Pakistan’s big bet on CPEC-II: Why India sees it as a red flag and why Islamabad may pay the price | Explained

File Photo - A Pakistani policeman stands guard under the national flags of China and Pakistan along a road ahead of the visit of Chinese Vice Premier He Lifeng, in Islamabad on July 30, 2023.

Pakistan Prime Minister Shehbaz Sharif is poised to visit China later this month to officially launch the long-delayed second phase of the China–Pakistan Economic Corridor, commonly known as CPEC-II. What Islamabad presents as an ambitious pivot toward industrial development is, at its core, a deepening of China’s economic and strategic hold over Pakistan. This renewed phase comes at a notably delicate geopolitical moment as India and China edge toward a tentative thaw in their post-2020 border standoff, Beijing is simultaneously bolstering its alliance with Islamabad, unsettling regional dynamics and amplifying strategic risks for New Delhi.

CPEC-II is touted by Pakistan’s leadership as a potential remedy for the nation’s economic ailments, flagging Special Economic Zones (SEZs), modern agricultural initiatives, technology investments, and enhanced connectivity spearheaded by Gwadar port. Yet, critics argue this is far more than a development project; it is a strategic lever designed to tighten Chinese control over Pakistan’s economy and to indirectly project Chinese power into South Asia. For India, whose sovereignty over Pakistan-occupied Kashmir has already been compromised under CPEC-I, this expansion only intensifies security, territorial, and geopolitical threats. In short, what looks like industrial progress for Pakistan could well be a masterstroke in China’s regional manoeuvring, making India’s vigilance not just prudent, but imperative.

What is CPEC-II?

The China-Pakistan Economic Corridor (CPEC) is the most important project under China’s Belt and Road Initiative (BRI). Launched in 2015, its first phase focused mainly on building infrastructure and energy projects, such as roads, highways, power plants, and the development of Gwadar Port.

The second phase, known as CPEC-II, shifts focus to new areas. It emphasises industrial cooperation, with plans to set up Special Economic Zones (SEZs) across Pakistan to attract Chinese factories and industries relocating from China. It also aims at agricultural modernisation, bringing Chinese agribusiness firms into Pakistan’s farming sector. Another key area is science and technology collaboration, including joint work in IT, telecom, and surveillance technologies.

CPEC-II also envisions deeper integration with Gwadar, expanding the port and linking it more closely to China’s wider global maritime network.

Although this phase was supposed to start in 2019, it was delayed due to Pakistan’s political instability, financial troubles, and the COVID-19 pandemic.

Why Pakistan is betting on it

Pakistan is desperate. Its economy is in tatters, with dwindling foreign reserves, an ongoing IMF dependency, and chronic structural flaws. Islamabad sees CPEC-II as a lifeline, hoping Chinese SEZ investments will create jobs, modernise industry, and pull the country out of its recurring economic quagmire.

But critics argue Pakistan is surrendering whatever little economic sovereignty it still has left, by offering land, tax holidays, and security guarantees to Chinese companies, while local industries will likely be sidelined.

Why CPEC-II concerns India

CPEC runs through occupied territory: The corridor still cuts through Gilgit-Baltistan, part of Pakistan-occupied Kashmir (PoK -- sovereign Indian territory. With CPEC-II expanding SEZs and logistics hubs there, China is effectively normalising Pakistan’s illegal occupation. This strikes at the heart of India’s sovereignty.

Gwadar Port as a strategic outpost: Gwadar is not just about trade. China’s naval presence in the Indian Ocean has long been a concern, and with CPEC-II prioritising port expansion, the risk of dual-use facilities -- civilian and military -- is even higher. For India, this means greater vulnerability in the Arabian Sea.

Industrial zones with military links: The proposed SEZs may not be purely economic. Past experience shows China’s “civilian” infrastructure often doubles as strategic assets. SEZs could host facilities useful for military production, surveillance, or logistics.

Deepening Sino-Pak axis at a sensitive time: The launch comes just as India and China have been cautiously exploring a thaw in relations after the deadly 2020 Galwan clash and subsequent border tensions. Beijing’s simultaneous warming with New Delhi and Islamabad exposes China’s double game -- pretending to stabilise ties with India while bolstering its “all-weather” partner against India.

Economic encirclement of India: CPEC-II integrates Pakistan more tightly into China’s Belt and Road web. Combined with Chinese stakes in ports like Hambantota (Sri Lanka) and Kyaukpyu (Myanmar), India faces an intensifying “string of pearls” strategy—a chain of Chinese-backed projects surrounding India’s maritime periphery.

Why Pakistan’s gamble may backfire

Pakistan’s gamble on CPEC may end up backfiring. First, the debt burden is growing. Under CPEC-I, Pakistan already owes China billions of dollars. With CPEC-II, this dependence is likely to increase, especially since most Chinese companies are expected to send their profits back home rather than help Pakistan boost its exports.

Second, there is strong local resistance, particularly in Gwadar and Balochistan. Many residents feel excluded from the benefits of the project and accuse it of serving only Chinese interests and Pakistan’s elites, while leaving local communities behind. This discontent has already triggered unrest in the region.

Finally, there is the issue of broken promises. CPEC-I was promoted as a “game-changer” that would transform Pakistan’s economy. Instead, it has left the country with more debt, greater energy dependence, and delays in key projects. CPEC-II risks repeating the same cycle of hype and disappointment.