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China-Pakistan Economic Corridor Hits Snag

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Philip Hammond with Chinese President Xi (File)

The IMF has expressed doubts over Pakistan’s ability to repay the debts the country owe to China.  The Chinese experts have also cast doubts on the feasibility of the project and from their viewpoint, whether China would stand to benefit, and how much….writes Sakariya Kareem Ravuther

Foreign Secretary Philip Hammond with Chinese President Xi (File)
Foreign Secretary Philip Hammond with Chinese President Xi (File)

As Pakistan’s leadership, both civil and military, exults over the China-Pakistan Economic Corridor (CPEC), viewing it as the repository of all hope and panacea for all its woes, doubts have begun to be expressed in both countries and among the global financial community.

They put a damper over the recent statements of both the Sharifs –Prime Minister Nawaz and outgoing Army Chief, General Raheel – who have publicly rejoiced at this benefaction coming from China, the “all-weather friend” as harbinger of progress and development and have tended to brand any critic of the project as ‘conspirator’.

The most scathing comment has come from within, not without, terming CPEC as the likely advent of “new East India Company”, a colonizer, no less, if Pakistan fails to safeguard its own national interests. This has come in the course of a parliamentary committee where a lawmaker issued a warning to the government.

On the other hand, the International Monetary Fund (IMF) that under writes much of Pakistan’s spending, has warned that the money coming in the form of loan from China would have to be repaid at some stage or the other. The IMF has clearly expressed doubts over Pakistan’s ability to service those debts.

Chinese President Xi Jinping (R) meets with his Pakistani counterpart Mamnoon Hussain in Wuzhen Town, east China's Zhejiang Province (File)
Chinese President Xi Jinping (R) meets with his Pakistani counterpart Mamnoon Hussain in Wuzhen Town, east China’s Zhejiang Province (File)

At the same time, the Chinese experts have also cast doubts on the feasibility of the project and from their viewpoint, whether China would stand to benefit, and how much. The Chinese doubts and disdain for people and things Pakistani are well-known and they exist and expand even as the country’s leadership stands by Pakistan, through thick and thin, especially the international opprobrium over its role of exporting terrorism.

The CPEC, announced during Chinese President Xi Jinping’s Islamabad visit on April 21, last year, has been one of the larger Chinese commitments abroad and is seen as part of the Chinese desire to gain access to the Indian Ocean, strategically close to the Gulf region that is the source of oil. Over the years, the Chinese have designed, built and funded the Gwadar port that is its biggest lynch pin into the Indian Ocean region.

Following a briefing by Planning Commission Secretary Yousuf Nadeem Khokhar, a number of committee members voiced their fears over what they perceived as the utilisation of local financing for CPEC projects, instead of funding from the Chinese or any other foreign investment. They also expressed concern over the fixing of power tariff for CPEC-related power projects by the Chinese.

Besides such fears, the CPEC has divided or deepened the existing divide between Pakistan’s haves and have-nots, both political and economic. The Baloch people are angry that much of the investment is being planned in the Punjab and Khyber Pakhtunkhwa, even though the corridor is supposed to end at Gwadar in Balochistan. It has heightened the Ba,lochs’ misgivings and the sense of dissatisfaction at being given the economic short-shrift.

“The people of Balochistan will only get one benefit from this project, which is the water supply,” said a senator at the October 17 meeting, pointing out that no electricity or railway projects had been planned for Balochistan under the CPEC.

Senator Mandokhail also accused the Planning Commission of prioritising Balochistan very low on its list, given that it has not representation in the commission itself.

Jamaat-i-Islami Emir Senator Sirajul Haq said that like certain other parts of the country, particularly Federally Administered TribvalAreas(Fata) and Pakistan Occupied Kashmir were also being neglected in the CPEC.

Following a briefing by Planning Commission Secretary Yousuf Nadeem Khokhar, a number of committee members voiced their fears over what they perceived as the utilisation of local financing for CPEC projects, instead of funding from the Chinese or any other foreign investment. They also expressed concern over the fixing of power tariff for CPEC-related power projects by the Chinese.

Then, there are concerns about jobs considering the strong Chinese tendency to import its own manpower and material to carry out projects wherever it undertakes them.

Pakistan should ask China that 80 percent workforce should be from Pakistan but that is not happening. There are around 8,000 Chinese engineers working on CPEC projects and Pakistanis are offered only low level jobs, senators complained.

While the Chinese are bringing in money, manpower and material, they want Pakistan to underwrite the security. Immediately after the Xi visit when he had conferred with Pakistan’s top military brass, the latter announced the creation of a ‘Special Security Division for Pak-China Economic Projects’, which would consist of nine army battalions and six wings of civil armed forces, to be commanded by a major general.

By December last year, the CPEC security force had already been deployed, with 9,000 army personnel and 6,000 civil armed forces. The CPEC project director, retired Major Gen Zahir Shah, told a Senate committee that “one per cent of the total Chinese investment for CPEC would be spent on the security-related arrangements”.

All along this timeline, there are repeated clues that the Chinese are not happy with the security arrangements. The clues take the form of repeated assurances from the Pakistani side, including at the highest levels, that security of Chinese investment and workers is something Pakistan attaches high priority to.

One cynical reaction to these developments has been that just as some generals became rich during the years of collaboration with the Americans, now another set of generals will enrich themselves with the CPEC.

The Chinese are dealing directly and at the top level with Army chief, General Raheel Sharif and Finance Minister Dar to ensure quick action.  They are insisting that Pakistan provide security for all the CPEC-related projects where thousands of Chinese are already deployed along with huge material imported from China.

The Gwadar Security Task Force, another formation similar to the force raised for CPEC, commanded by a brigadier, has also became operational with its expenses to be borne by the government of Balochistan and the federal government.

The security cost of CPEC is estimated at Rs 100 billion. But in February this year, the Army Chief, visiting the headquarters of the CPEC security force, declared that “the security forces are ready to pay any price” for realising the “long-cherished dream” of CPEC.

There are concerns over the management of financial aspects of CPEC project. Voicing some of them, the IMF has sought transparency. According to an IMF study, Pakistan will see $27.8bn in “early harvest” projects under CPEC in the next few years, with the remaining $16bn coming over a longer timeline stretching out to 2030.

“Pakistan will need to manage increasing CPEC-related outflows,” warns the Fund, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”.

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation,“could reach about 0.4 per cent of GDP per year over the longer run”.

The Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed. “Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms” the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. In addition, “allowing greater downward exchange rate flexibility” will also be necessary.

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