When Even China Hesitates, Pakistan Has a Problem

For years, Pakistan believed geopolitics could compensate for economics. When relations with Washington cooled, there was Beijing. When foreign investment slowed, there was CPEC. When questions were raised about debt, governance or political instability, Pakistan could point to its strategic geography and argue that the world simply could not afford to ignore it.

That assumption is now being tested in an unexpected place: Pakistan’s electricity distribution companies.

Islamabad is attempting to privatise some of its power distribution companies, or DISCOs, hoping private capital and management can rescue a system plagued by electricity theft, line losses, weak bill collection and mounting debt. Yet one feature of the process stands out. Chinese companies, despite their enormous investments in Pakistan’s energy sector, have shown little appetite for these assets.

Turkish companies, by contrast, have emerged among the interested foreign players.

It would be simplistic to conclude that China is walking away from Pakistan. The strategic relationship remains deep and CPEC remains important to both governments. But investment decisions reveal something that diplomatic communiqués rarely do. They show how investors actually price a country’s risk.

And Pakistan is becoming expensive to trust.

Chinese power producers are reportedly owed billions of dollars. They have faced delayed payments and difficulties repatriating profits because of Pakistan’s recurring shortage of foreign exchange. At the same time, Islamabad has sought to renegotiate aspects of earlier power arrangements as it struggles with tariffs, capacity payments and the enormous circular debt suffocating the energy sector.

From Pakistan’s perspective, renegotiation may appear unavoidable. From an investor’s perspective, however, the calculation is different. If agreements can repeatedly be reopened after capital has been committed, future investment becomes more difficult to justify.

This is the real issue behind Chinese hesitation.

Pakistan’s crisis is no longer simply about electricity. It is about the credibility of the state itself.

A credible state does not merely sign contracts. It creates confidence that those contracts will survive political changes, economic crises and bureaucratic pressures. Investors need to know that payments will arrive, profits can be repatriated, tariffs will follow predictable rules and governments will not repeatedly rewrite commercial arrangements because domestic politics has become inconvenient.

Pakistan has struggled on virtually every one of these fronts.

Its power sector offers a concentrated picture of the problem. Electricity theft remains substantial. Distribution losses remain high. Bill recovery is uneven. Governments hesitate to impose politically unpopular tariffs. Circular debt accumulates. Eventually the financial burden moves through the entire chain, from consumers to distribution companies, generators, banks and ultimately the government.

Privatisation is therefore necessary, but privatisation alone is not reform.

Selling a troubled utility to a private investor does not make its structural problems disappear. If electricity theft continues, if bills remain difficult to collect and if political authorities resist enforcement, the private investor simply inherits the state’s dysfunction.

Before Pakistan sells these companies, it needs to answer basic questions. Who carries their historic liabilities? Who will enforce payment from politically influential defaulters? Will regulators be independent? Will tariffs reflect actual costs? What happens when governments face pressure to freeze electricity prices? Can foreign investors freely repatriate legitimate earnings?

Unless those questions have credible answers, changing ownership will accomplish little.

This is why the emergence of Turkish interest is important, but should not be misunderstood.

Türkiye has considerable experience with electricity distribution privatisation and private-sector participation in utilities. Turkish companies may see Pakistan as an opportunity to export that model into a large emerging market.

That could be beneficial. Pakistan desperately needs new capital, better management and international expertise.

But Islamabad should not celebrate Turkish interest as evidence that Chinese reluctance does not matter. Replacing one nationality of investor with another does not solve the underlying problem.

The objective should not be to find another friendly country willing to tolerate Pakistan’s economic weaknesses. It should be to create conditions in which Chinese, Turkish, Gulf, Western and Pakistani investors compete because the investment itself makes sense.

That requires a fundamental change in policy.

Pakistan needs predictable regulation, commercially rational electricity pricing, serious enforcement against theft, improved bill collection and a credible plan to prevent circular debt from simply rebuilding after each bailout or restructuring exercise.

It also needs to restore the sanctity of contracts.

This may be the most important lesson from China’s apparent caution. Beijing has geopolitical reasons to support Pakistan that few other countries possess. China has invested enormous political and financial capital in CPEC and routinely describes Pakistan as an exceptionally close strategic partner.

Yet even strategic friendship has limits when confronted with persistent commercial risk.

A Chinese company still has a balance sheet. A Turkish company still expects a return. A Gulf sovereign investor still conducts due diligence. Political friendship can open the door to investment, but it cannot make an unviable investment viable forever.

Pakistan has spent decades benefiting from its geopolitical importance. During the Cold War and the war in Afghanistan, its strategic location attracted Western assistance. Gulf relationships provided another financial cushion. More recently, China and CPEC offered Islamabad an alternative source of infrastructure investment and strategic support.

Each external relationship bought Pakistan time.

But time is useful only when it is used for reform.

Pakistan’s recurring mistake has been to confuse external support with internal strength. They are not the same thing. No strategic partner can permanently compensate for weak institutions, unreliable contracts, chronic fiscal deficits and an energy system that routinely generates liabilities faster than the government can clear them. That is why the DISCO story deserves attention beyond the electricity sector.

The important question is not whether China is abandoning Pakistan. It is not. The more uncomfortable question is whether Pakistan is reaching a point where even its closest strategic partner increasingly distinguishes between supporting Pakistan politically and risking more capital commercially.

If that distinction widens, Islamabad will discover that strategic importance has diminishing economic returns. Pakistan does not need another patron to rescue its power sector. It needs to become a state investors can trust. Until that happens, Chinese hesitation will not be the problem. It will merely be the symptom.