The Ripple Effect of China’s Economic Struggles on Pakistan’s Economic and Geopolitical Decisions

The economic relationship between China and Pakistan has long been a cornerstone of strategic and economic cooperation in the region. The China-Pakistan Economic Corridor (CPEC), a flagship project of China's Belt and Road Initiative (BRI), is a symbol of this deep partnership. However, recent shifts in China’s economic landscape, particularly the pressures from the US-China trade war, its economic slowdown, and disruptions in global supply chains, are sending ripples across global markets—Pakistan being no exception. These changes are not only reshaping the economic dynamics but also influencing Pakistan’s political and geopolitical choices. In this opinion blog, we will explore how China’s current economic struggles are affecting Pakistan’s economy, foreign policy, and security concerns.

China’s Economic Struggles: A Snapshot

The last few years have been tumultuous for China’s economy. From the fallout of the US-China trade war to slowing growth and disruptions in global supply chains, Beijing is facing serious economic challenges. The US-China trade war, which began with tariffs on Chinese goods and has escalated over the years, has had a significant impact on China’s export-driven economy. The US imposed tariffs as high as 145% on many Chinese products, while China retaliated with tariffs of its own on American goods. The resulting trade war disrupted global supply chains and led to reduced demand for Chinese exports, particularly in industries like electronics, textiles, and machinery.

China’s slowdown has been more pronounced in 2025. Reports indicate that China’s factory activity shrank in April, marking a worrying trend for a country that has long been a global manufacturing powerhouse. Beijing attributes this decline to a sharp shift in the global economy, characterized by growing protectionism and the rising cost of doing business with China. These factors have raised concerns about China’s ability to maintain its position as the world’s leading economic player, particularly in regions such as South Asia.

As a result, multinational companies are diversifying their supply chains to reduce their dependence on China. Vietnam, India, and Mexico are emerging as viable alternatives to Chinese manufacturing, which is a blow to Beijing’s trade dominance. This realignment of global trade has forced China to reassess its economic strategies and foreign policies, creating a ripple effect that reaches far beyond its borders.

The China-Pakistan Economic Corridor (CPEC) and Its Challenges

At the heart of the China-Pakistan partnership lies CPEC, a multi-billion-dollar initiative designed to connect China’s western region with Pakistan’s Gwadar Port in the Arabian Sea. CPEC is more than just an infrastructure project; it’s a strategic endeavor that is meant to boost Pakistan’s economy through investments in energy, infrastructure, and trade. It is also a critical component of China’s Belt and Road Initiative (BRI), which aims to strengthen China’s trade and influence across Asia, Africa, and beyond.

For Pakistan, CPEC has the potential to be a game-changer. It promises to bring in much-needed foreign direct investment (FDI), enhance trade routes, and modernize infrastructure. However, the project has faced several challenges, many of which are tied to China’s economic struggles.

Financial Strains on CPEC

One of the biggest challenges facing CPEC is the financial constraints imposed by China’s economic slowdown. While CPEC was originally envisioned as a long-term, multi-billion-dollar investment, China’s reduced financial flexibility has led to delays in funding and project slowdowns. Key infrastructure projects, including energy plants and highways, have faced delays due to funding shortages, directly impacting Pakistan’s economic growth and development.

Pakistan, which has long relied on Chinese investments to fuel its economy, now faces the possibility of finding alternative funding sources. Beijing’s reduced capacity to finance these projects forces Pakistan to turn to other partners, including the International Monetary Fund (IMF), which has its own set of conditions for loans. This shift is not just an economic challenge for Pakistan—it also poses a diplomatic dilemma, as Islamabad may have to reorient its foreign policy to accommodate new financial backers.

Pakistan’s Economic Dependence on China

The deep economic ties between China and Pakistan go beyond CPEC. Over the years, Pakistan has come to rely heavily on Chinese investments in sectors like energy, infrastructure, and defense. Pakistan’s energy sector, in particular, has benefited from Chinese investments in power plants and other infrastructure, but with China’s economic slowdown, this reliance could be problematic.

Pakistan is now faced with the prospect of seeking alternative sources of financing, whether through loans from Middle Eastern countries, ASEAN nations, or Western financial institutions. While diversification of funding sources is essential for long-term economic stability, it also means that Pakistan’s dependence on China may gradually decrease, forcing a shift in its strategic alliances.

Geopolitical Implications: Pakistan’s Aggressive Stance

Pakistan’s foreign policy has traditionally been shaped by its relationship with China. Beijing has been a long-time ally, offering diplomatic, military, and economic support to Pakistan. However, with China now grappling with its own economic challenges, its ability to support Pakistan on the same scale may be limited. This has led to some analysts speculating that Pakistan’s recent aggressive stance in regional conflicts may be partly driven by this shift in its economic and strategic relationship with China.

Pakistan’s Recent Military Actions

In recent years, Pakistan has been more assertive in its military actions, particularly along the border with India. Skirmishes and diplomatic confrontations between India and Pakistan have intensified, leading to concerns over the potential for full-scale conflict. Some analysts argue that Pakistan’s aggressive posture could be a way to divert domestic attention from economic instability and to ensure continued international support.

With China focused on its economic recovery and dealing with its internal challenges, Pakistan may find itself relying more on its own military capabilities and its traditional support base, which includes the US and Middle Eastern countries. While China’s diplomatic support for Pakistan remains crucial, its ability to intervene militarily or financially may be reduced in the face of its own struggles.

India-Pakistan Tensions and China’s Role

The ongoing tensions between India and Pakistan have always been a complex issue, with China playing a pivotal role in shaping the dynamics. Historically, China has provided Pakistan with military support and diplomatic cover in international forums, particularly in matters related to Kashmir and other regional disputes. However, as China faces mounting internal economic pressures, its ability to sustain this level of support for Pakistan is increasingly uncertain.

China’s strategic interests in the region have always included maintaining stable relations with Pakistan, but with its own economic situation becoming more fragile, Beijing may be more reluctant to get involved in escalating tensions between India and Pakistan. This could push Pakistan to explore alternative security alliances, including with countries like Russia, the US, or even regional powers in the Middle East.

The Future Outlook: Navigating Economic and Geopolitical Uncertainty

As both China and Pakistan face an uncertain economic future, the two countries will need to navigate new realities in their relationship. The economic slowdown in China is forcing Pakistan to reassess its reliance on Chinese investments and explore other avenues for growth.

China’s Economic Recovery Strategies

China’s response to its current economic struggles will likely include diversifying its trade partnerships and seeking new investments. Beijing may look to strengthen ties with countries in Africa, Southeast Asia, and Europe as part of a broader strategy to counter the economic fallout from the US-China trade war. It is also possible that China will explore new trade agreements that reduce its reliance on the US and its allies.

Pakistan’s Economic Alternatives

For Pakistan, the key challenge will be reducing its dependence on China while diversifying its economic partnerships. Seeking investments from the Middle East, ASEAN countries, and Western financial institutions will be crucial in ensuring that Pakistan’s economy remains resilient in the face of external pressures. Additionally, strengthening domestic industries and fostering entrepreneurship could help Pakistan build a more self-sufficient economy, reducing its vulnerability to external shocks.

Global Trade Realignments

The ongoing US-China trade war and the shifting global supply chain dynamics are set to continue reshaping global trade in the coming years. Countries like India, Vietnam, and Mexico are emerging as new manufacturing hubs, challenging China’s dominance in global production. For Pakistan, this shift presents both opportunities and challenges. While Pakistan could potentially benefit from the relocation of manufacturing to nearby countries, it will need to ensure that its infrastructure and investment climate are competitive enough to attract foreign investments.

Conclusion

China’s economic struggles, the ongoing US-China trade war, and global supply chain disruptions are having far-reaching effects, not just on China’s economy but also on its strategic alliances, particularly with Pakistan. As China grapples with its own challenges, Pakistan finds itself at a crossroads. The deep economic ties between the two nations, especially through initiatives like CPEC, have provided Pakistan with crucial financial and strategic support. However, with China facing its own set of economic constraints, Pakistan will need to adapt to new economic realities by diversifying its partnerships and seeking alternative sources of funding and support.

In the coming years, both countries will need to navigate an increasingly complex geopolitical and economic environment. While their partnership remains important, the evolving global landscape will require flexibility and new strategies to ensure that both nations can maintain their economic growth and geopolitical influence.