In 2016, the Chairman of Senate Standing Committee on Planning and Development, Mr Tahir Mashhadi alluded to the China Pakistan Economic Corridor (CPEC) as a future East India Company. The senator’s remarks triggered a country-wide debate on the pitfalls of CPEC. While the outgoing government in Pakistan regards the corridor as a potential ‘game changer’, the secrecy shrouding the details of CPEC-related agreements has flamed suspicions about the project’s viability. The corridor, while deemed necessary for Pakistan’s economic development, has also raised the spectre of a 21st century ‘Trojan Horse’.
CPEC is being financed from concessional and soft loans from China. These loans are to be returned under stipulated timeperiods. Concerns abound regarding the state’s capacity to repay the loans. Estimates suggest Pakistan would be required to pay $3-5 billion annually on loans acquired under CPEC. This amount is expected to rise as Pakistan continues to borrow more credit. Debt repayment is already taking its toll on Pakistan’s economy. Recently, media reports have claimed that China has agreed to roll over a loan of $500 million in order to rescue the country’s dwindling foreign currency reserves. Beijing is also expected to grant a loan of $1-2 billion to help Pakistan overcome its balance of payments predicament. Such generosity on part of China cannot be taken for granted. In fact, in an article published by China’s Global Times, Hu Weijiaargues “China is likely to continue to finance new projects in the country but will also assess their debt repayment ability to avert the risk of bad debt. After all, Chinese loans to Pakistan are not a gift.”
Failure to honour its debt commitments under CPEC could render Pakistan the same fate as Sri Lanka. Colombo is heavily burdened by Chines debts and had to lease out her Hambantota port to China for a period of 99 years as part of a debt-reduction deal.
The bilateral balance of trade is also tilted towards China. According to Pakistan Bureau of Statistics, Pakistan’s imports from China, from July to December 2017, amounted to Rs. 806,544.13 million while exports to China during the same period stood at a mere Rs. 84,414.77 million. Moreover, the Free Trade Agreement between the two countries has largely benefitted China owing to its large production output and low business costs.
The acquisition of Daraz Group by Alibaba has fuelled suspicions about the future of local businesses. Unless the government in Pakistan facilitates low-cost business and formulates export-oriented policies, Pakistani companies will not be able to compete with Chinese manufacturers. Consequently, the trade imbalance will further widen in favour of China.
China will also get the lion’s share of revenue from Gwadar Port. Last year, Pakistan’s Minister for Ports and Shipping revealed that China would get 91% share of the port’s revenue while Gwadar Development Authority (GDA) will have to suffice with a small 9% share for the next 40 years. This startling revelation sent shockwaves across the country. Despite high claims from the government, it is not clear whether this distribution of revenues would bode well for Pakistan’s economy.
The most fundamental concern about CPEC is whether a feasibility study was ever conducted by Pakistan, to determine its cost-benefit analysis and debt repayment ability of the country. Although the government claimed a study was conducted, its details have never made it to the public. The government also claimed that CPEC would create millions of jobs. Yet, we do not know whether these jobs will be temporary or long-lasting and which sector (engineering, management, finance etc) will usher in the highest number of jobs. Lack of reliable data lends credence to growing suspicions about CPEC’s usefulness for Pakistan.
As per media reports, China will be investing around $15 billion in coal-fired power plants. Environmentalists have reservations about the pollution hazards associated with coal-based energy production. However, no information is available as to whether any safety standards and protocols would be put in place to minimise environmental degradation. In terms of climate change, Pakistan is already among high-risk countries. Coal-fired power plants can cause further damage and seriously aggravate the country’s environmental problems.
The CPEC Long Term Plan also stipulates the construction of an “information network infrastructure”. It is rather listed as one of the key areas of cooperation between the two countries. Pakistan will also adopt the Chinese Digital Terrestrial Multimedia Broadcasting standard. Besides, a network of cross-border fibre optic cables is to be constructed. No mention is made anywhere about what data protection policies will govern this endeavour. Data privacy and information security will be at risk if no rules are put in place.
Finally, there are mounting concerns about the distribution of benefits to local communities, particularly in the restive province of Balochistan. Speculations are ripe that CPEC would benefit only a small business elite. The lack of transparency on part of the federal government had already resulted in a ‘routes controversy’. It goes without saying that unless CPEC accrues substantial dividends to the impoverished masses, particularly the Baloch on whose territory the port of Gwadar is situated; the project’s success is likely to be marred by strong opposition.
Speculations are ripe that CPEC would benefit only a small business elite. The lack of transparency on part of the federal government had already resulted in a ‘routes controversy’. It goes without saying that unless CPEC accrues substantial dividends to the impoverished masses, particularly the Baloch on whose territory the port of Gwadar is situated; the project’s success is likely to be marred by strong opposition
Nonetheless, CPEC has become a buzzword in Pakistan. The outgoing government of PML-N expects the project to bring about a major turnaround in Pakistan’s economy through energy generation, infrastructure development and job creation. While there may be reason to trust these claims, yet, mere rhetoric cannot suffice. Unless the public’s concerns are alleviated through a transparent mechanism, criticism and speculation will continue to haunt the project. If these concerns actually turn out to be true, sabotage is likely to follow. Such a scenario is not only detrimental to the national interests of both China and Pakistan but could also drive a wedge through their so-called ‘deeper than the deepest ocean’ friendship. It is, therefore, highly imperative for the two countries to address these issues.
The writer is an independent researcher in public policy and international politics. He can be reached at [email protected]
Published in Daily Times, June 6th 2018.