China is overtaking the US as the largest direct foreign investor in Pakistan, with the South Asian nation increasingly favouring its neighbour’s “One Belt, One Road” trade route that is funnelling in billions of dollars and revamping decrepit infrastructure.
With relations frayed between the United States and Pakistan, China has been strengthening its ties to the nation of about 200 million people after it pledged two years ago to loan and finance about US$55 billion (S$77 billion) in a China-Pakistan Economic Corridor (CPEC).
US direct investment in Pakistan stood at US$505 million – from July 2013 to January this year, compared with US$1.82 billion that came from neighbouring China, according to central bank data.
“As the US looks inward, China is reaching out,” said Mr Bilal Khan, a senior economist at Standard Chartered in Karachi. “Against this backdrop, the US could steadily lose its share in FDI (foreign direct investment) to Pakistan as China rises.”
It is part of Pakistan Prime Minister Nawaz Sharif’s plan to boost economic growth to its highest in about a decade.
For the Chinese, the Silk Road plan aims to revive trade across Central Asia and into Europe via a network of railways, ports and highways.
Beijing is also increasing its corporate footprint in Pakistan, with a record 77 Chinese companies registered in the South Asian nation during the last three years.
Even the cash coming in from the US is not fresh and is usually reinvestments from companies already based in Pakistan, such as tobacco company Philip Morris International’s US$105 million injection of funds to improve manufacturing facilities and install new machinery last year.
This is despite large multinational firms, such as Proctor & Gamble and General Electric, having a foothold in the country – the latter in January supplied seven locomotives to Pakistan Railways as part of a US$400 million 10-year deal for the eventual purchase of 55 train units.
Mr M. Abdul Aleem, chief executive of the Karachi-based Overseas Chamber of Commerce and Industry, which represents 195 foreign firms, including 31 from the US, said of American investors: “We are not on their radar. They tend to stay away when it comes to Pakistan.”
CPEC lies “right at the crossroad” of two major networks China is building, said Ms Chen Fengying, an expert on global economy with the China Institute of Contemporary International Relations.
Bilateral investment has grown rapidly also because the two countries have built up trust over the years, she said. “Pakistan is the only country being called an ‘all-weather strategic partner’ by the Chinese government, signalling a sense of unwavering support under all conditions.”
Political analysts say there is more than simple economics behind the recent slowdown in US investment in Pakistan.
Ms Shaista Tabassum, chairman of the University of Karachi’s international relations department, said the two countries are moving farther apart. “It is moving slowly down,” she said about the two nations’ relations. “CPEC has many economic benefits coming, which Pakistan expected the US should have given to it.”
A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline ‘China overtakes US as top direct foreign investor in Pakistan’.