Pakistan’s banks profit from China’s infrastructure shortcut
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Pakistan’s banks profit from China’s infrastructure shortcut

China and Pakistan like to describe their relationship as sweeter than honey and stronger than steel. As a huge China-backed project to overhaul Pakistan’s creaking infrastructure takes shape, Pakistani bankers are steeling themselves to discover just how sweet that Chinese investment might be.

By Eric Ellis


Bounded by the arid steppe of China’s distant far west, Urumqi is a long way, culturally and geographically, from even vaguely resembling an international financial centre.

And yet Pakistan’s biggest privately owned bank, HBL (formerly Habib Bank), has chosen this unlikely outpost of globalization to host its first branch in China, setting up shop here before the thrusting and more obvious markets in Shanghai and Beijing, where HBL has representation only.

HBL won’t just be the first Pakistani bank with a fully functioning branch in China beyond Hong Kong. It will also be the first foreign bank with a presence in this remote capital of Xinjiang province, which appropriately translates from Mandarin as ‘new frontier.’ So why, of all places, Urumqi?

The answer in a word or, rather, in an acronym, is CPEC – the China Pakistan Economic Corridor – the vast China-financed $55 billion infrastructural overhaul that’s transforming Pakistan’s economy and changing the power balance in central Asia.

“We made the call four or five years back that this China-Pakistan cooperation is going to happen,” explains HBL chief executive Nauman Dar. “We’ll be doing foreign exchange for the first 18 months and then we’ll be allowed into the renminbi business. Once we open in Urumqi, we’ll then be looking to open in Beijing.” 

It’s giving us an opportunity that we’ve never had before. You can actually feel the investment coming in - Irfan Siddiqui, Meezan Bank

Urumqi is the northern, Chinese end of the CPEC project, effectively China’s operational centre for the funding and material making its way south to the Pakistan border for the infrastructural build beyond. Opening here is a goodwill gesture by HBL to a Chinese government keen to integrate the often-restive Xinjiang, China’s most Islamic region, into its mainstream economy.

“We felt opening a branch in the western part of China would give us some advantage,” Dar tells Asiamoney. “The question was also how do you get support from the Chinese authorities to fast-track our application? When we said: ‘Urumqi’, they immediately were on board and helping us push the agenda.” 

“The road and rail network from Urumqi makes it directly relevant to Pakistan,” he adds. “It was impossible to ignore.” 

CPEC’s official propaganda describes it as a game changer for the region. Others have called it Pakistan’s Marshall Plan, a nod to the US-funded European Recovery Program that rebuilt a devastated western Europe after the Second World War.

It’s easy to see how the clichés flow. If all goes to plan, CPEC will transform Pakistan’s road, rail, port and energy infrastructure, while profoundly altering the geopolitical status quo by providing China with direct access to Pakistan’s west-facing Arabian Gulf port, Gwadar, as well as easier and, eventually, cheaper access for Middle East oil traffic and the markets of Europe beyond.

Chinese strategists have long fretted about the so-called Malacca Dilemma, China’s reliance on shipping its trade through the narrow and shallow Strait of Malacca that separates Indonesia and Malaysia. As the world’s biggest energy importer, China transports around 80% of its oil through these waters – a 12,000 kilometre journey that is the shortest sea route from the Middle East oilfields.

One of the world’s busiest waterways, the strait is only 1.5 nautical miles at its narrowest point. Though deemed international waters, the US Navy has tended to be its policeman. But a Beijing anxious about energy security has often seen the waterway as vulnerable to piracy, possible blockade, and terrorism. 

The CPEC-upgraded port in Gwadar has become a key link in what western strategists describe as China’s ‘string of pearls’, a foreign footprint of Beijing-financed trading outposts centred on the Indian Ocean. West of Karachi near the Iranian border, Gwadar has been managed by a Chinese state-owned port operator since 2013, allowing Beijing to directly control trade overland to and from China while cutting the shipment distance between China and the Middle East and beyond by half.


CPEC has been accompanied by the usual over-the-top propaganda that has come to illustrate Pakistan’s modern relationship with China, a relationship that historically provided a foil to that between Russia and India, Pakistan’s regional rival. As Pakistan’s prime minister Nawaz Sharif gushed on a 2013 visit to Beijing to advance CPEC soon after management of Gwadar passed to China, the “Pakistan-China friendship is higher than the mountains, deeper than the oceans, sweeter than honey and stronger than steel.”

But four years on, as the various phases of the CPEC project come on-stream, the giant plan is starting to make its presence felt in Pakistani bank mandates. 

Nadir Rahman, chief executive of Karachi-based financial services group BMA Capital, says he now has a number of CPEC-related mandates on his books: “Steel, iron, cement, these industries are all booming, with record sales, record despatches. We have not seen these sort of numbers in many years.”

Rahman expects CPEC to start directly driving Pakistani capital markets in the last half of this year, up until around 2022, and calculates Pakistani corporates will be seeking to raise around $1.5 billion to fund their CPEC commitments. 

“Retail investors probably won’t participate at this level but I think that sort of number can be absorbed by local institutions,” he says. “The implementation of CPEC should lead to more industrial growth in Pakistan. People will have uninterrupted power to produce, and so it (CPEC) should not be a one off, it should be a spur to maintain and encourage growth for a new generation.” 

He cites plans to create huge industrial parks in centres across the country adjacent to the upgraded infrastructure. “We haven’t seen much hit the market yet because it’s early days, but we expect to see a lot of it coming on-stream soon.”

But there are doubters. In a column in Pakistan’s Dawn newspaper, economist Anjum Altaf of the Lahore-based Centre for Development Policy Research warned: “Linking disproportionately developed areas without prior complementary investments may just accelerate a drain of people and resources from the less developed regions.” And Karachi-based brokerage Topline Securities has estimated that Pakistan will end up paying $90 billion to China in loans over 30 years of financing.

Curiously, the Chinese government has become a competitor for investment banks like BMA in Pakistan. Rahman cites his recent approach to Sahiwal, a CPEC-initiated $1.8 billion power-generating plant near Lahore that BMA had targeted for a possible capital raising. Sahiwal is funded largely by Chinese state enterprises. 

“I asked them: ‘Why aren’t you coming to the equity markets for funding?’” he says. “They said they are getting all their funding from the government for the moment, but I think that will eventually change.”

The Chinese influence in Pakistan’s stock markets is already being felt: In March, a 40% investment by the Shanghai and Shenzen Stock Exchanges in the Pakistan Stock Exchange was cemented with approval for board positions for the new minority owners.


While CPEC’s cash inflows from China have provided a fillip to Pakistan’s sluggish FDI numbers, central bank governor Ashraf Wathra has said that he would like CPEC to be more transparent about its sources of funding. 

In an interview in 2015, soon after Chinese president Xi Jinping visited Pakistan to anoint what was then a $46 billion project, Wathra admitted: “I don’t know out of the $46 billion how much is debt, how much is equity and how much is in kind.” 

Term sheets dating from Xi’s Pakistan visit in 2015 cite the Beijing-owned Exim Bank of China, China Development Bank and the Industrial and Commercial Bank of China as providing concessionary financing for CPEC-related projects. ICBC has had a branch in Lahore since 2015.

But Irfan Siddiqui, Meezan Bank’s founding chief executive, is an unbridled fan of CPEC. “It’s giving us an opportunity that we’ve never had before,” he tells Asiamoney. “You can actually feel the investment coming in.”

The main difference, Siddiqui says, between historic FDI-led surges into Pakistan and CPEC is “that both countries need this project.”

Siddiqui cites Pakistan’s externally driven booms of the past, such as the US-led expansion of the 1980s that followed the Soviet invasion of neighbouring Afghanistan, when Pakistan was awash with cash and weapons and became a front-line state in the Cold War. The September 11 attacks in the US led to another surge in the mid-2000s, under military leader Pervez Musharraf, when Washington’s invasion of Afghanistan prompted a flood of aid into the region. 

“CPEC is not a one-way street where Pakistan is given a gift on a platter,” Siddiqui says. “We need it but this is something that China also desperately needs for its economy. All the banks in Pakistan are seeing the positive effects of this.” 

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