Pakistan has started showing signs of discomfort with the relationship with China on CPEC

Earlier Pak government balked at China's intention to introduce the yuan as legal tender in the Gwadar Port free zone. As per a Pakistan Government senior government official - Pakistan was not ready to allow the Chinese yuan (renminbi) for free use in Gwadar or its treatment on a par with the US dollar in the country. He said the use of yuan for common use in any part of Pakistan or exchangeable like dollar has to be on a reciprocal basis. Concerned over fluctuation of Pak currency, Chinese were unwilling to take the currency exchange risks that could come with the use of US dollar and the Pakistani rupee. Pakistan’s opposition to the use of Yuan came from its Ministry of Finance and the State Bank of Pakistan.

Quickly following on its heels, Islamabad said it will finance the Diamer-Bhasha dam itself, calling China's offer to “construct, operate and maintain” the project unacceptable. Further, USD 3.5 billion Karachi Circular Railway (KCR) project was also unlikely to be cleared for inclusion in the CPEC at this stage because of some unsettled issues between the two countries. The project is likely to be dropped as of now.

China shifts stand on India

India has raised concerns over the project as it passes through Pakistan-occupied Kashmir. To address this, China has moved from Doklam to now wooing India, with its Indian ambassador mentioning that the China-Pakistan Economic Corridor in POK could be renamed if it made Indiacomfortable enough to join the Belt and Road Initiative (BRI). However, the same has been downplayed due to Pakistan’s unhappiness on the issue. China has also proposed to have a lateral through J & K joining the CPEC as part of its efforts to bring India on board BRI.

Current Political Turmoil in Pak

A top Chinese official has expressed concern over the prevailing political instability in Pakistan that could negatively impact the pace of the CPECprojects. A visiting Chinese delegation expressed itsweariness during the Joint Cooperation Committee (JCC) of the China-Pakistan Economic Corridor (CPEC) meeting. Pakistan has long history of opposing theCPEC. In 2014 Pakistan Tekree-e-Insaf's chief Imran Khan's sit-in had delayed the CPEC launching. Culturally China and Pakistan differs from each other vastly. Small issues like pork loving Chinese in Pakistan may turn powerful religious leaders into a “seize like situation”, witnessed in Pakistan few days back. This development has unnerved the Chinese investors to a great extent.

However, given all negatives, China is unlikely to give up on the CPEC, as it is central to its geopolitical ambitions.China is now fully committed and invested in Pakistan and not in a position to slow down or get out. Pakistan understand Chinese dilemma well and therefore considers it as a right time for flexing its muscle to extract maximum from China without risking either its relations or economics. On China’s part,it presently looks comfortable with the thought of bailing out Pakistan with the help of the IMF or liberal Arab donors as far as economic viability of the project is concerned.This obsession is likely to cost China dearly in neighborly relations with both Pakistan and China.