Although Pakistani President - Asif Ali Zardari’s request for a US$1.5-3 billion loan to aid dwindling Pakistani reserves was declined by China, Beijing has agreed to help the energy starved nation build two new nuclear power plants.

The decision comes post Zadari’s , meeting with Wen Jiabao, China’s President on Friday and America’s decision to aid neighboring arch rival India’s nuclear energy plans. The nuclear agreement was amongst several other economic cooperation deals signed between the two countries on Saturday, hoping to take bilateral trade to US$15 billion by 2011.

Helping to restore the Balance of Power, the Pakistan-China deal also comes as Russia is helping to build a nuclear plant in Iran, highlighting the growing nuclear foothold each of the big three rivals have in three strategic countries stretching from the Persian Gulf to South Asia, the AP reported.

China has already helped Pakistan build two nuclear power plants. Named Chashma  III and Chashma IV,  the nuclear plants will help Pakistan generate an additional 680 megawatts of electricity.  While Chashma III, has been build 125 kms southwest of Lahore,  Chashma IV is expected to be completed in 2011.

Pakistan which hasn’t yet signed the Nuclear Non-Proliferation Treaty, the main international agreement meant to stem the spread of nuclear weapons technology, built its first nuclear power station in 1972 with Canadian aid. Pakistan has an energy security plan to increase nuclear power generation from the current 425 megawatts to 8,800 megawatts by 2030 to meet its growing energy demands, Pakistani Foreign Minister Shah Mahmood Qureshi  told the Daily Times.

On the other hand having been spurned by the United States and Saudi Arabia, China an important ally was Pakistan’s last hope for the loan. Mr. Zardari’s government now has no choice left but to request the IMF for the much needed loan. The New York Times reported that Pakistan’s central bank’s currency reserves have dipped US$4 billion, just enough to pay for oil and other imports for the next two months.

Accepting a rescue package from the IMF, would come with its preconditions including a cut in spending and raise in taxes, making the newly elected president highly unpopular amongst Pakistan’s poor. Adding to the country’s woes, are rising food and fuel prices, power shortages, a falling currency, rapidly dwindling FDI, declining confidence and a diving Karachi stock exchange.

Pakistan, a nuclear nation, is under severe political strain internally as the U.S. backed war on insurgents continues on its northern border with Afghanistan, a new political regime has taken power, and certain extremist groups want access to the countries nuclear capabilities, and especially its weapons.

To request a bailout package, Pakistan is also in talks with the Asian Development Bank and the World Bank to request a US$3-4billion loan, in addition to the IMF to help support the country at this time.

China and Pakistan have been close allies in the past. In 1996, during Zulfikar Ali Bhutto’s reign when Pakistan was on the brink of default, China had come to its rescue with a US$500 million bailout package. Other agreements, between the two nations include Chinese assistance with launching a Pakistani communications satellite and a broad range of trade agreements.

The problems Pakistan currently faces are huge, with the country caught almost in a defacto Islamic civil war, with moderates on one hand, heavily armed extremists on the other, and the military caught in the middle. Further deterioration threatens not just China, but India and the entire region.

For more on China’s relationship with Pakistan, please also see: China Briefing News.

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