China has been a known supporter of Pakistan for ages now and one of its sly strategies include debt diplomacy, which in simple terms mean extending loans to the borrowing nation, with the intention of increasing its own political leverage in the country.
The same is proved by a December 2024 World Bank report, which said China is Pakistan’s largest creditor with almost $29 billion in loans.
Another interesting data suggestive of the ties between the two is China’s growing foreign direct investment (FDI) in Pakistan. It has zoomed by 90.4% in the financial year 2024–25 and touched $1.22 billion. China’s net FDI in Pakistan was $643.2 million in FY24.
Pakistan got $2457 million in FDI from all partner countries in fiscal 2025, of which, nearly half i.e. 49.9% came from China, which makes it one of the largest investors in Pakistan. With this, China’s net inflows to Pakistan touched $1.71 billion in FY25 while outflows stood at $485.5 million. This has resulted in a net inflow of $1.22 billion, as per the data released by State Bank of Pakistan.
What’s behind China’s growing investments in Pakistan?
Over the years, China has offered all sorts of backing to its “iron-clad friend”, ranging from economic, technical, to military assistance. Following India’s Operation Sindoor, China even reaffirmed its support for Pakistan, saying it would continue to support the country in upholding its “sovereignty, territorial integrity, and national independence”.
China even described Pakistan as an “iron-clad friend.”
Now, the dragon nation has become one of Pakistan’s leading foreign investors. It goes without saying that China’s backing to Pakistan is majorly aimed at countering India’s rising influence and deepening its own ambitions, both in the region and globally.
Which sectors in Pakistan is China investing in?
China’s major investments in Pakistan are in the power sector which got $1.17 billion worth of FDI. Of this, $759.4 million FDI was directed toward hydropower projects. Another space that received a significant Chinese funding is the financial services sector, with net FDI of $702.2 million. Apart from these, China has also invested in electrical machinery, oil & gas exploration, electronics, IT, food, petroleum refining, and textiles.
Is China playing the money game with Pakistan?
Even if the IMF rejects any fresh loan to cash-strapped Pakistan, it won’t worry much. Chances are that the country would get capital from China. This debt diplomacy has been the dragon nation’s playbook for Pakistan, leading to it becoming the latter’s biggest debtors.
China continues to be Pakistan’s largest bilateral creditor with almost $29 billion in loans. The World Bank report also shared that Pakistan’s total external debt was 22% in 2024, slightly lower than 25% in 2023. What’s even striking here is that Pakistan made the second-largest interest payments in South Asia last year.
Pakistan is now trapped under a huge Chinese debt pile. Noted economist Kaiser Bengali had earlier DW that “Pakistan is trapped between China and the US [IMF loans], and Washington has cautioned that IMF loans should not be used to repay the mounting Chinese debt.” He added that China will allow Pakistan to reprofile its debt payment.
“The main reason for their generosity to Pakistan is their rivalry with India, and that’s not going away anytime soon. But they may lose patience on slow project progress and start pressing for action,” he said.