China’s Debt Trap in Pakistan? A Case Study of the CPEC Project

Abstract

Existing literature on China–Pakistan trade relations mainly deals with potential opportunities for Chinese investment, while no study has so far specifically analysed Chinese investment in light of the China–Pakistan Economic Corridor (CPEC) project by taking into account how Pakistan’s domestic factors shape foreign trade relations. This article argues that the weak economic indicators of Pakistan reveal a possibility of defaulting on debt repayments, as Chinese loans have relatively high-interest rates. Through a two-level analytical framework, this article demonstrates that, despite concerns about Chinese debt traps at the international level, the CPEC project is still largely intact due to strong domestic support of the Pakistani establishment. Further, the geostrategic importance of Pakistan for China is higher than merely trade relations. It is thus also not in the interest of China to see its investments in Pakistan become a debt trap, though the institutional arrangements in Pakistan are prone to mounting debts.