Courtesy Reuters

China's Pakistan Conundrum

The End of the All-Weather Friendship

China is often called an "all-weather friend" to Pakistan -- a strategic partner, a reliable source of trade and aid, and Islamabad's closest military ally. Pakistani Prime Minister Yousef Raza Gilani has described the friendship between the two countries as "higher than mountains, deeper than oceans, stronger than steel, and sweeter than honey." In September, he told the visiting Chinese Public Security Minister Meng Jianzhu, "Your friends are our friends," continuing, "your enemies are our enemies, and your security is our security."

But do things look so straightforward when viewed from Beijing? To be sure, Chinese money pours into places Western cash fears to tread. But Beijing is not oblivious to risk. In fact, Chinese money flows disproportionately to investments that carry little to no risk and deliver returns that, however modest, are predictable. Moreover, at least some Chinese companies have proved willing to abandon investments as their perception of risk has risen. In September, for example, Kingho, a large private Chinese miner, is reported to have abandoned a proposed $19 billion investment to build a coal mine and power and chemical plants in Pakistan's Sindh province after reassessing investment and security risks.

Indeed, Beijing's investment calculus is increasingly based on a sophisticated balancing of three types of risk: geopolitical, political, and financial.

Geopolitical risk (not least China's rivalry with India) has long led Beijing to support Islamabad through thick and thin. Friendly ties between the two help satisfy four Chinese strategic objectives: They ensure security and stability in China's western

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