China and Pakistan Foreign Ministers Agree to Launch New Economic Corridor Projects

Pakistan and China have pledged to significantly expand economic cooperation and investment under the China-Pakistan Economic Corridor (CPEC), marking what officials describe as a pivotal moment in the flagship program of China’s Belt and Road Initiative. The announcement came during high-level talks between Chinese Foreign Minister Wang Yi and his Pakistani counterpart, Deputy Prime Minister Ishaq Dar, at the Ministry of Foreign Affairs in Islamabad on Thursday.

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Sixth Strategic Dialogue Strengthens “All-Weather” Partnership

The meeting, which constituted the sixth round of the Foreign Ministers’ Strategic Dialogue, saw both sides agree to launch new projects through CPEC while deepening collaboration across multiple sectors including science, technology, industry, and agriculture. While specific details of the proposed projects remain undisclosed, both sides agreed to upgrade CPEC into “a growth corridor, livelihood-enhancing corridor, green corridor and open corridor”.

Deputy Prime Minister Dar described the discussions as “fruitful,” noting that both sides “enjoy consensus on all important matters”. The talks encompassed the entire spectrum of Pakistan-China relations, from economic cooperation to regional security concerns and people-to-people exchanges.

CPEC 2.0: A New Era of Industrial Cooperation

The timing of this meeting is particularly significant as it comes ahead of Prime Minister Shehbaz Sharif’s anticipated visit to China for the Shanghai Cooperation Organisation summit. Earlier this week, the government announced that this upcoming visit will mark the formal launch of CPEC-II, focused on industrial cooperation, after a delay of about five years.

The second phase of CPEC represents a substantial evolution from the infrastructure-heavy first phase. Last month, Pakistan and China agreed to launch joint training programmes in multiple fields, including construction engineering, artificial intelligence, agriculture and hospitality management, under the second phase of the China-Pakistan Economic Corridor.

This shift toward industrial cooperation comes as both countries recognize the need to address some of the challenges that emerged during CPEC’s initial implementation. While CPEC undoubtedly had potential at the outset, Pakistan appears to have largely squandered it through political infighting, economic missteps, security challenges, and poor communication.

A Decade of Infrastructure Development

Called “One Belt, One Road” in Chinese, the Belt and Road Initiative has built power plants, roads, railroads and ports around the world and deepened China’s relations with Africa, Asia, Latin America, and the Middle East. It is a major part of Chinese President Xi Jinping’s push for China to play a larger role in global affairs.

Since its launch in 2015, Beijing has invested billions of dollars in Pakistan through CPEC, building roads, power plants and rail links to connect China’s western Xinjiang region with the Arabian Sea port of Gwadar in southwest Pakistan. The corridor, spanning approximately 3,000 kilometers, aims to provide China with alternative energy supply routes while transforming Pakistan’s infrastructure landscape.

During the first phase of CPEC, the two countries completed 38 projects worth $25.2 billion, with much of the funding coming from high-interest (3.7%) loans from China. Notable achievements include the Orange Line Metro in Lahore, multiple power generation projects, and significant upgrades to the Karakoram Highway connecting the two countries.

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Security Concerns and Economic Realities

However, the ambitious project has faced significant challenges. Security concerns have emerged as a critical issue, with Chinese nationals becoming frequent targets of attacks by various terrorist and insurgent groups. High-profile incidents, such as the March 26 attack on Chinese engineers in Shangla, a 2021 Dasu bus attack that killed nine Chinese engineers, and a 2022 attack on Karachi University’s Confucius Institute, have underscored the vulnerability of Chinese citizens working in Pakistan.

During Thursday’s meeting, Wang urged Pakistan to ensure the safety of Chinese workers and engineers, who have come under attack by separatists in Balochistan province and elsewhere in recent years. This security dimension has become increasingly important as China has emphasized to Pakistan that a stable and secure environment is a prerequisite for the successful implementation of CPEC.

The economic challenges facing Pakistan have also complicated the relationship. Pakistan’s economic reliance on China has reached precarious levels. According to AidData, Pakistan’s external debt to China stood at $68.91 billion as of November 2023, accounting for 22 percent of its total external debt. The Chinese power plants are now stuck in Pakistan’s chronic circular debt predicament, as unpaid bills by consumers pile up, reaching USD $1.5 billion by July 2025.

Regional Expansion and Afghanistan Connection

A particularly noteworthy aspect of the current discussions is the expansion of CPEC beyond Pakistan’s borders. In May 2025, during a trilateral meeting between the foreign ministers of China, Pakistan, and Afghanistan, Chinese Foreign Minister Wang Yi announced the extension of CPEC into Afghanistan to enhance trilateral cooperation and economic connectivity.

This trilateral dimension gained further momentum as Wang’s visit to Pakistan followed directly from Kabul, where he participated in discussions with Afghanistan’s Taliban rulers on political and economic cooperation. The expansion into Afghanistan represents China’s broader strategic vision of creating comprehensive regional connectivity through the Belt and Road Initiative.

India’s Opposition and Regional Dynamics

The CPEC project continues to face opposition from India, which views the corridor as a violation of its sovereignty and territorial integrity. The Government of India objects to the CPEC project as upgrade works on the Karakoram Highway are taking place in Gilgit-Baltistan, territory that India claims as its own. This opposition adds a geopolitical dimension to what is primarily an economic initiative.

Wang’s visit to Pakistan also followed his recent trip to neighboring India, where he held talks aimed at stabilizing strained relations between the two Asian giants. This diplomatic balancing act reflects China’s efforts to maintain constructive relationships across South Asia while pursuing its strategic objectives.

Economic Recovery and Future Prospects

Despite the challenges, Pakistan’s economy is showing signs of recovery. As of 2025, the Pakistani economy is showing signs of gradual macroeconomic recovery, in June 2025 Pakistan led emerging markets to become the most improved in sovereign credit risk, seeing a 12% decline in default risk. In 2024 the Pakistan Stock Exchange’s KSE-100 benchmark rose almost 30%, reaching an all-time high of 82,003.59, drawing the highest foreign investment in the stock exchange ($87 million) since 2014.

This economic stabilization provides a more favorable environment for the renewed CPEC initiatives. Pakistan has made progress towards macroeconomic stabilization. With the approval of the IMF Stand-By Arrangement in July 2023, exchange rate flexibility was restored, import controls were relaxed, and steps were taken to contain the fiscal deficit.

Looking Ahead: Challenges and Opportunities

The relationship between China and Pakistan stands at a critical juncture. While the visit is framed around reinforcing economic collaboration and security under the China-Pakistan Economic Corridor (CPEC), it occurs against a backdrop of escalating debt stress, stalled infrastructure projects, and persistent threats to Chinese nationals in Pakistan.

Wang welcomed third-party participation in the ML-1 (Main Line) railway project, suggesting openness to involving additional international partners in CPEC initiatives. This approach could help address some of the financial and implementation challenges that have emerged.

The success of CPEC 2.0 will largely depend on addressing the lessons learned from the first phase. Through original data analysis and interviews with key stakeholders, the authors identify centralized, top-down planning and limited local engagement as major obstacles to realizing sustained economic benefits.

A Partnership Under Scrutiny

The tight control of the narrative on CPEC by both China and Pakistan and a lack of transparency on its terms prevents proper accountability of the venture. As the project moves into its second phase, there are growing calls for greater transparency and local engagement to ensure that the benefits are more evenly distributed across Pakistani society.

China has long been one of Pakistan’s key allies and financial backers, especially as Islamabad struggles with ongoing economic challenges. The renewed commitment to CPEC demonstrated in Thursday’s meeting underscores the strategic importance both countries place on this partnership, despite the various challenges that have emerged over the past decade.

As both countries prepare for Prime Minister Sharif’s upcoming visit to China and the formal launch of CPEC 2.0, the international community will be watching closely to see whether the lessons learned from the first phase can be successfully applied to create a more sustainable and mutually beneficial partnership.

The meeting between Wang Yi and Ishaq Dar represents more than just another diplomatic engagement – it signals a renewed commitment to making CPEC a model for international cooperation in the 21st century, while addressing the legitimate concerns that have emerged during its implementation.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

22nd August, 2025