Opinion: China’s ‘debt trap’ dilutes FATF decision to put Pakistan on grey list

Delhi, India Jul 05, 2018, 10.58 AM(IST) Written By: Major General S B Asthana

File photo. Photograph:( Zee News Network )

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If China continues to be determined to bail it out every time, Pakistan’s status will be reduced to a colony of China, with considerable PLA’s presence in context of protecting CPEC and other investments. 

Under normal circumstances, a one billion dollar loan between two sovereign countries would have gone unnoticed by the global community, but what makes China’s aid Pakistan so special is the timing of this loan and the strategic intention behind it. 

The economics of this loan to justify the need to buffer Pakistan’s foreign currency reserves, which nosedived to $9.66 billion last week from $16.4 billion in May 2017, taking China’s lending to Pakistan to over $5 billion in this fiscal year, has been well covered by all the segments of media in India and abroad. 

The messaging and the strategy behind this bailout need deeper analysis. 

Timing and Messaging 

The timing of the loan raises eyebrows. It comes immediately after Pakistan being officially included in the Grey List of Financial Action Task Force (FATF). FATF (of which China is also a member) aims to combat money laundering and terror financing.  

While taking the decision the global watchdog was convinced that Pakistan has failed to act against terror financing on its soil. China’s tried its best to help its ‘all weather friend’ by asking the global community to recognise that Pakistan was doing its best to fight terrorism.

This aid indicates China’s resolve to signal the global community that it intends to keep Pakistan financially afloat irrespective of FATF decision. China is apprehensive that if Pakistan sinks economically, it may well happen that China may not find enough investors for CPEC.

With this gesture, China has tried to raise the confidence level of its investors for CPEC and BRI.

Why Pakistan is strategically lucrative to find donor for bail out?        

Pakistan’s geographic location is strategically so important that US, as well as China will like to have influence over it. For US, Pakistan is relevant to keep its competitors under check and have bases to launch operations in Afghanistan, especially against al-Qaeda and Haqqani network. As Pakistan provided the bases and manpower to enable the US to fight in Afghanistan against Taliban giving shelter to both, it extracted billions of dollars as bailout packages, besides military hardware.

Now, the US is acting tough on them post “New South Asia Policy of Trump Administration”, by blocking the aid. The US is convinced that Pakistan did not do enough to target al-Qaeda and Haqqani network and continues to help them. The US is, however, in no mood to give a free run to China to occupy this strategic space so easily.

China needs warm water access for its Western region and smooth flow of energy and trade through this region. CPEC and the related infrastructure also give China an opportunity to utilise its overcapacities in Pakistan. This will end up in insurmountable loan for Pakistan, beyond its paying capacity, which may result in Chinese land grab as well as resource grab and some compromise to sovereignty of Pakistan through “Debt Offensive”, which has been very successful in countries like Myanmar, Maldives and Sri Lanka.

China also has a strategic interest to keep the US out of this region. 

Pakistan in transition towards a Chinese colony

From global prism and Indian perspective, the financial crisis in Pakistan is dangerous. If China continues to be determined to bail it out every time, Pakistan’s status will be reduced to a colony of China, with considerable PLA’s presence in context of protecting CPEC and other investments. 

Presently, Pakistan is a sham democracy with its army giving an impression of binding and protecting the country by holding all levers of power. If Pakistan collapses, then there is a danger of it coming under a Jihadi rule or becoming another Islamic caliphate.

With Pakistani army’s honeymoon with terrorists, including getting them a backdoor entry into politics through Hafiz Saeed’s Milli Muslim League, the radicalisation of Pakistani army is reasonably evident. It is time for the global community, including China to revisit their support to Pakista and prevent it from becoming 'Terroristan'.  

 (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)


Major General S B Asthana

Major General S B Asthana had been an Infantry General with 40 years of defence experience at national and international level.