Federation

The earliest tussle between the federation and federal units is related to CPEC’s route from Kashgar in Xinjiang to Gwadar port in Balochistan. CPEC was originally meant to pass through and thus help develop impoverished areas of Balochistan as well as southern Punjab and Khyber Pakhtunkhwa. Activists and politicians in all three smaller provinces, Balochistan, Sindh and Khyber Pakhtunkhwa, including the Pashtun nationalist Awami National Party (ANP) and the Islamist Jamiat Ulema-e-Islam [Fazlur Rehman (JUI-F)] alleged that Sharif’s PML-N government had changed the route to benefit its constituents in wealthier parts of central Punjab, the party’s political bastion.[fn]In 2015, when the military reportedly requested additional expenses to secure CPEC projects, the provinces refused to provide them their share of the federal budget, asking, according to a senior official, how much of CPEC “would pass through their territory”. Umer Farooq, “The federation question”, The News on Sunday, 1 April 2018. See also “Altering reality”, The News, 16 May 2015; Rafiullah Kakar, “Making sense of the CPEC controversy”, The Express Tribune, 21 January 2016.Hide Footnote

A compromise between the federal and provincial governments yielded three planned routes: western, central and eastern. The western route would pass from the Karakoram highway’s Khunjerab pass on the Gilgit-Baltistan-Xinjiang border, through Islamabad, Khyber Pakhtunkhwa’s Dera Ismail Khan district, Balochistan’s Zhob, Qilla Saifullah, Quetta, Panjgur and Turbat districts, before reaching Gwadar. A central route would pass through Dera Ismail Khan and reach Balochistan’s Khuzdar district and Basima town via interior Sindh and southern Punjab. The eastern route would cover southern and central Punjab districts, including Lahore, Faisalabad, Rahimyar Khan, Bahawalpur and Multan.[fn]For an overview of the route controversy, see Rafiq, “The China-Pakistan Economic Corridor”, op. cit.Hide Footnote

The controversy continues, however. With renegotiations and new Chinese conditions on the western corridor, CPEC’s immediate focus is on using and upgrading the existing eastern route before eventually turning to new western routes.[fn]According to a senator from Balochistan, during a visit to China, the delegation learned that the western route did not even exist in the Chinese record. “Senators in shock: CPEC western route doesn’t even exist in Chinese record”, The News, 10 March 2018.Hide Footnote A Baloch member of parliament said Chinese officials were wary of developing the western route because of security concerns: “The federal government has created this impression in their mind”. Afrasiab Khattak, a former senator and senior ANP leader from Khyber Pakhtunkhwa, a major jihadist sanctuary, was also critical of the current focus on further developing the eastern route. “We feel cheated”, he said, “Punjab gets the industrial zones and trade; Khyber Pakhtunkhwa gets [militant] training grounds and madrasas”.[fn]Crisis Group interviews, Islamabad, February 2018. A Khyber Pakhtunkhwa official alleged that none of his government’s proposed projects were included in CPEC. “No KP-proposed projects land among CPEC”, The Express Tribune, 17 November 2017. See also “The Baloch concerns”, The News, 31 December 2017.Hide Footnote Yet addressing the adverse impact of CPEC on local communities, both in remote regions and the heartland, is arguably more urgent than settling the controversy about routes.

B. CPEC’s Exit Point: Gilgit-Baltistan

All three prospective CPEC routes cross from Pakistan into China from Gilgit-Baltistan, which Pakistan considers part of disputed Kashmir. Its constitutional status within Pakistan is undetermined and political autonomy a façade, given the circumscribed powers of its elected legislative assembly. Nevertheless, because the Khunjerab pass via the Karakoram highway marks CPEC’s border for both Pakistan and China, there were high expectations among residents that CPEC would offer Gilgit-Baltistan major development dividends. Indeed, Beijing’s ambassador to Pakistan has promised major CPEC-related benefits to the region, including enhanced cross-border trade, upgraded infrastructure and hydropower projects.[fn]“CPEC to benefit Gilgit-Baltistan the most: Chinese envoy”, Dawn, 1 April 2018.Hide Footnote

Residents’ hopes thus far appear to have been misplaced. Given the mountainous terrain, the single-lane highway in Gilgit-Baltistan can only be upgraded and not significantly widened. “Overland trade”, said a CPEC expert, “is in any case very expensive and would remain so even if the route is developed further”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote

Locals in Gilgit-Baltistan are already resentful of what they see as their region’s political and economic isolation. Adding insult to injury is that CPEC projects, designed and implemented without their input, will be of little benefit to them.[fn]“CPEC in Gilgit-Baltistan”, The News, 22 August 2017; “‘Thousands’ protest govt’s negligence of Gilgit-Baltistan under CPEC”, Dawn, 15 May 2017. See also Crisis Group Report, Discord in Pakistan’s Northern Areas, op. cit.Hide Footnote The ecological costs of infrastructure projects in a mountainous region prone to landslides, and carbon emissions from the expected increase of truck traffic, have also angered environmental and local activists. Locals are also sceptical of government claims that CPEC will reduce high rates of unemployment, suspecting that most jobs will go to outsiders from Punjab and Khyber Pakhtunkhwa, which could also affect Gilgit-Baltistan’s delicate Sunni-Shia demographic balance.[fn]The region, which has a major Shia population, has witnessed violent sectarian conflict in the past. On Gilgit-Baltistan’s sectarian dynamics, see Crisis Group Report, Discord in Pakistan’s Northern Areas, op. cit. Also, “Scepticism in Gilgit-Baltistan over China-Pakistan Economic Corridor”, Deutsche Welle, 3 January 2018.Hide Footnote

While the last government’s hasty, flawed reforms have aggravated longstanding grievances in Gilgit-Baltistan, anti-Chinese sentiment also is on the rise.

Instead of addressing such concerns, authorities have regularly invoked the 1997 Anti-Terrorism Act and the 2016 cybercrimes law against political party and human rights activists. Intelligence officials have warned local journalists in Gilgit-Baltistan against criticising CPEC.[fn]Crisis Group interviews, journalists reporting on CPEC in Gilgit-Baltistan, Islamabad, June 2018. “Gilgit-Baltistan protests”, Dawn, 29 December 2017; “Pervasive militarisation undermining democratic system, rights”, Human Rights Commission of Pakistan (HRCP), 3 April 2016; “Five BNF activists arrested in Gilgit Baltistan”, The Nation, 10 September 2016; “GB police arrest two people for ‘anti-state’ activities”, Dawn, 12 February 2017; “HRCP reports rights abuse in Gilgit Baltistan by agencies”, The Nation, 3 March 2017; Ammar Rashid, “Gilgit-Baltistan’s prisoner of conscience”, The Daily Times, 15 May 2017.Hide Footnote Officials accuse Indian intelligence agencies of trying to stir up anti-state sentiment in the region, implying that dissidents and protesters are Indian spies, contributing to a generally restrictive environment where criticism of CPEC is especially fraught. Replicating familiar conspiracy theories about Indian sabotage, in February 2018, the federal Interior Ministry notified Gilgit-Baltistan’s Home Department of alleged Indian plans to use Muslim recruits trained in Afghanistan to attack CPEC installations on the Karakoram highway and other routes. This allegation provoked heightened security measures and stricter monitoring of foreigners and visiting Pakistanis, including searches in hotels and guesthouses, and more patrolling of the route and exit and entry points.[fn]“India may target CPEC installations, interior ministry tells GB”, Dawn, 5 February 2018.Hide Footnote

Tensions with Islamabad have also risen as the result of the May 2018 promulgation of the Gilgit-Baltistan Order 2018, with the Pakistani prime minister retaining significant authority, with only some powers delegated to a council headed by an appointed governor to the elected Gilgit-Baltistan legislative assembly. In ongoing protests throughout the region, thousands of its inhabitants are demanding full democratic rights and representation. Protesters have regularly clashed with police, who have used tear gas and shot in the air to disperse crowds.[fn]“Many injured during protest against new Gilgit-Baltistan law”, Dawn, 27 May 2018; “Protests held across GB against new order”, Dawn, 26 May 2018.Hide Footnote According to a former senator, locals ask why CPEC passes through their region when Islamabad denies them fundamental rights.[fn]Former Senator Farhatullah Babar said, “the people of GB have been fed on false hopes, broken promises and utter lies”. “Farhatullah warns of emergence of GB Tahafuz (Protection) Movement”, The News, 17 May 2018.Hide Footnote

While the last government’s hasty, flawed reforms, with limited local buy-in, have aggravated longstanding grievances in Gilgit-Baltistan, anti-Chinese sentiment also is on the rise. In 2016, China detained around 50 Chinese Uighur women married to Gilgit-Baltistan residents, reportedly on suspicions of links to Islamist militants in Xinjiang; the Gilgit-Baltistan legislative assembly has urged the federal government to work for their release, though as yet to no apparent avail. Asked about their detention, Chinese Ambassador Yao Jing said, “the women are being interrogated as Chinese citizens”.[fn]Quoted in “CPEC to benefit Gilgit-Baltistan the most: Chinese envoy”, Dawn, 1 April 2018. See also “Women victims of cross-border marriages”, The News, 25 March 2018; “Call for release of Chinese wives of GB men in Xinjiang”, Dawn, 4 March 2018.Hide Footnote These actions will likely further fuel local alienation from both Islamabad and Beijing, with inevitable implications for CPEC.

CPEC’s Gilgit-Baltistan component also has geopolitical implications. India claims the region as part of its Jammu and Kashmir territory, rejecting Pakistan’s cession of part of the region to China under the 1963 border agreement.[fn]Article 6 of the treaty acknowledged a need for Pakistan and China to formally renegotiate their boundary after the “settlement of the Kashmir dispute between Pakistan and India”. “The boundary agreement between China and Pakistan, 1963”, signed by Marshal Chen Yi, plenipotentiary of the government of People’s Republic of China and Zulfikar Ali Bhutto, plenipotentiary of the government of Pakistan. See also Crisis Group Report, Discord in Pakistan’s Northern Areas, op. cit. New Delhi protested the Gilgit-Baltistan Order 2018.Hide Footnote Former Indian Foreign Secretary S. Jaishankar argued, “China is very sensitive about its sovereignty. The economic corridor passes through an illegal territory”. Indian Prime Minister Narendra Modi contended, “connectivity in itself cannot override or undermine the sovereignty of other nations”.[fn]Harsh V. Pant, “Responding to the China-Pakistan Economic Corridor”, Live Mint, 1 December 2017. That China neglected to negotiate with India over the launch and branding of CPEC meant it got off to a rough start from Delhi’s perspective. Crisis Group discussion, Chinese scholar, Shanghai, April 2018.Hide Footnote Beijing seems sensitive to these concerns, but equivocates. Briefing a visiting Pakistani media delegation, a Chinese foreign ministry official said, “India’s accusation of Chinese occupation of any part of Kashmir is baseless”. Yet in a pointed reference to tense relations between Pakistan and India, he also said, “the CPEC is neither the way to achieve political aims nor to be used in regional conflicts”.[fn]“China trying to convince India CPEC is for prosperity”, The Express Tribune, 16 November 2017.Hide Footnote

C. CPEC’s Entry Point: Gwadar

1. Developing Gwadar

Purchased by Pakistan from Oman in 1958, Gwadar is a fishing town on the Arabian Sea not far from the Iranian border. General Pervez Musharraf’s military regime (1999-2008) sought assistance from China and other countries to develop the town into a modern deep-sea port, along with a master plan for refineries, power plants and industrial estates. The Port of Singapore Authority assumed control over Gwadar port in January 2007, and inaugurated it in March that year. Yet because of a mix of insecurity in Balochistan, nationwide political instability and economic crises – all largely the result of the regime’s policies – none of the elements of the master plan materialised.[fn]For Crisis Group’s analysis of Balochistan’s security dynamics, see Asia Briefing N°69, Pakistan: The Forgotten Conflict in Balochistan, 22 October 2007; and Report N°119, Pakistan: The Worsening Conflict in Balochistan, 14 September 2016.Hide Footnote

In February 2013, Pakistan transferred leasing rights from the Port of Singapore Authority to the China Overseas Port Holding Company-Pakistan.[fn]See website at http://cophcgwadar.com. Gwadar Port became formally operational in November 2016 and can now berth 50,000-tonne oil tankers. Fu Mengzi and Xu Gang, “New Silk Roads: Progress, Challenges and Countermeasures”, China International Studies, July/August 2017.Hide Footnote Gwadar subsequently became integral to CPEC, with proposed energy pipelines, and road and rail links connecting it to China’s Xinjiang province through Gilgit-Baltistan via the Karakoram highway, aimed at turning it into a bustling commercial hub.[fn]“Chinese-Pakistan project tries to overcome jihadists, droughts and doubts”, Wall Street Journal, 16 April 2016.Hide Footnote

In a November 2017 briefing to the Senate, Hasil Bizenjo, then federal minister for ports and fisheries, confirmed that China would receive 91 per cent of Gwadar port-generated profits over 40 years and the Gwadar Port Authority, controlled by the federal government, the remaining 9 per cent; Balochistan’s provincial government would get nothing.[fn]Unveiling his National Party’s election manifesto, Senator Bizenjo called for consultations with Baloch leaders before signing any CPEC project in Balochistan, and to give the provincial government control over Gwadar port. The National Party is a Baloch nationalist party. “NP vows to struggle for empowerment of federating units”, Dawn, 25 June 2018; “China to get 91pc Gwadar income, minister tells Senate”, Dawn, 25 November 2017; “The Baloch concerns”, The News, 31 December 2017.Hide Footnote The Port of Singapore Authority, the previous Gwadar port operator, had the same lopsided terms but many local officials and business community representatives believed that Islamabad should have renegotiated them with the Chinese operator. “As details emerge, there is more alarm about how much CPEC actually offers Balochistan”, said an expert with deep knowledge of Gwadar.[fn]Crisis Group interviews, Karachi, December 2017.Hide Footnote

In November 2015, the China Overseas Ports Holding Company-Pakistan assumed control over Gwadar’s free trade zone. A prominent Karachi-based financial sector representative said this change would disadvantage Pakistani businesses: “If I want to set up a factory there, I would have to approach a Chinese manager”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote In November 2017, Beijing asked for its currency, the renminbi, be given legal tender in Gwadar’s free trade zone, which Pakistan rejected.[fn]Pakistan’s State Bank has approved the yuan for bilateral imports, exports and financial transactions with China. A bilateral currency swap agreement (10 billion yuan) from the Chinese side and Rs. 140 billion from Pakistan ($1.6 billion) was signed in December 2011 by exporters and importers but was seldom used by traders. Since the private sector is playing a major role in both CPEC bilateral trade and SEZ industrialisation, there are concerns that Pakistani businesses might still be resistant to trading in Chinese currency. Pakistani businesses do not want to trade in Chinese currency. They would much rather continue to use currencies such as the U.S. dollar. “Doors open to yuan-based trade with China: SBP”, Dawn, 31 January 2018.Hide Footnote

Several local officials complained that the existing plants benefit the port, not the city’s residents.

Gwadar suffers from acute water and electricity shortages, major challenges to transforming it into a commercial hub. Iran exports electricity to Gwadar, but outages can extend up to ten hours a day.[fn]Crisis Group interviews, officials, business representatives and residents, Gwadar, January 2018.Hide Footnote With pipelines running dry, privately owned tankers supply water at high prices.[fn]A Baloch analyst wrote: “The situation as it stands is in stark contrast to the images of a pulsating sea and a bustling port that are often used to describe Gwadar. Truth be told, Gwadar’s water emergency puts any gains to be made out of CPEC projects in jeopardy – after all, how can an industrial city survive without potable water? Are we being set up for a fall?” Muhammad Akbar Notezai, “Thirsty in Gwadar”, Dawn, 10 September 2017.Hide Footnote The Mirani dam in Kech/Turbat to Gwadar’s north, inaugurated in 2008, is meant to irrigate some 30,000 acres but instead is being used to channel water to Gwadar, provoking resentment in Turbat, already a hub of Baloch dissent, with regular clashes between Baloch insurgents and the military.[fn]Crisis Group interview, former senior Balochistan government official, December 2017. See also “Mirani Dam termed a big disaster”, Dawn, 13 June 2011; Crisis Group Briefing, The Forgotten Conflict in Balochistan, op. cit.Hide Footnote Attacks on tankers carrying water from the dam to Gwadar have provoked strikes by owners and drivers and strikes in thirsty Gwadar’s markets and businesses.[fn]“Attack on water tankers prompts protest in Gwadar, Turbat”, Dawn, 12 November 2017.Hide Footnote Two desalination plants have been built with Chinese support in Gwadar, and the military intends to build another. Yet several local officials complained that the existing plants benefit the port, not the city’s residents. A resident said: “They say that Gwadar will be a major hub of industry; for the people who live here, it is Karbala”.[fn]Crisis Group interviews, government officials, Gwadar, January 2018. In the battle of Karbala (680 AD), the Umayyad commander blocked access to the Euphrates so that Imam Hussain and his followers would have nothing to drink. See also “Thirsty to thriving? Parched Pakistani port aims to become a new Dubai”, Thomson Reuters Foundation, 25 April 2018.Hide Footnote

Gwadar’s apparently limited commercial potential is raising suspicions about China’s real intentions. Some Pakistani security analysts believe that China is less interested in developing a road and logistical network that would enable access to the Arabian Sea and Persian Gulf from Xinjiang via Gwadar than in using the port for military purposes.[fn]Crisis Group interviews, Islamabad, Lahore and Karachi, November 2017-January 2018. When a June 2017 Pentagon report implied that Gwadar could become a Chinese military base, a Chinese defence ministry spokesman said such talk was “pure guesswork”. “China lavishes aid on Pakistan’s Gwadar”, Reuters, 17 December 2017.Hide Footnote One analyst wrote, “Gwadar will be a critical addition to Beijing’s so-called string of pearls: a ring of ports around the Indian Ocean, including in Sri Lanka, Djibouti and the Seychelles, which are intended to outflank China’s nuclear-armed rival for supremacy in Asia: India”.[fn]Saim Saeed, “China’s plans to rule the seas hit trouble in Pakistan”, Politico, 17 August 2017.Hide Footnote As it is, the ongoing militarisation of Balochistan’s coastal belt by the Pakistani army and navy, justified in part on the grounds of safeguarding CPEC assets, is holding back commercial activity in the district.[fn]Crisis Group observations, interviews, officials, Gwadar, January 2018.Hide Footnote “The cost of securing CPEC projects in Gwadar”, said a political economist, “could far exceed economic gains”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote

2. Leaving Gwadar’s Communities Behind

Alienation is fast increasing as locals in Gwadar’s inner city fear their homes could become the first casualty of the CPEC port and free (trade) zone project. While the Gwadar city master plan has yet to be finalised, according to several Gwadar officials, the federal government plans to expropriate land, bulldoze the old city and resettle residents; it is already prohibiting the Gwadar Development Authority from allocating any funds for the inner city’s development. A senior Gwadar official said, “right now, the idea that residents will be forced out is not a myth”.[fn]Crisis Group interviews, Gwadar, January 2018. See also “Short-term consultancy required for study and preparation of PC1 document for expropriation and resettlement of old town Gwadar”, Gwadar Development Authority, September 2016.Hide Footnote

A federal government directive to the development authority to stop approving new housing and commercial developments until the master plan is finalised came after 103 housing schemes had already been approved, with some 100 private firms acquiring 14,500 acres of land.[fn]“Plea to launch Gwadar housing, commercial societies rejected”, Dawn, 29 January 2018. According to one report, “Pakistani real estate giant Rafi Group made a ten-fold profit last year from its sale of hundreds of acres of land in the remote fishing town of Gwadar, acquired soon after the government announced plans for a deep-sea port there”. Maqbool Ahmed, “Unreal estate: The boom in Gwadar’s property market”, Herald, June 2017.Hide Footnote The navy has launched its housing scheme on some of the most attractive land overlooking Gwadar’s east and west bays, and speculators and developers are pushing property prices out of reach for locals.

A state-led land expropriation is now underway in and around Gwadar under the 1894 Land Acquisition Act, including over 2,200 acres for CPEC’s free trade zone, with an estimated 290,000 acres of land required for Gwadar city and 160,000 acres for residential purposes. An urban planner and expert on Balochistan said: “No consultation on land use has been held, even with local officials, not even a cosmetic consultation”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote Landowners say properties have been expropriated without advance notice as required under the Land Acquisition Act.[fn]The urban planner said that the government and contractors are likely to adopt a “take it or leave it” approach to acquiring land from locals. They will make offers, but if locals refuse to sell, they will simply seize the land. Crisis Group interview, Karachi, December 2017; Crisis Group interviews, Gwadar officials and businesses, Gwadar, January 2018. See also “Violation of land acquisition act”, Dawn, 5 September 2010.Hide Footnote

As local alienation increases, so does security surveillance and control. Several intelligence agencies monitor movement within and around the city. Residents, even local officials, are subjected to frequent and demeaning questioning by soldiers at checkpoints. Even children are not exempt. A schoolgirl said: “CPEC has given us nothing; we can’t even walk freely in our own city”. A Gwadar official added, “the plan seems to be to make life so miserable for the residents that they leave on their own”.[fn]Crisis Group interviews, Gwadar, January 2018.Hide Footnote

Resistance is unlikely to halt the development of [Gwadar] port, but the cost of ignoring it would be further local alienation.

Instead of improving the lives of locals, CPEC’s presence is depriving them of their livelihoods. According to a Baloch analyst: “Around 70-80 per cent of the locals there are dependent on fishing, and at the moment they fear being crushed under the weight of the CPEC flagship”.[fn]Shah Meer, “The plight of the Gwadar fishermen”, The Diplomat, 8 August 2016.Hide Footnote Local fisher folk and other stakeholders say the project will close Gwadar’s jetty. Fisher folk, whose daily catch provides them just enough to feed their families, already have been denied access to the sea for days on end on security grounds. During the Gwadar Expo in the free trade zone in January 2018, boats were beached for three days during a critical season of calm waters.[fn]Crisis Group interviews, Gwadar-based officials, business representatives, civil society activists, Gwadar, January 2018.Hide Footnote Fishing communities are also being relocated to nearby fishing areas along the coast, such as Sur Bandar, with some resisting pressure to move.[fn]A representative of the fisher folk said, “we will not leave …. This is the spot where we can fish all the year round; at Sur, there are three months – June, July and August – when fisher folk cannot go to the sea due to high waves”. Quoted in Zofeen T. Ebrahim, “Gwadar fisherfolk worry about One Belt, One Road”, Dawn, 8 December 2017.Hide Footnote In the long run, such resistance is unlikely to halt the development of the port, but the cost of ignoring it would be further local alienation.

Locals also resent exclusion from employment in the port and in construction. Many criticise the military-run Frontier Works Organization, which dominates construction contracts in Balochistan and elsewhere, for using labour from central and northern Punjab. A former senior Balochistan official said, “everyone sees the Baloch as uneducated so they won’t invest in them”.[fn]Crisis Group interviews, Gwadar, Karachi, December-January 2017.Hide Footnote Although some programs are underway to train and employ locals, the backlash against CPEC in Balochistan is already apparent.[fn]Gwadar’s Pak-China Technical and Vocational Training Institute is reportedly training 5,000 locals, who will complete their courses in mid-2018. “Will CPEC alter Balochistan?”, The News, 22 February 2018; “Blossoming Gwadar”, Dawn, 29 January 2018.Hide Footnote If Baloch unskilled and semi-skilled workers are deprived of the benefits of the planned mega-development in Gwadar, Baloch insurgents potentially could expand their outreach and appeal by recruiting such workers.

3. Gwadar and the Baloch Insurgency

Over the past two decades, Baloch alienation has reached new heights. During Musharraf’s regime (1999-2008), the military and paramilitary Frontier Corps attempted to suppress Baloch dissent, abducting, torturing and killing hundreds, if not thousands, of Baloch nationalists and sympathisers. Even after the restoration of democracy, torture, enforced disappearances and extrajudicial killings continue unabated.[fn]“Pakistan: End enforced disappearances now”, Amnesty International, 6 November 2017; “No More ‘Missing Persons’: The Criminalisation of Enforced Disappearances in South Asia”, International Commission of Jurists, August 2017; “Balochistan war: Pakistan accused over 1000 dumped bodies”, BBC, 28 December 2018. See also Crisis Group Briefing, The Forgotten Conflict in Balochistan; Crisis Group Report, The Worsening Conflict in Balochistan, both op. cit.Hide Footnote In mid-2017, a major monthly commented that the “security forces’ scorched-earth tactics” seem to have pushed more youth “to take up arms against the state”, joining the ranks of insurgents fighting for Baloch rights.[fn]“The simmering conflict in Balochistan”, The Herald, June 2017. See also Siraj Akbar, “Beijing to Balochistan”, The News, 4 March 2018.Hide Footnote

The state has made few attempts to address Baloch calls for greater political and economic autonomy, which underpin the insurgency. It has also failed to prevent various jihadist groups, including Lashkar-e-Jhangvi and Lashkar-e-Tayyaba/Jamaat-ud-Dawa, from expanding their presence in Balochistan. As such groups expand their presence, Chinese nationals could soon become high-value targets, as demonstrated by the 2017 abduction and killing of two Chinese Christian missionaries in Quetta.[fn]The Islamic State claimed credit for the killings, claiming that the Chinese were proselytising. “Murder of Christians”, Dawn, 4 April 2018; “Risky road: China’s missionaries follow Beijing west”, BBC, 4 September 2017; “Crackdown on Christians in China after killing of two missionaries in Balochistan”, Dawn, 5 September 2017; “Two Chinese nationals kidnapped from Quetta”, Dawn, 24 May 2017; “Abducted Chinese nationals killed, claims IS”, Dawn, 9 June 2017.Hide Footnote

A prominent political economist said: “The military’s response to discontent in Balochistan is extremely heavy-handed”.[fn]Crisis Group interview, Karachi, January 2018. Between November 2017 and early January 2018, at least nine Baloch students at Karachi University were illegally abducted, allegedly by security officials. Five online activists, including critics of enforced disappearances in Balochistan, had been abducted a year earlier, in January 2017, again allegedly by security officials. Four were subsequently released. “Two KU students among three picked up from their houses by ‘masked men’”, The News, 5 January 2018; “Fifth activist reported missing in Pakistan, alarming rights groups”, Reuters, 11 January 2017.Hide Footnote Balochistan’s militarisation – the army’s southern command is de facto the supreme authority in the province, sidelining an already dysfunctional civilian administration – has imposed enormous pressures on local populations. Those populations are also threatened by Baloch militants. “If anyone cooperates with the military, if anyone shares information with them, the militants interrogate them and attack them. Many have ended up fleeing to Karachi”, said an informed observer.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote

With animosity toward Islamabad heightening, Baloch insurgent groups such as the Baloch Liberation Army have condemned CPEC projects as another attempt by the state to exploit Balochistan’s resources while giving little back to the province and its citizens. “Anywhere the Chinese are working will be perceived as a CPEC project and could hence be subject to attack”, said Kaiser Bengali, a prominent economist and former senior adviser to the Balochistan government.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote

Baloch militants have killed scores of Pakistani workers employed on CPEC projects, including three labourers in Turbat district working for the military-run Frontier Works Organization on the Gwadar-Quetta highway in May 2017, and ten construction workers in Gwadar earlier the same month, also working on CPEC road projects. “Though the Baloch insurgents are not strong enough to counter an overwhelming military presence”, an analyst said, “these attacks are a message to the Chinese that the state will not always be able to protect them”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote

Frequent killings of police and paramilitary personnel – by both Baloch insurgents and jihadist groups – including in normally safe areas such as the provincial capital Quetta, have raised questions about whether the state, even with a heavy military and paramilitary presence, can maintain security. Even if such attacks do not deter Chinese enterprises, they could be used to justify an even greater security presence, which, in turn, would risk feeding Baloch dissent and fuelling the insurgency.[fn]An analyst who works on Balochistan warned: “If the Chinese conclude that the military is not effective [in providing security], they’ll increase pressure [on Pakistan] to either provide better security or come up with an alternative plan to maintain their own security. It will start with calls to ‘do more’, then joint surveillance and patrols. That would be even more disastrous”. Crisis Group interview, Karachi, December 2017.Hide Footnote

V. Punjab and Sindh: Land Grab in the Heartland?

The CPEC Long-Term Plan outlined a focus on agricultural modernisation, setting as goals, among others, “to strengthen agricultural construction” and “to promote the systematic, large-scale, standardised and intensified construction of agricultural industry”.[fn]“Long-Term Plan for China-Pakistan Economic Corridor”, op. cit.Hide Footnote These aspirations dovetail with Islamabad’s pleas to Beijing to encourage Pakistani food imports as one way to mitigate a sizeable trade imbalance.[fn]“China urged to encourage imports from Pakistan”, Dawn, 17 January 2018.Hide Footnote A Lahore-based agriculturalist and food business representative, who was close to the PML-N government, said that Pakistani land and labour would be used, with Chinese enterprises introducing better technology and marketing efforts. “We currently meet 7 per cent of the world’s food needs”, he said. “We could be meeting 20 to 25 per cent”.[fn]Crisis Group interview, Lahore, November 2017.Hide Footnote

While CPEC advocates expect that Pakistan’s “untapped agricultural potential” can be realised through such cooperation with China, there is still little clarity about CPEC’s agricultural component. “What has the government promised the Chinese in this sector?” queried a political economist.[fn]Crisis Group interview, Lahore, November 2017. “Agriculture’s golden promise”, “CPEC 2018 Summit”, op. cit.Hide Footnote Moreover, CPEC’s focus on agricultural development could result in opposition similar to that in Gwadar in other parts of the country, including in the Punjab heartland and Sindh, where most land is privately owned.[fn]Crisis Group interviews, Lahore, November 2017; Karachi, January 2018.Hide Footnote Chinese agricultural projects in Central Asia have sparked protests over agricultural deals and reforms perceived as friendly to Chinese enterprises.[fn]In Kazakhstan, the protests “became a vehicle for airing other grievances, including fears of an influx of Chinese migrants and distrust of Chinese companies, particularly their labour and environmental practices”. Crisis Group Report, Central Asia’s Silk Road Rivalries, op. cit.Hide Footnote The same could occur in Pakistan.

A. Agricultural Cooperation: Punjab’s Challenges

Any ambitious agricultural modernisation project will require the acquisition and consolidation of large tracts of cultivated or cultivable land but such state-owned lands are in short supply. Small farmers own much of central Punjab’s cultivated agricultural land, the most fertile in the country. There are large private landholdings in southern Punjab and Sindh but these are the currency of political fortunes; landowners would risk losing political influence should they sell up. An analyst noted: “Many of these landlords won’t be able to get elected to a local body if they sell”.[fn]The average holding in central Punjab is around 5-6 acres. Nationally, only 10 per cent of owners own more than 12.5 acres of land. Crisis Group interview, Lahore, November 2017. See also Agricultural Census 2010, Pakistan Bureau of Statistics, government of Pakistan.Hide Footnote

One model, a high-level Punjab official said, could entail purchasing smaller farmers’ properties and leasing them back, while guaranteeing the supply of high-quality seeds, low-cost fertiliser and agricultural machinery, as well as good prices for their crops, thus reducing the risks of landlessness and displacement.[fn]Crisis Group interview, Lahore, November 2017.Hide Footnote The lure of cash compensation might convince many to sell their lands and/or accept relocation. But the availability of such land, and the provision of quality inputs and guaranteed prices, could attract entrepreneurs seeking to maximise profits in a short timeframe with little interest in the long-term viability of such projects.[fn]Crisis Group interview, Punjab-based agriculturalist, Lahore, November 2017.Hide Footnote

Large-scale displacement and dispossession, were they to accompany CPEC agricultural projects, would increase social and political tensions. Tenant and small farmers have resisted past attempts by the state to deprive them of their land or their rights to cultivate it, a notable example being the mobilisation of tenant farmers on military-run farms in Punjab’s Okara district, a dispute that has lasted for years. Despite arrests and harassment, the Tenant Associations of Punjab (Anjuman Muzareen Punjab), spearheading the resistance, continues to fight for ownership rights for tenant farmers of lands claimed by the army.[fn]Under the Musharraf regime, in 2000, the army tried to force around 200,000 tenants in the Okara military farms to pay rent, instead of a share of the crop, which would have given the army ownership rights. Leased in 1930 for twenty years to the army, the lease since then had not been renewed. Farmers cultivating lands with unclear property rights for 25 years have the first right of ownership. Though Okara tenant farmers were forced to sign contracts for the cash rent system in early 2018, the Tenants Association continues to support their struggle for ownership rights. “Harvest of hope: The struggles of tenant farmers in Okara Military Farms, Pakistan”, La Via Campesina, 15 June 2018; Kunwar Khuldune Shahid, “This land is our land: Peasants in Okara fight for their rights”, Newsline, June 2016; “Soiled Hands: The Pakistan Army’s Repression of the Punjab Farmers’ Movement”, Human Rights Watch, 20 July 2004; Shahrukh Rafi Khan and Asim Sajjad Akhtar, The Military and Denied Development in the Pakistani Punjab (London/New York, 2014). See also Basim Usmani, “The peasants’ revolt”, The Guardian, 4 November 2007. “If the state forces small farmers to sell”, said a human rights activist, “there will be local resistance and conflict”.[fn]

There are three broad categories of land ownership: individual; collective (ten or more owners); and land whose transfer or sale was not completed officially and whose ownership and property rights therefore are not clear. Tenants and farmers on land in the last category are particularly vulnerable to expulsion; according to activists, journalists, economists and other close observers, they will likely resist pressure by officials to vacate their lands.[fn]Crisis Group interviews, Lahore, Karachi, November-December 2017.Hide Footnote According to the Land Acquisition Act of 1894, under which the state can acquire land “needed for a public purpose or for a Company”, compensation is only given to formal owners of land, and excludes tenant farmers and those without deeds.[fn]Text of the Land Acquisition Act, 1894 at www.punjablaws.gov.pk.Hide Footnote Absent measures that recognise the right to compensation of tenant farmers and those lacking formal ownership documentation, whether through legal reform or, in its absence, executive decision, lands acquired for CPEC projects under the 1894 act could devastate pastoral communities. Given otherwise limited job opportunities and the inadequate shelter provided by the state, land dispossession will have a particularly adverse impact on women-led households.

A model home, February 2018. INTERNATIONALCRISISGROUP/2018

B. CPEC and Sindh’s Tharparkar District

Sindh’s impoverished Tharparkar district is the site of Pakistan’s largest coal mining and power project, now a high-profile element of CPEC. The CPEC envisages mining thirteen blocks, covering 9,000 sq km, and doing so will likely displace many locals. As speculators enter the property market, many locals also could sell their lands and join the ranks of the unemployed. This reliance on coal for power projects will also pose serious environmental risks.[fn]A Thar-based coal engineer said, “[Sindh Chief Minister] Murad Ali Shah knows that coal is Sindh’s only major resource. His government knows that it has to maximise now because the world later won’t let us rely on coal-powered projects”. Crisis Group interview, Tharparkar, February 2018.Hide Footnote

One component of the Tharparkar mining and power project, run by a Pakistani multinational firm, provides a model for mitigating the disruptive effects of such development by giving locals stakes in the enterprise. The firm, which has the contract for one of the thirteen blocks, mainly employs locals on the mining site, with Chinese workers only providing technical expertise.[fn]Sindh Engro Coal Mining is a joint venture of the Sindh government and six private companies, Engro Energy, Habib Bank Ltd, Hubco and two Chinese companies, CMEC and SPIC. “First layer of Thar coal extracted five months ahead of schedule”, Dawn, 11 June 2018.Hide Footnote It is building model villages, including homes, places of worship and markets, to resettle some 450 displaced families, and making long-term investments in skills development, training, jobs, education and health, including for women and girls. In a region with high maternal and child mortality, the company has set up a free health clinic for women, operated by a well-regarded hospital. Local women work for the mine, including as dump truck drivers and engineers.[fn]The provincial government provides the land and the firm, Engro, builds the houses. If the locals agree, the houses will be transferred to women family members. Crisis Group interview, company representative, Tharparkar, February 2018. Quality education is being provided through a well-regarded privately owned network of low-cost formal schools. Crisis Group visited these and other projects. Crisis Group interviews, Engro employees, woman engineer working on Engro coal project, Tharparkar, February 2018. See also “In Pakistan’s coal rush, some women drivers break cultural barriers”, Reuters, 29 September 2017.Hide Footnote

The next mine to come online will be run and staffed by a Chinese company. A well-informed coal industry professional said that thus far the project envisages no guarantees of employment for locals and has involved limited consultation with communities potentially affected.[fn]“This company (Engro) has been socially responsible”, said an analyst, “but what will other companies do?” Crisis Group interviews, Karachi, December 2017, Tharparkar, February 2018.Hide Footnote The federal and provincial governments should develop a socially and economically responsible regulatory framework, including through local consultations and with input from civil society organisations, for all companies awarded contracts for coal mining and power projects in Tharparkar. That framework should include employment guarantees for locals, including women, mitigation of environmental damage and protection of local culture. Employing non-residents would provoke resentment and disrupt the region’s delicate religious, demographic and socio-cultural balance.

Tharparkar is one of the few regions in Pakistan with a Hindu majority and has a sensitive location bordering India.

Tharparkar is one of the few regions in Pakistan with a Hindu majority and has a sensitive location bordering India. As a result, locals claim, security agencies doubt their loyalty to the state.[fn]Crisis Group interviews, Tharparkar, February 2018.Hide Footnote As in Gwadar and Gilgit-Baltistan, the security presence is overbearing, with agencies keeping a close eye on activists and others that question CPEC developments. In late 2016 and 2017, enforced disappearances of activists and journalists in the district became common. Some observers suspect that opposition to CPEC was a factor. A writer and researcher in Umerkot town said, “the intelligence agencies treat [the critics of CPEC] as their enemies”.[fn]Quoted in Moosa Kaleem, “Reasons behind the increase in missing persons in Sindh”, Herald, 13 November 2017. See also Editorial, “Missing in Sindh”, Dawn, 8 August 2017; and “Sindh abductions: Three more activists go missing in Thar”, Dawn, 8 August 2017.Hide Footnote A representative of a company working in Tharparkar added, “the security presence in the region is already overbearing. In this atmosphere of intimidation and fear, locals do not dare openly criticise any CPEC project”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote Stifling democratic debate could result in anti-CPEC sentiments assuming a far more hostile form in the future.

VI. Conclusion

If properly carried out, CPEC could promote economic development and growth and thus have a profound impact on Pakistan and its citizens. Yet, as a high-profile business representative rightly warned, “if there are opportunities, there are also serious risks”.[fn]Crisis Group interview, Karachi, December 2017.Hide Footnote Unless there is a serious rethink in policy circles, CPEC could inflame tensions between the centre and federal units, and could trigger or worsen conflict within provinces.

To avoid such outcomes, Pakistan’s CPEC projects and programs should be guided by diligent planning and policy. Islamabad should determine the direction of Pakistan’s CPEC policy, based on its – and not Beijing’s – economic and political interests. It should place CPEC in the context of a broader strategic vision for modernising its economy in ways that do not destabilise the polity.

The best chances for the country’s stability – and indeed CPEC’s success for Pakistan and, by extension, China – lie in giving provinces and communities a voice in shaping CPEC projects and thus helping promote local buy-in. Rather than suppressing criticism and dissent, the federal and provincial governments, as well as the security institutions, should recognise that the viability of CPEC projects rests on stakeholder ownership. Unequal prosperity, favouring outsiders over local communities, would aggravate social and political divides, fuelling tension and potentially conflict.

Beijing and Chinese companies face a steep learning curve with CPEC, but many problems could be mitigated through consulting and engaging the full spectrum of Pakistani stakeholders, from competing elites to the grassroots, and conducting comprehensive risk and political analysis to balance competing priorities. Efforts to ensure benefits are shared equitably need to be complemented by effective and extensive communication to illustrate common interests.[fn]Crisis Group discussions, Beijing and Shanghai, April 2018; “Opportunities and Challenges for Constructing CPEC”, and “Opportunities and Challenges of Implementing the “Belt and Road” Initiative”, both op. cit.Hide Footnote

As Pakistan’s democratic transition approaches another milestone, with a second consecutive elected government completing a full term and a successor assuming power in August 2018, the new parliament should seize the opportunities of a fresh mandate by shaping public debate on CPEC, and informing government policy. That policy should have the well-being of Pakistani citizens at its heart, rather than treating it as something that can be negotiated away in the pursuit of mega-development or perceived strategic interests.

Brussels, 29 June 2018

Appendix A: Map of CPEC Special Economic Zones

Map of CPEC Special Economic Zones International Crisis Group

Appendix B: Acronyms

ANP                       Awami Nationalist Party

CPEC                     China-Pakistan Economic Corridor

ETIM                     East Turkestan Islamic Movement

FATA                     Federally Administered Tribal Areas

FATF                     Financial Action Task Force

FTA                        Free Trade Agreement

GDA                       Gwadar Development Authority

IMF                        International Monetary Fund

JUI-F                    Jamiat Ulema-e-Islam (Fazlur-Rehman)

PML-N                  Pakistan Muslim League-Nawaz

SEZ                        Special Economic Zone