snapshots

Pakistan: Saudi Arabia to Invest in China-Backed Initiative

3 MINS READSep 21, 2018 | 18:18 GMT
The Big Picture

In Stratfor's Fourth-Quarter Forecast, we said China would adjust its Belt and Road Initiative strategies in reaction to partner countries becoming suspicious of Beijing's motives and to various projects running into trouble. Outreach to Saudi Arabia on the China-Pakistan Economic Corridor is one part of this broader strategy.

What Happened

A key corridor of China's sprawling Belt and Road Initiative just got a new partner. On Sept. 20, Pakistan's Information Minister Fawad Chaudhry announced that Saudi Arabia has agreed to invest $10 billion in the China-Pakistan Economic Corridor (CPEC), an ambitious, $62 billion infrastructure and development project supported by Beijing. Pakistani media suggested that the scope of the Saudi-backed work would include a major petroleum complex at the proposed 80,000-acre "oil city" at the port of Gwadar.

Pakistan's announcement followed Prime Minister Imran Khan's two-day trip to Saudi Arabia and the United Arab Emirates. Khan, who chose Saudi Arabia as his first destination abroad since becoming prime minister in August, was expected to sign a $4 billion soft loan from the Saudi-based Islamic Development Bank to help boost Islamabad's dwindling foreign exchange reserves, although nothing was announced in this regard.

Why It Matters

Saudi Arabia's decision to invest in CPEC brings a third party into the heretofore bilateral corridor. It comes as Beijing is working to enlist other strategic partners in the broader Belt and Road Initiative to reduce criticism of its debt financing and to improve project viability. At the same time, the new Khan government in Islamabad has been seeking to review some high-risk CPEC projects as it tries to weather the financial crisis.

Background

Reports emerged last week ahead of Khan's visit to Riyadh that China and Pakistan had agreed to invite third-country investors into CPEC. Saudi Arabia's plentiful capital and strategic relations with both Pakistan and China make it an ideal candidate to join the project. Other potential future partners include Russia, Turkey and European Union member states. It remains to be seen, however, whether Saudi Arabia will bail out Pakistan with some near-term economic aid as it has done in the past. In this regard, CPEC represents a commercially viable alternative to a direct bailout.

A sharper picture concerning Saudi participation in CPEC will emerge in October when Saudi Arabia dispatches a delegation to Pakistan to sign a tentative economic partnership agreement. From Riyadh's perspective, investing in CPEC fulfills a couple of key objectives. As part of its diversification strategy away from crude oil, Saudi Arabia has sought to establish a ring of refineries across Asia to help it build up its downstream operations and better reach its Asian consumers.

Strategically, Saudi Arabia views Pakistan as an ally that helps it counter Iran. Because Pakistan strives to maintain a balance between Iran and Saudi Arabia, Riyadh is always seeking ways to bring Islamabad closer to its side through economic and security partnerships. The results have been mixed. While former Pakistani army chief Gen. Raheel Sharif leads the Saudi-based Islamic Military Counter Terrorism Coalition, Pakistan refused to commit its troops to the Saudi-backed coalition fighting Iran-backed rebels in Yemen. If Pakistan assures Saudi Arabia of its willingness to promote Saudi Arabian objectives in the region, Islamabad might receive economic aid in the near term, though it isn't guaranteed.

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