Farhan Ahmad
China’s economic juggernaut, once the envy of the world, is experiencing a significant slowdown, with far-reaching consequences for the global economy. For Pakistan, a close ally and major beneficiary of Chinese investment through the China-Pakistan Economic Corridor (CPEC), this slowdown presents both challenges and opportunities. The resilience of the Pakistan-China relationship, often described as “iron brothers,” is now being tested in new and complex ways as Beijing grapples with economic headwinds that are reshaping its policies and global engagements.
China’s economic deceleration is not a sudden phenomenon but rather the result of a convergence of long-standing structural issues and recent external shocks. Over the past decade, China has transitioned from an economy driven by rapid industrial expansion to one that is increasingly focused on services, innovation and domestic consumption. This shift, while necessary for sustainable growth, has also exposed vulnerabilities that are now becoming more apparent.
One of the primary reasons for the slowdown is the maturing of China’s economy. The double-digit growth rates of the past were largely driven by massive infrastructure investments, export-led manufacturing and an abundant, low-cost labor force. However, as China’s population ages and its labor force shrinks, these growth engines have begun to lose steam. The demographic shift is particularly concerning, with China facing a rapidly aging population and a declining birth rate, which together threaten long-term economic stability.
Another significant factor is China’s mounting debt. Over the years, Beijing has fueled its economic growth with substantial borrowing, particularly by local governments and state-owned enterprises. This has led to a buildup of debt that now poses a serious risk to the financial system. The Chinese government is increasingly focused on deleveraging and managing financial risks, which has resulted in tighter credit conditions and a slowdown in investment, particularly in the real estate sector, which has been a key pillar of China’s economy.
Externally, China’s ongoing trade tensions with the United States have added to the economic pressures. The tariffs and trade barriers imposed during the trade war have hurt Chinese exports, particularly in key sectors like technology and manufacturing. Although there has been some easing of tensions, the underlying issues remain unresolved, leading to continued uncertainty for Chinese exporters. Moreover, the global shift towards decoupling and the reconfiguration of supply chains away from China are challenging its position as the world’s factory.
The COVID-19 pandemic has also had a lasting impact on China’s economy. While China was initially praised for its swift and effective response to the outbreak, the prolonged lockdowns, strict zero-COVID policies and disruptions to global trade have taken a toll. Consumer confidence has been slow to recover and many small and medium-sized enterprises (SMEs) are struggling to stay afloat. The pandemic has also accelerated shifts in global supply chains, with many countries and companies looking to diversify their production bases away from China to reduce dependency.
In response to these challenges, China is adjusting its economic policies in an effort to stabilize growth and revive its economy. The Chinese government is increasingly focusing on boosting domestic consumption as a key driver of growth. Initiatives like the “dual circulation” strategy emphasize the need to strengthen the domestic market while maintaining China’s position in global trade. This shift is aimed at reducing reliance on exports and fostering a more balanced and sustainable economic model.
To support this transition, Beijing is implementing a range of measures designed to stimulate domestic demand. These include increasing public investment in social services, expanding access to education and healthcare and promoting urbanization. The government is also encouraging innovation and the development of high-tech industries, particularly in areas like artificial intelligence, renewable energy and electric vehicles. These sectors are seen as critical to China’s future economic competitiveness and are receiving significant state support.
In the financial sector, China is taking steps to address the risks associated with high levels of debt. The government is promoting greater financial discipline among local governments and state-owned enterprises, while also encouraging the development of the bond market to provide more stable funding sources. Additionally, China is gradually opening up its financial markets to foreign investors, a move aimed at attracting more international capital and reducing the economy’s reliance on domestic savings. China is also making efforts to strengthen its trade relationships with countries outside the United States, particularly in Asia, Africa and Europe. Through initiatives like the Belt and Road Initiative (BRI), China is seeking to deepen economic ties with emerging markets, which are seen as key to sustaining long-term growth. While the BRI has faced criticism and challenges, it remains a central pillar of China’s foreign economic policy.
For Pakistan, these shifts in China’s economic landscape present both risks and opportunities. The slowdown in Chinese investment under CPEC has raised concerns about the future of this flagship project. Delays in key infrastructure projects, coupled with a more cautious approach from Beijing, could slow down Pakistan’s economic development and delay the benefits that were expected to flow from CPEC. This is particularly concerning given Pakistan’s current economic challenges, including high inflation, a growing debt burden and a struggling export sector.
However, there are also potential opportunities for Pakistan if it can adapt to the changing circumstances. As China shifts its focus towards domestic consumption and innovation, there may be new avenues for collaboration in sectors such as technology, renewable energy and agriculture. Pakistan could position itself as a key partner in these areas by leveraging its growing IT sector, vast agricultural resources and strategic location.
Moreover, the global realignment of supply chains offers Pakistan a chance to attract new investment. As multinational companies seek to diversify their production bases away from China, Pakistan could emerge as an alternative manufacturing hub, particularly if it can improve its industrial base and business environment. This would not only help reduce Pakistan’s trade deficit but also create new jobs and stimulate economic growth.
In terms of foreign policy, Pakistan must continue to strengthen its relationship with China while also diversifying its economic partnerships. Engaging more deeply with other BRI countries, particularly in Central Asia and Africa, could open up new markets for Pakistani goods and services. Additionally, renegotiating certain aspects of CPEC, such as project timelines and debt repayments, could provide Pakistan with the financial flexibility it needs to navigate the current economic challenges.
As China works to stabilize its economy, Pakistan must be proactive in adapting to these changes. By identifying and capitalizing on new opportunities, Pakistan can turn the challenges posed by China’s economic slowdown into a catalyst for its own economic transformation. The road ahead will require careful planning, strategic vision, and a continued commitment to the enduring partnership between Pakistan and China.
Writer can be reached at farhanahmadsdq@hotmail.com
