CPEC’s lesser known impacts

Pakistan’s free trade agreement with China has increased pressure on our local producers because of China’s free trade agreements with other countries in the region

CPEC’s lesser known impacts


The China Pakistan Economic Corridor (CPEC) is not just a hot topic in print and electronic media but the term CPEC has also become a buzzword among the masses. However, the question is how to maximise benefits from the corridor and minimise negative externalities for Pakistan.

Mere desire or wish to achieve something is not enough. Rather, preparedness with required potential and proper planning based on rational and feasible pre-assessments is needed to achieve something in a productive way. The same logic applies to CPEC. We have developed an emotional attachment with CPEC — ignoring preparedness and materialisation and optimisation dimensions in the meanwhile.

DAWN’s report on CPEC long-term plan has opened a new chapter in debate on the project. It has increased curiosity about the reality of CPEC and its perceived importance, while arising many unpleasant questions. Even if the plan is considered a draft proposed by the Chinese government, the question remains how autonomous is Pakistan in ensuring revision of the plan in its favour? Secondly, have we developed a revised version of the plan? If yes, why has it not yet been made public? Thirdly, why is there a mismatch between the long-term plan reported by DAWN and information publically available on CPEC? This situation has further increased the deficit of trust between the general public and the government.

The LTP reported by DAWN has been developed by the China Development Bank and the National Development Reform Commission of China. It shows China’s intentions and vision about CPEC. The draft shows that the centre of gravity for CPEC is the agriculture sector. Thousands of acres of agricultural land will be leased to Chinese contractors for carrying out demonstration projects. Taking into consideration the rapidly growing agrarian needs of China, the country is spending  a huge amount on these items. Its spending on agrarian products approximately equals the total size of Pakistani exports as of 2016. Since agricultural products are a priority for China, CPEC’s focus on the agriculture sector makes sense from Chinese perspective. Investments in Pakistani agriculture sector will increase the size of our gross domestic product (GDP) but who gets to benefit the most from these investments will be more important than the mere increase in the size of the GDP. Meanwhile, if agriculture sector is the main priority then the CPEC’s image as a massive industrial and transport undertaking — involving power plants and highways — may need clarification from Pakistani side.

A second focus of China is on the textile sector — specifically on yarn and coarse cloth. DAWN report reveals that to develop the textiles and garments industry China may exploit Pakistani market for cheap raw materials but use surplus labour from its Kashgar region. China may also use our textile products to feed its developing industry in Xinjiang.

Nonetheless, the good news is that Federal Minister Mr. Ahsan Iqbal has affirmed that the plan reported by DAWN is just an initial draft which is yet to be finalised.

We did not put enough energy into assessing costs associated with CPEC. Rather, we went ahead with the project on the basis of its expected benefits only

Some other important aspects of CPEC also need immediate focus. The free trade agreement with China has increased pressure on local producers because of China’s free trade agreements with other countries in the region. Thus, increasing competition in Chinese markets has decreased the size of gain for Pakistan from free trade with China. The government may help in increasing the size of gain from free trade by offering subsidies on credit and other inputs to competitive exporters as well as incentives to high-size exporters. A careful study of reasons resulting in low gain from free trade in Chinese markets may be further helpful in devising better policies.

Local industries — which need local raw material such as paper, paper board, rubber and some chemicals etc — should be protected because China is a major importer of these products as well. At the same time we need to increase the volume of these inputs for the survival and sustainability of local industry.

Under CPEC, China will get easy access to Central Asian and Gulf countries. After getting access to some Pakistan export markets ie UAE and Afghanistan, China may become international competitor for Pakistan especially in cotton and leather manufacturing sector. The demand for Chinese products in international market is already higher because of varieties of goods and low prices. Consequently, it may result in further marginalisation of Pakistani products. Before, it happens we need to understand the sensitivity of the situation to devise optimal policies. Pakistani exporters need to be ready to face the upcoming challenges. The government along with cotton and leather manufacturers and exporters need to devise some mechanism to face these challenges successfully.

In a nutshell, it can be concluded that we did not put enough energy to assess costs associated with CPEC on neutral and scientific grounds. Rather, we went ahead with the project on the basis of its hypothesised benefits only.

 

The writer is an Assistant Professor of Economics at Institute of Management Sciences, Peshawar. He can be reached at: zahoor.khan@imsciences.edu.pk