Pakistan Pushes China to Realign Goals in Its Belt-and-Road Initiative

· New government, led by Imran Khan, presses Beijing to take on poverty-alleviating initiatives and building factories

· Why China and the U.S. Are Vying for Dominance in Pakistan

· In Pakistan, China and the U.S. are clashing over China’s One Belt, One Road initiative. To understand what’s at stake, it helps to take a look at why China is in Pakistan in the first place.

By Saeed Shah Wall Street Journal

Sept. 12, 2018 1:34 p.m. ET

ISLAMABAD—Pakistan’s new government is pushing China to establish factories and poverty-alleviation initiatives in Pakistan instead of solely the big infrastructure programs that so far have dominated Beijing’s high-profile overseas investment program, Pakistani officials said after talks with Chinese officials.

Pakistan has been the showcase for China’s “Belt and Road Initiative” to build and finance transport and other infrastructure across the globe. The Pakistani move to broaden that effort comes as Beijing experiences rising criticism and pushback on its program across a range of countries, from Malaysia to Montenegro.

Washington is concerned that China is trying to gain global influence through what critics call “debt trap diplomacy,” lending countries money for projects they can’t afford. Beijing calls this Western propaganda.

Pakistan’s government, elected in July and led by Prime Minister Imran Khan, is advocating major changes to the secretive $62 billion China Pakistan Economic Corridor, the most ambitious part of the Belt-and-Road project and centered on the building of roads, rail, power plants and a port.

The program will move toward private-sector Chinese factories in Pakistan, Pakistani officials say. More Pakistani suppliers and laborers will be included, and social-sector projects such as sanitation added, they say.

The changes are the work of a nine-member committee formed by the new government in Islamabad to review the economic corridor, headed by Planning Minister Khusro Bakhtiar. According to government officials, the committee’s work will include looking at whether the projects were unfairly skewed to benefit the eastern province of Punjab under the previous administration of former Prime Minister Nawaz Sharif—who has his political base there.

The government has also ordered a partial audit of one of the biggest infrastructure projects, the $2 billion Orange Line metro train project in Lahore, the provincial capital of Punjab, they say.

Beijing said this week that “the two sides agreed to determine CPEC’s future course of development and cooperation through negotiations based on Pakistan’s next-stage socioeconomic development priorities and the needs of its people.”

In addition, the two countries are working on ways to improve the trade balance, both countries say, with a flood of Chinese imports blamed by Pakistani business for hurting local industry.

“Whatever happens in Pakistan is going to have resonance for how the Belt-and-Road Initiative is seen more widely,” said Andrew Small, author of the book “The China-Pakistan Axis.” “What’s important for China is that CPEC doesn’t turn into another public embarrassment.”

As its relationship with the U.S. has soured, Pakistan has grown increasingly dependent on China. Despite advocating changes in the Chinese initiative, government officials have avoided the more direct criticism of China that recently has surfaced in Malaysia. A minister who suggested this week that Pakistani business hadn’t benefited, and advocated putting new projects on hold, quickly took back his words.

“We’re not limiting CPEC, we’re expanding it,” said Chaudhry Fawad Hussain, the information minister. “Our government’s priorities are not infrastructure, but industrialization and human skills development.”

China’s foreign minister, Wang Yi, visited Islamabad this past weekend. He said the 22 projects done so far in Pakistan had helped lay the foundation for economic development.

“Our two sides have agreed that the CPEC cooperation will gradually shift to industrial cooperation,” Mr. Wang said. “We will pay greater attention to improve the livelihood of Pakistan people, and hence more people will benefit from CPEC.”

China and Pakistan reject criticism that the economic initiative has added to Pakistan’s debt and trade-balance woes, which could force Islamabad to seek a bailout from the International Monetary Fund within the next few weeks. Pakistan says it is considering turning to the IMF among other financial options.

Described carefully by the Pakistani government as a “realignment of goals,” the initiative will enter new areas such as health care and provision of clean water. It isn’t clear how these social-sector projects will be paid for. Almost all of the projects so far have been commercial deals.

The focus will also shift from Punjab, the country’s most prosperous region, to the underdeveloped western part of the country, both sides said.

Energy projects will move to renewable sources of energy and indigenous fuel. CPEC has built three power plants, for around $6 billion, that run on imported coal, and more were planned.

No Chinese manufacturing has relocated to Pakistan under the economic initiative, as envisaged. None of the nine planned “special economic zones” for Chinese industry were established, as the provinces wouldn’t agree to the incentives demanded by China. The proposal will now be cut back to four such economic zones, said Hassan Daud, project manager for CPEC at Pakistan’s Ministry of Planning. The aim is to set them up within three months.

“We must go for low-hanging fruit first,” Mr. Daud said.

For the first time, “friendly” third countries will be called upon to take part in the economic program.

Despite the fanfare around the Pakistan port of Gwadar, which was supposed to help goods flow to the northwest Chinese region of Xinjiang on new roads, no industry has started there. The city also suffers from a chronic shortage of water and inadequate electricity. Construction of the planned airport and power plant hasn’t begun. Virtually no commercial shipping uses the port.

Under the new plan, Gwadar will now be developed as a stand-alone transshipment hub, where cargo can be moved between ships, like at Dubai. And it is hoped that heavy industry will locate at the port, according to the Planning Ministry.

—Jeremy Page in Beijing contributed to this article.

Write to Saeed Shah at saeed.shah@wsj.com

Appeared in the September 13, 2018, print edition of the Wall Street Journal as 'Pakistan Seeks Broader China Help.'