CLOSE allies China and Pakistan are now embroiled in a serious disagreement over the Belt and Road Initiative and it has delayed the annual bilateral summit of the China-Pakistan Economic Corridor (CPEC).
The 10th Joint Cooperation Committee (JCC) meeting, CPEC's principal decision making body, was scheduled to take place early last year but it remains postponed due to the disagreements.
The JCC is jointly chaired by Pakistan's Minister for Planning, Development and Special Initiatives and the vice chairman of China's National Development and Reform Commission.
The first JCC meeting was held in August 2013 and the last in November 2019.
A Nikkei Asia report said the meeting was initially postponed due to the Covid-19 pandemic but other disagreements have since cropped up.
It is believed to be over the Main Line 1 (ML-1) railway project and special economic zones (SEZ), according to Nikkei's sources.
Pakistan's Express Tribune had reported Planning Minister Asad Umar saying in November that the 10th JCC would be held the following month.
However, officials in the Planning Commission of Pakistan recently told Nikkei that the meeting will not take place for at least three more months.
ML-1 is the largest CPEC project and the total cost of the project is US$6.8 billion.
Pakistan is seeking US$6.1 billion in Chinese loan, according to a decision taken by its Executive Committee of National Economic Council.
It hopes to borrow the amount at a concessional interest rate of less than 3%.
China offers a mixture of concessionary and commercial loans for such projects but this could significantly increase the aggregate interest rate Islamabad will face, according to the planning commission officials.
"China is reluctant to lend money for ML-1 because Pakistan has already sought debt relief to meet G-20 lending conditions and it is not in a position to give sovereign guarantees," Nasir Jamal, a senior journalist in Lahore covering business and the economy, told Nikkei. He said Beijing's appetite for lending money for large infrastructure projects has diminished because these projects are vulnerable to local politics that delay returns on investment for China.
This has hindered an agreement on the finance framework for ML-1.
The delayed JCC meeting and unsettled ML-1 financial framework is now complicating matters for Pakistan.
Early this month, Pakistan Railways asked the government for 11 billion rupees (US$69 million) to provide ML-1 security.
Without the Chinese financing framework being agreed by the JCC, it is hard for Islamabad to come up with such a large amount given the state of the economy and severe budgetary constraints.
The other major disagreement between Beijing and Islamabad that is delaying the JCC meeting relates to the SEZ.
In the second phase of CPEC scheduled for 2020 to 2025, Chinese companies are due to start producing goods in Pakistan and exporting from there.
Matters such as tax exemptions and requirements for employing local labour have not been finalised.
These need to be agreed by China for confirmation at the JCC.
The Board of Investment of Pakistan submitted the draft agreement for the industrial cooperation framework to the Chinese government last month and is still awaiting a response.
The seriousness of the delay is clear from China's unprecedented reluctance to schedule a JCC meeting.
In the past, JCCs were always held in time, and China agreed to Islamabad's requests most of the time.
Some experts believe the delay is evidence that CPEC is derailing.