Q.

NO: 01

China-Pakistan Economic Corridor (CPEC) is a big business proposition with huge Chinese investments
spreading over 15 years having a total outlay of up to $46 billion: $35 billion on the energy sector in the
mode of IPPs (independent Power Producers) and $ 11 billion for infrastructure development; like
industrial zones roads and railways etc. A good part of these investment projects comprises loans from
Chinese banks, whose details are still not public, generating fears of further indebtness of already loan-
riddled Pakistan. Construction of 3,218 km long route from Chinese province of Kashgar to Pakistani port
of Gawadar, is seen as hallmark of this CPEC project. Through this shorter route, Chinese goods will
have easier access to the Middle East, Africa and beyond. Currently these goods have to travel a long
distance of around 10,000 km from the South China Sea through the Strait of Malacca
[1] to reach the Gulf.
A special force of 15000 Pakistani troops would protect CPEC route.
The proponents of CPEC call it a game-changer for Pakistan and this region, but people and several
economists here remain skeptical about the opaqueness of projects under CPEC and particularly of the
terms and conditions of loans Pakistan is acquiring from China under this grand project.
[2] For govt. CPEC is Viagra to Pakistan economy,
for experts it is another form of “ East India Company”. It needs a broader analysis to have a clear
picture.
An objective overview suggests CPEC is not a gift from Beijing to Pakistan, rather a complicated set of
infrastructure investments that will be paid for mostly by Pakistani investors, consumers, and taxpayers in
the form of commercial loans from Chinese banks paid back by Pakistani power generation companies
and the government, and electricity tariffs paid by ordinary Pakistani consumers.
The total CPEC cost is around $46 billion: $35bn is allocated for energy projects while $11bn is for
infrastructure development; such as Gwadar port development, industrial zones and mass transit
schemes etc. On top that an additional amount of $8.5 billion of investment from Beijing as part of the
countries’ joint energy, transport and infrastructure plan has also been finalized, making the total cost
close to $55 billion.
[3] Major portion of this money is supposed to come from Chinese private banks.
The energy sector worth an investment of $ 35 billion is important area to look into and independent
power producers (IPPs) the real players are bringing coal from China despite Pakistan having huge
resources of its own coal. Which means China using these projects to dump its coal in Pakistan.
[4] These IPPs have also bound the government of Pakistan to buy electricity from their power houses for
at least 30 years whether it needs it or not, at lot more expensive rates than the international rates or than
the electricity already being produced in the country.

Some economists are of the view that availability of the energy does not mean a sudden booster to local
economy and compulsory buying of electricity from IPPS would generate another vicious circle of circular
Debt.
[5] Infrastructure development
with low level of economic activity and at the cost of accumulation of loans is a not a good deal. Pakistan
is already repaying loans at an average of $5 billion per anum and further loans means a disaster for its
economy. Pakistan lacks capacity to repay CPEC loans and the next global economic crisis may knock
Pakistan back into a recession.
Thanks to low oil prices coupled with borrowed foreign exchange, Pakistan economy shows
comparatively better indicators although momentarily. The real crisis, will hit when all of the loans
Pakistani energy companies have borrowed from China, come due. The power plant payments, tariff
payments, capacity payments and loan repayments would exert a lot of pressure and Pakistan economy
or exports are not in a good health to bear it.
But the government of Pakistan is in no mood to consider this side of the argument and trying to convince
the people not to worry about repayment obligations because it is not public debt, rather private loan
being acquired by the private companies from Chinese banks.
On the other hand for China CPEC provides an alternate secure route to import energy and find new
markets for its goods and services. Almost 80% of the China’s oil is currently transported from Strait of
Malacca to Shanghai, (distance is almost 16,000 km and takes 2-3 months), with Gwadar port becoming
operational, the distance would reduce to less than 5,000 km. This would be a great strategic benefit for
China. However, for Pakistan it would definitely help counter Indian influence in the region, position itself
as a major transit point connecting Eurasian region with South Asia and South East Asia.
The objective analysis suggests that the only growing demand in Pakistan at present is for language
translators, while Chinese language course centers have also emerging in the big cities. Meanwhile the
government has also announced to make Chinese language as part of the curriculum in government
schools. However, mere Chinese language is not enough to integrate and secure the dividends, unless
technological capacity of the local universities, related to quality researches, is not built.

New East India Company?

Although Chinese companies are investing a lot more as compared to the British East India Company,
their character is entirely different. They are bringing in entire equipment and technology, supervisory,
and skilled labor manpower from China. That means that the multiplier effect of infrastructure spending
will go to Chinese companies instead of local Pakistani people.
As Exim Bank of China and China Development Bank are already lending huge sums for CPEC projects
to Pakistan, a Shanghai based consortium has just bought a 40% share in the Pakistan Stock Exchange
(PSX) for $85 million and will soon take charge of its management. [6] The size of market capitalization of
the PSX currently is around $100 billion. [7] With this growing Chinese financial influence on Pakistani
rulers, the authority of the IMF and World Bank is likely to be reduced in coming years and the Chinese
ruling class has good chances to emerge as a kind of new imperialist power in this region.
So far CPEC seems a big illusion; instead of reducing poverty it would probably increase the exploitation
and unemployment. If huge infrastructural projects could have reduced poverty and misery there should
be no poor in China and India. Chinese trucks would roll on the road from Kashgar to Gawader, while
Pakistan has to take care of maintenance and security of the road from its own pocket. This is not a good
proposition.
The plan of new industries to be built along the CPEC route seems a dream as people are still waiting for
the industrial zones promised to be built along the Motorway many years ago. It is claimed that CPEC
project will create some 700,000 direct jobs by 2030. However, instead of creating new jobs, it is feared
that CPEC may lead to the closure of local industry in Pakistan, which will not be able to compete with
their Chinese rivals.

CPEC and Pakistan Debt

As part of CPEC, the govt. of Pakistan is securing loans worth approximately $11 billion from Exim Bank
of China and the China Development Bank for infrastructure projects. Moreover, on top of that the
government has secured an additional $8.5 billion of investment from Beijing as part of the countries’ joint
energy, transport and infrastructure plan. Thus increasing the current foreign debt from about $ 73 billion
to around $ 92.5 billion.
The IMF has also warned that CPEC could add to Pakistan’s medium- and long-term risks, predicting that
the country’s gross external financing needs would rise to $15.1 billion in 2018-2019 from $11.4 billion in
the current financial year. [8]
However, the current govt. position is that “as the economy grows, our capacity to undertake the
responsibilities of repayments also improves”. Its policy is to go for higher spending through reckless
borrowing. By avoiding bitter decision of reforms it is busy making the electorate happy. During last three
and a half years current government has accumulated an unprecedented amount of both external as well
as domestic debt, contracting $34.6 billion of new foreign loans since 2013, according to State Bank data.
The cumulative public debt stock has increased from around Rs.14, 600 billion on June 30, 2013, to
Rs20.272 billion as of end-December 2016, an increase of 40 per cent or nearly Rs.5, 700 billion.
According to renowned economic expert, Dr. Ashfaq Ahmad, Pakistan’s financial requirements are getting
higher by every year.
In the current budget 2016-17, Pakistan’s financial requirements amount to $15 billion; including $7billion
current account deficit and $ 9 billion for debt serving, next year 2017-18, this amount would be $ 18
billion and by 2019-20, Pakistan would be requiring $22.5 billion; $10 billion for debt serving and 12.5
billion for current account deficit. The total external debt is expected to rise from current $ 73 billion to
$110 billion by 2019-20.
This is a horrific picture by all means. Pakistan may be facing a Greece like situation. CPEC may not help
Pakistan to meet its financial requirements in near future. The current economic infrastructure of Pakistan
has not that much capacity to take maximum benefits from CPEC. It will take time. Therefore, strong
chances are there Pakistan will have to go back to IMF next year.
But the govt. obsession with CPEC is so strong; that it is like ‘national anthem’ for them and all the politics
ruling elite revolves around it. The real issues of unemployment, poverty, inequality, education and
healthcare have been put on the back burner. Speaking against CPEC is almost taboo now.

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Four reasons why CPEC will not be

another East India Company
It is only natural for people with a history of subjugation and being colonised to become
wary of any kind of foreign involvement – be it positive or not. So naturally, concerns
regarding China Pakistan Economic Corridor (CPEC) were raised by a few politicians
while some even warned about CPEC potentially turning into a new East India Company
(EIC) – the infamous British trading firm which came to the sub-continent for business but
eventually began to rule large areas of the country with private armies, exercising military
power and assuming administrative functions.

The concerns regarding CPEC are understandable given our history and we should be
raising important questions as to who will be the primary beneficiary of the project.
However, to suggest that CPEC is similar to or would eventually turn into another EIC is
farfetched and seems unlikely for a couple of reasons.

Different economic policies

First is the difference between the economic policies of the imperial Britain and the
People’s Republic of China.
Adam Smith, a Scottish philosopher and pioneer of political economy, summed up the
philosophy of mercantilism as “all for ourselves and nothing for other people… has been
the vile maxim of the masters of mankind”. The masters he is referring to is, of course, the
British who pursued the economic policy of mercantilism from 16th to 18th century, of
which EIC was just a small manifestation.

Mercantilism basically provided for accumulation of wealth by extracting raw material and
other such resources from the colonies and exporting manufactured products back to the
colonies. This economic exploitation and accumulation of wealth without any regard for
the well-being of the local population was at the heart of EIC ideology.

On the other hand, China adheres to no such maxim. In fact, China itself has a history of
being victim of imperialist aggression.

Although it ostensibly is a communist country, practically the Chinese state functions

through the principles of capitalism. While it is true that under capitalism, the primary
purpose of enterprise is to make profits and not some altruistic goals to serve others, it is
fundamentally different from “All for us, nothing for them” approach. It rests on bringing
some amount, if not the ideal amount, of economic prosperity to the indigenous population
in order to bring stability and sustainability.

China in Africa

Secondly, we might be able to better understand how China operates by looking towards its
involvement in other regions, specifically Africa. While EIC cemented its power in the
sub-continent through brutal force and no regard for the well-being of local population,
China’s approach has been to expand its influence around the globe through economic
prosperity rather than military might.

China has been contributing to Africa’s economic growth, both in terms of trade and with
building infrastructure. All over the continent, it has built roads, railways, ports, airports,
and more, filling a critical gap that western donors have been shy to provide just as in the
case of Pakistan.

The concern that CPEC will strictly create jobs for Chinese nationals can be answered by
the fact that rising Chinese wages in certain sectors may lead to Chinese manufactures to
export jobs to Pakistan if it can find cheaper labour. One such example is Zambia, where
some 300 Chinese companies now employ around 25,000 people. Ethiopia’s shoemaking
sector has also benefitted from Chinese investment that has created jobs and exports.
Likewise, according to government estimates, CPEC will create around 2 million new jobs
directly and indirectly.

Pakistan is no ‘golden sparrow’

A third reason why CPEC is different from EIC is that there was no yearning for foreign
investment at the time by the Mughals when EIC worked its way in. In fact, it was the
other way around, as the British had their eyes on the riches of the sub-continent, whose
share of the world income stood at 27% in 1700 AD (compared to Europe’s share of 23%)
– which plummeted to 3% in 1950 when the British finally decided to leave.

However, prior to the investment that CPEC brought in, Pakistan was no ‘golden sparrow’
for China to eye. Along with its dwindling economy, massive energy shortages, grave
security concerns, Pakistan had an image problem which had kept foreign investment far
away from reach hence the need is Pakistan’s.

Just consider that CPEC investments, spread over 15 years, will bring a total of up to $51.5
billion; around $35 billion on the energy front in an Independent Power Producers mode
and the balance going to infrastructure development. This is likely to increase Pakistan’s
GDP from 4.7 per cent to around 6 per cent by 2019.

Local checks and balances

Fourth are the checks and balances which formal institutions such as courts and regulatory
authorities will provide. While Pakistan might not possess ideal institutional checks and
balances, however, it does retain a fairly independent political and institutional structure
which did not exist in colonial period.

Consider just a few examples: National Electric Power Regulatory Authority’s disapproval
of Chinese investors’ demand for an increase in power tariffs; the Supreme Court’s
rejection of a Chinese company’s plea to be allowed to participate in the bidding process
for the Dasu Hydropower Project, and a local court’s ruling barring a Chinese firm from
controlling Sost dry port. This shows that China’s influence is neither absolute nor
arbitrary as was the case with EIC. Mughal emperors did not enjoy any of these advantages
with the highly assertive EIC.

Whilst the likelihood of another EIC in this modern age and time seems unlikely for the
reasons discussed above, it does not mean that important questions regarding the
transparency and effectiveness of the project should not be asked because it is awareness in
the masses that serves as the most potent force which will ensure that CPEC will not
become another mechanism of economic exploitation.