Heavily indebted Pakistan has all its eggs in China basket: Implications for India

Despite the current economic and political turmoil in Pakistan, the Sino-Pakistani strategic nexus remains stable. Image: AFP

An International Monetary Fund (IMF) team arrived in Pakistan last Friday to hold talks as they requested a longer and larger bailout package under the Extended Fund Facility (EFF). Cash-strapped Pakistan needs a rollover of around $12 billion in debt from key allies in 2024–25 to meet the whopping $23 billion gap in its external financing. Pakistani insiders are hoping to get a rollover of $5 billion from Saudi Arabia, $3 billion from the UAE, and $4 billion from China. Meanwhile, they are seeking fresh financing from China. China has provided developing countries with over $1.1 trillion in loans through its Belt and Road Initiative (BRI). According to a 2023 Aid-Data report, 80 per cent of the loans involve countries in financial distress, like Pakistan.

Despite such heavy debt, Pakistan continues to spend significantly on defence. Its 2023 defence budget was $8.5 billion, a 16 per cent increase despite the IMF breathing down their neck. It was 1.7 per cent of GDP. Meanwhile, Pakistan has been in talks with China about adding numbers to the JF-17, buying more J-10 CE, and also indicating a desire to acquire the fifth-generation J-31 fighters. In parallel, Pakistan is working with Turkey for their fifth-generation ‘Kaan’ fighter aircraft and unscrewed aircraft.

Pakistani Debt

Pakistan’s debt keeps increasing amidst failing export earnings. The current outstanding foreign debt is estimated at $124.5 billion, or 42 per cent of GDP. Further, the country’s annual foreign exchange earnings from exports are not enough to pay for imports. During 2022–23, Pakistan’s current account deficit was $30.5 billion, most of which was covered by the remittances of Pakistanis working abroad, and the rest by new foreign borrowing. With export earnings unlikely to increase, rescheduling foreign debt payments will be the only way forward. And this comes at a price.

The financial details of the CPEC are unclear. Pakistan is the world’s largest host of BRI projects, with CPEC involving $62 billion in spending. A significant debt owed to Chinese companies is not officially reported but has to be cleared in foreign exchange. The IMF’s estimate of $25 billion for Pakistan’s debt service requirements in 2023–24 is based only on Pakistan’s reporting of the country’s foreign debt.

Pakistan has traditionally looked to China for concessions in light of their contribution to the debt through BRI. Saudi Arabia has become less liberal in support due to its own commitments and desire to move away from heavy reliance on oil (40 per cent of Saudi GDP and 75 per cent of fiscal revenue), which sees substantial fluctuations depending on oil prices. The UAE has been the other source of debt relief support, but they want value for their money. The economic relations of both Saudi Arabia and the UAE are on much more solid foundations than the much larger, more mature, and safer economy of India.

In light of the continued negative trade balance, things will continue to get worse. Given the current difficulties in China’s financial sector, it may be hard for Pakistan to expect concessions from China. And lenders like China extract their pound of flesh, as they did in leasing a substantial part of the Gwadar port and special economic zone.

China-Pakistan Strategic Congruence

Despite the current economic and political turmoil in Pakistan, the Sino-Pakistani strategic nexus remains stable. The military cooperation between the two continues to deepen. Beijing stands firmly behind Pakistan in terms of sovereignty and territorial integrity. China reiterates that military cooperation is at the core of bilateral relations, and they will jointly maintain the security interests of the two countries and of the region. Pakistan’s location is a gift of geography. It remains crucial for China’s access to petroleum-rich West Asia, investment-hungry Africa, and power projection in the Indian Ocean Region (IOR).

After the Sino-Indian War of 1962, Pakistan saw an opportunity to befriend China and ceded nearly 5,000 sq km in Shaksgam Valley in 1963. Very recently, China has built a road across the Aghil Pass (4,805 m, altitude) that enters the lower Shaksgam Valley. The roadhead is now less than 50 kilometres from India’s Siachen Glacier.

Immediately after the dismemberment of Pakistan in 1971, China and Pakistan forged a strategic alliance in 1972, which has since grown from strength to strength, especially in defence. While China supports Pakistan in Kashmir, Pakistan in turn supports China in Tibet, Taiwan, and Xinjiang. Pakistan also acts as a link between China and the Muslim world. China’s national strategic interest in getting port facilities and a highway close to oil-rich West Asia made it commit huge sums to the road and rail corridor called the China-Pakistan Economic Corridor (CPEC). The long-term plan is to lay an oil/gas pipeline from Gwadar to Central China. In 2023, China and Pakistan signed a $3.5 billion deal to construct Pakistan’s largest nuclear power plant at “Chasma 5”.

Pakistan continues to be a key element of China’s ‘string of pearls’ policy to create a sphere of influence around India. For Pakistan, China is a low-cost-high-value deterrent against India. Beijing’s open belligerence, salami-slicing attempts on India’s borders, and Islamabad’s export of terrorism combined with strategic-military closeness pose a two-front challenge to India.

China-Pakistan-US Peculiar Combinations

While China and Pakistan call themselves the thickest of friends, there are serious dichotomies. For a long, Pakistan was part of the US-led strategic groupings CENTO and SEATO. Later, it helped the US come closer to China in 1971. Pakistan supported the US in the 1979–1989 Soviet–Afghan War and has ever since been a huge beneficiary of US aid, including during the US-led Global War on Terrorism (GWOT). But Pakistan double-crossed the US while hiding Osama bin Laden and during its two decades in Afghanistan, and also misused the funds.

China remains deeply communist and is aggressively converting the Muslim Uyghurs in Xinjiang. Despite such a deep friendship with China, no Pakistani politician, military officer, or businessman has children studying in China, nor has any of them invested in property. On the other hand, they all have invested in Western countries. Pakistan is both a Chinese pawn (against India) and a platform for power projection. Pakistan is a master at taking unreasonable advantage, but it cannot be a reliable partner.

Military Industrial Complex

For the initial decades, Pakistan's military depended almost entirely on American armaments and aid, which increased considerably during the Soviet war in Afghanistan. Post-1963, China began supporting Pakistan to build the Military Industrial Complex. Meanwhile, the Pressler Amendment in 1990 resulted in the suspension of all American military assistance amidst concerns that Pakistan was attempting to develop nuclear weapons. Many Pakistanis saw this as a betrayal. Consequently, since 1990, Pakistan has tilted more actively towards China for military and economic cooperation. China helped Pakistan set up munitions factories and upgrade the existing ordnance factory at Wah, near Rawalpindi. China allowed licensed production of the MBT-2000 (Al-Khalid) tank, which was essentially a Chinese variant of the Russian T-90. The militaries started exercising together. China helped build a turnkey ballistic missile manufacturing facility near Rawalpindi. It also helped Pakistan with its submarine production capability. Chinese F-22P frigates joined the Pakistan Navy. China also supplied Pakistan with nuclear technology and assistance, including perhaps the blueprint for Pakistan's nuclear bomb. Chinese security agencies were reportedly aware of the transfer of nuclear technology by Pakistan to Iran, North Korea, and Libya. After India secured a nuclear deal with the US, China agreed to set up two nuclear power stations in Pakistan. However, the greatest results have been seen in the China-Pakistan aviation relationship.

Military Aviation Production

Starting in 1965, China supplied the Pakistan Air Force (PAF) with Chinese-made Russian variants of the MiG-19 and MiG-21 and the Harbin H-5 (Ilyushin IL-28). China helped establish ‘Heavy Industries’ at Taxila in 1971 for equipment rebuilding, and in 1973, the Pakistan Aeronautical Complex at Kamra North of Islamabad.

In 2007, as a part of a joint project, China rolled out a ‘designed for Pakistan’ Fighter JF-17 ‘Thunder’. The costs were kept low by borrowing technologies developed for Chinese J-10 fighters. The aircraft can carry a variety of Chinese air-to-air missiles (AAM), including the formidable PL-15. Currently, PAF has 150 of these, and the strength is likely to increase to over 200 a day. This programme is also a signal to the US that Pakistan has others to bank on for its security needs. China and Pakistan are aggressively trying to find possible export customers in Africa and Asia. Nigeria and Myanmar have ordered some small numbers. The reasonable price makes it attractive.

Other Military Acquisitions

Pakistan ordered 36 Chengdu J-10CE ‘Vigorous Dragon’ multi-role fighters (20 delivered, 16 on order). There are reports that they will order 14 more to make it 50. A host of Chinese missiles and PGMs are part of the package. Pakistan has acquired the Chinese HQ-9/P AD system, a Chinese variant of the S-300 that covers high-to-medium-level threats. Pakistan operates a Chinese ZDK-03 AEW&C aircraft. 60 Chinese-designed, Pakistan-manufactured K-8 Karakorum intermediate jet trainers are in service. Pakistan operates Chinese CH-4 recce-cum-strike drones, which can carry up to four PGMs.

The Pakistan Navy has locally-built Zulfiquar-class frigates with Chinese assistance. Pakistan has acquired the Type 054A frigates from China. The national submarine programme for Hangor-class air-independent propulsion submarines is a joint-venture with China, with the expectation of being commissioned between 2024 and 2028.

Despite the Chinese pledge to the contrary, it has continued to provide Pakistan with specialty steels, guidance systems, and technical expertise in the latter's effort to develop long-range ballistic missiles. The M-11 is a copy of the DF-11, and the Hatf, Shaheen, and Anza series of missiles have been built with Chinese assistance.

Military Exercises and Space Cooperation

Pakistan's armed forces carry out regular military exercises with China. The most important and extensive is the Shaheen series between the PAF and the People's Liberation Army Air Force (PLAAF). These are meant to improve interoperability and enhance responses to 'mutual threat’. PAF gets exposure to Chinese Sukhoi Su-27/Su-30MKK aircraft, which are similar to Indian Air Force (IAF) frontline SU-30 MKI aircraft. PAF cannot operate F-16s mindful of US concerns. But China gets to learn Western tactics and large-force combat engagements from PAF pilots who regularly exercise with Western forces.

Pakistan’s Space and Upper Atmosphere Research Commission (SUPARCO) was established in 1961 but has little to show. The country's first technology-demonstrator satellite, Badr-I, was built by SUPARCO and launched by China in 1990. Pakistan does not have its own launch vehicles and aims to launch more satellites with Chinese help.

Since 1992, China has helped Pakistan develop and launch communications satellites and remote sensing satellites, among others. Pakistan has access to the Chinese BeiDou satellite navigation system. ICUBE-Q, a scientific experimental Pakistani CubeSat, was launched aboard China's Chang'e-6 lunar probe on May 3.

China-Pakistan Collusivity: Implications for India

The People's Liberation Army (PLA) is fast catching up with Russia and the US in overall military power. Their aircraft carriers, naval vessels, and airborne platforms have global reach and precision. It makes a great military force for India to contend with. Pakistan is also set to increase its current 19 to 22 fighter squadrons.

China has begun major infrastructure buildups in Tibet and Xinjiang, especially in the area near Aksai Chin. The Kashgar-Karachi CPEC passes through the contested areas of Gilgit-Baltistan. Baluch nationalists have been protesting that the Pak government is conspiring to plunder the province's waste natural resources. Wealthy and connected Pakistanis are being accused of a major land grab exercise all along the so-called economic corridor.

India’s potential to become a democratic counterbalance against authoritarian China bothers Beijing. China’s closeness with Pakistan has to be factored in and balanced by India if it wishes to retain preeminence in South Asia and the Indian Ocean Region (IOR). After India revoked Article 370 in August 2019, China raised the issue in the UNSC on three occasions and could well do so again, indicating its willingness to strain ties with India.

The Western Theatre Command (WTC) is the largest of China’s five theatres. The WTC covers the entire Line of Actual Control (LAC) with India. China and Pakistan have a commonality of military equipment. Both exercise regularly and have sorted out interoperability issues. China will provide Pakistan with satellite-based ISR support, in addition to the use of the BeiDou GPS network. The intelligence establishments of China and Pakistan have developed very close ties over the decades. Pakistan’s Skardu airfield can be used by the PLAAF.

China might sell its first aircraft carrier, Liaoning, to Pakistan once its fourth aircraft carrier is ready. The convergence of Sino-Pak interests on strategic and territorial issues points to increased and enduring Chinese military pressure on India, as presently seen in Ladakh. China could well open hostilities through Pakistan, creating a “two-front war” situation for India.

After the Ukraine conflict, Russia has been pushed more into the Chinese corner and will be of little support in cases of regional conflict. Even India’s Western partners will only support satellite-based Intelligence, Surveillance, and Reconnaissance (ISR) at best. As a responsible power, India would have to fight its own battles yet build partnerships with friendly democracies.

India does need to re-look at the force structure. The IAF is down to 31 fighter squadrons, and numbers could dip further. The IAF immediately requires advanced fighters, sophisticated support platforms, and smart long-range weapons. Many contend that the IAF eventually needs to increase combat squadrons from the currently targeted 42 to around 50 squadrons. But presently, it may take nearly 15 years to even reach 42 squadrons. To achieve this, the defence budget must be increased to at least 2.5 per cent of GDP from the current 1.9 per cent. The soon-to-be third-largest economy must spare more money for its security.

The atma-nirbharta has to be pushed to its logical end through a whole-nation approach. The defence R&D and Indian aircraft industries too would have to get their act right if Make-in-India has to succeed. LCA Mk1A and Mk2 development and production must be hastened. Similarly, AMCA design and development must be pushed. India must have its own light tank soon. Also, the number of submarines has to increase. India may make an early decision on its next aircraft carrier.

India has to invest much more in critical game-changing technologies such as hypersonic, directed energy, cyber, electronic warfare, artificial intelligence, quantum, and robotics. India is way behind in inducting its own unmanned platforms.

India needs to accelerate the hypersonic cruise missile BrahMos II development. Manned-unmanned teaming also needs acceleration. The RFP for the new 114 aircraft must go out without any delay. Similarly, the AEW&C and FRA numbers are too low for a continental-sized country with serious threats on its borders. These are critical for India’s global reach and great power aspirations.

India must also get out of the heavily loaded Russian military asset basket. Initially, India should target 40 per cent indigenous, 30 per cent Russian and 30 per cent Western arms by 2040. India’s satellite navigation system must be operationalized quickly. India needs many more satellites for ISR and secure communications, including data handling. They are also required for redundancy. The time to act is now, lest we get left further behind.

The writer is former Director General, Centre for Air Power Studies. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.