Explained: Has China pulled back from Pakistan’s $60-billion CPEC dream?

In a significant geopolitical development, China has stepped back from Pakistan’s flagship China-Pakistan Economic Corridor (CPEC) project, the Main Line-1 (ML-1) railway upgrade.

The move comes after Prime Minister Shehbaz Sharif’s recent visit to Beijing, which failed to secure fresh funding or major Phase-2 CPEC projects. Instead, Pakistan returned with Memoranda of Understanding (MoUs) valued at $8.5 billion, focused largely on agriculture, electric vehicles, solar energy, health, and steel, falling short of the headline infrastructure investments many had anticipated.

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At the same time, Islamabad’s improving ties with Washington, coupled with India’s deepening engagement with China and Russia following the Shanghai Cooperation Organisation (SCO) summit in Tianjin, have added a complex geopolitical dimension to Beijing’s decision to step back.

What is the significance of the CPEC project for Pakistan?

The China–Pakistan Economic Corridor (CPEC) is a landmark infrastructure initiative designed to link China’s northwestern Xinjiang region with Pakistan’s Arabian Sea port of Gwadar via an integrated network of roads, railways, pipelines, and energy projects.

Stretching approximately 3,000 km, CPEC constitutes a central component of China’s Belt and Road Initiative (BRI). The corridor aims to strengthen regional connectivity by linking South Asia, Central Asia, the Middle East, and Africa, while boosting trade between China and Pakistan, facilitating Chinese energy imports, and promoting economic growth. Total investments in the corridor are estimated to exceed $60 billion.

According to a CNN-News18 report, during his six-day visit to Beijing, Prime Minister Sharif acknowledged to Chinese investors that Pakistan’s security environment posed certain risks, while pledging enhanced protection for Chinese nationals.

He also committed to removing bureaucratic hurdles after investors raised concerns about delays and administrative red tape. However, Sharif’s unilateral declaration of the “formal launch” of CPEC 2.0 without prior Chinese endorsement underscored the lack of coordination between the two sides.

What does China’s withdrawal from CPEC mean, and does it signal the end of the ambitious project?

Following Beijing’s withdrawal from financing the Main Line-1 (ML-1) railway project, the flagship component of CPEC, after years of stalled negotiations, Pakistan is now turning to the Asian Development Bank (ADB) for a $2 billion loan to upgrade the Karachi–Rohri section of the railway.

This development represents a significant departure from CPEC’s original vision, under which China had committed approximately $60 billion for energy and transport infrastructure across Pakistan. The ML-1 railway upgrade, stretching roughly 1,800 kilometres from Karachi to Peshawar, was regarded as the largest and most transformative of these initiatives. However, after nearly a decade of negotiations and amid Pakistan’s deepening fiscal challenges, Beijing’s willingness to fund such a high-risk venture has diminished.

With the Asian Development Bank now stepping in, Pakistan is, for the first time, allowing a multilateral lender to take the lead on a project once considered the flagship of China’s Belt and Road Initiative (BRI) in the region.

China’s withdrawal from the ML-1 project may not signal the end of CPEC, but it does indicate a clear loss of momentum. Following a burst of activity between 2015 and 2019, with highways, power plants, and ports being built, the last major project, the Gwadar East Bay Expressway, was completed in 2022. Since then, progress has slowed, and Pakistan’s unpaid dues to Chinese power producers have emerged as a growing point of tension. Turning to the Asian Development Bank for ML-1 financing could set a new precedent for future projects.

Why did China decide to step back despite its strong ties with Pakistan?

Reports indicate that China’s disengagement from the ML-1 project was not abrupt. Beijing had growing concerns about the project’s financial viability, particularly given Pakistan’s deteriorating fiscal position and its struggles to meet debt obligations, particularly in the power sector, where Chinese companies have already invested billions.

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A broader reassessment of China’s overseas investments may also be a factor. Facing economic headwinds at home and a reduced appetite for high-risk international projects, China appears to be scaling back large-scale financing in countries with elevated repayment risks. Pakistan, with its mounting debt and repeated reliance on IMF bailouts, fits that profile.

The consequences are both financial and geopolitical. China stepping back from its largest CPEC commitment illustrates that even the “iron-clad friendship” long touted by both countries has its limits when substantial funding is involved. It also highlights the fragility of Pakistan’s dependence on a single strategic partner for high-stakes infrastructure projects.

What are the economic and strategic reasons behind Pakistan seeking ADB funding for the ML-1 railway?

The urgency to modernise ML-1 has been heightened by the development of the Reko Diq copper and gold mine in Balochistan. Developed by Canadian mining giant Barrick Gold, Reko Diq is among the world’s largest untapped mineral deposits and is expected to become a major contributor to Pakistan’s export revenues in the coming years.

Yet the logistical infrastructure required to transport ore from the mine to ports remains inadequate. The existing railway is outdated and strained, unable to handle the heavy cargo volumes anticipated from Reko Diq. Without an upgraded ML-1, the mine’s full economic potential cannot be realised.

This explains why the Asian Development Bank has not only agreed to fund part of the railway project but has already pledged $410 million toward facilitating Reko Diq operations. For Pakistan, the initiative represents more than a railway upgrade; it is a critical step toward unlocking long-term mineral exports and avoiding yet another missed economic opportunity.

How is Pakistan balancing its ties with China while seeking multilateral financing for key infrastructure projects?

Pakistan’s decision to turn to the Asian Development Bank, and, by extension, Western-aligned financial institutions, for a central CPEC project was far from a casual move. Sources told Reuters that the plan had been “squared with China” in advance, underscoring Islamabad’s aim to maintain cordial ties with Beijing while keeping its economic options open. “We would never do anything to jeopardise that relationship,” a senior Pakistani official told Reuters.

Army Chief Asim Munir recently highlighted this delicate balancing act, stating, “We will not sacrifice one friend for the other.” His carefully worded remark reflects Pakistan’s effort to avoid the perception of pivoting away from China, even as it increasingly seeks to diversify partnerships, particularly with Western institutions and investors. Developments in US-Pakistan ties add further complexity, with US President Donald Trump expressing interest in Pakistan’s mineral assets, including Reko Diq, a signal that Washington may be re-engaging economically as well as politically.

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Pakistan’s turn to multilateral financing for a project once exclusively backed by China is not merely a financial manoeuvre but also a strategic calculation. While the country continues to reaffirm its commitment to the China-Pakistan relationship, its actions suggest a subtle shift toward a more diversified and balanced approach to foreign investment. Over the long term, this could help Pakistan reduce dependency on a single partner, gaining greater leverage in dealings with both China and the US. Yet navigating this tightrope will remain challenging amid worsening US-China tensions and a recent thaw in India-China relations.