Conceived and Written by
Muhammad Furqan Khattak
Contents
1.
Abstract
China-Pakistan Economic Corridor (CPEC) is a framework of
regional integration initiated by China to enhance the geographical linkages
through improved rail, roads and air transportation. The project will not only
benefit Pakistan and China but it will have a positive impact on the
neighboring countries such as Iran, Afghanistan, India, Central Asian Republics
and India (potentially) facilitate their global trade via Pakistan’s Gwadar
port. This strategically and financially important lies in the southern tip of
Pakistan’s Baluchistan province which is developed with the help of China to
facilitate trade via Arabian Sea. The extended trade ties will consequently
enhance the regional integration with frequent exchanges of goods and people to
people to people contact. Academic, cultural and artistic ties will flourish
while the higher volume of trade will enable enhanced standards of livening.
Pakistan suffered chronic power crisis in the past 10-15 years. CPEC’s major
component involves energy cooperation which will mitigate Pakistan’s energy
crisis and enable its industries to grow with sustainable sources of power. The
project is touted as the model of win-win cooperation and its philosophy is
based on sharing common future through shared prosperity, harmony and
development.
The research is based on the
analysis of factual data to ascertain the reality and segregate myths
associated with the project. Through dedicated and conceptualized research of
data, the researcher has framed the stance that criticism based on facts
enhances the CPEC model. However, the geo-strategic antagonism by certain
powers and vested interests averse to the regional development of Pakistan and
China is an anathema to the concept of shared future for
mankind and achieve shared and win-win development.
2.
Introduction
China
Pakistan Economic Corridor is an economic gateway which provides new
opportunities for economic and infrastructure development. CPEC is majorly
focusing on strengthening the existing road links, trade, investment and
economic ties between the two friendly states. CPEC in its initial phases
involved the construction of Gwadar Port. In 2014, China decided to invest
money in Pakistan in various projects relating to port development,
communication, education, energy and medical facilities. CPEC includes about
thirty-six projects which would be completed in the time of 15 years. The cost
of whole project is 46 Billion USD. Development of Gwadar, seaport in Southern
Pakistan is regarded as the main driver of the project. Under the development
of Gwadar port, eight sub projects are also in progress. The construction and
development of Gwadar port is costing 800 million dollars. Gwadar port will
create an enduring connection between China, Pakistan, the Arabian Sea, the
Gulf and the Middle East. Energy Component /Projects in CPEC, involve both
thermal and renewable energy projects, costing 34.4 billion dollars. In the
energy component of CPEC, twenty-four sub energy projects are in continuation.
The infrastructure component involves four projects, their up gradation
requires 9.8 billion dollars. Industrial component of CPEC is in progress in
over thirty Special Economic Zones.
Chinese Foreign Ministry Spokesman, Hua Chunying denies the
notion that Beijing is burdening its partners with debt and remarked that:
“It’s unreasonable
that money coming out of Western countries is praised as good and sweet, while
coming out of China it’s sinister and a trap,”
CPEC encompasses these broad areas of cooperation. Such as:
- · Energy
- · Transportation Corridors
- · Rail Based Mass Transit Projects
- · Proposed Special Economic Zones (SEZs)
- · Social Sector Development Projects
- · Agriculture
- · Fiber Optics Network
3.
Common Myths about CPEC
I.
Loan is not an Aid
The loans from CPEC are not an aid but the
loans may be paid back by Pakistani investor companies, government and ordinary
citizens in the form of taxes and power tariffs.
While
according to Top line securities brokerage firm, the estimated bill on repayments
may add up to the amount of 90 billion dollars after 20-25 years. Considering
3.7 billion dollars repayments through debt servicing and return on equity
every year which may exceed to 5 billion dollars and in some years may add up
to accumulated 90 billion dollars at the end.
The
positive aspect about CPEC is that two-thirds of the investment will be focused
on power generation which is the biggest need for the local industry to produce
at full capacity and will rid them from expensive power generators that run on
diesel and will guarantee stable supply power. If all power projects go well,
10,400 MW power is expected to be generated from the projects which are
equivalent to Pakistan’s 40 percent capacity currently.
Chinese
form of aid is based on its experiences with the way it used Japanese interests
in its raw materials to kick start its own growth in the past. This form of aid
has a precedent in Chinese African engagement.
II.
CPEC Cost Buildup:
The
main contention is the 2/3rd of the loans to the tune of 28 billion
$ out of which 19 billion $ loans on commercial terms[1].
Pakistan will have to repay this amount with debt servicing at 7-8 percent.
Debt servicing is the minimum amount required to return the principal as well
as the interest on a loan.
An
additional fee will be charged against the borrowed amount by these banks
called “Sinosure” which is an insurance program required for all foreign
borrowers when lending from Chinese banks. Furthermore, these loans must be
repaid with 80-20 percent debt to equity ratio and return on investment (ROI)
of 17 percent. In some projects, the Return on Investment (ROI) is as high as
25-27 percent to China[2].
In addition, the terms of financing are higher than the amount borrowed to
Myanmar.
According
to a critic, this will amount to 3.56 billion dollars annual outflow from the
exchequer[3].
- 1 billion $ in debt servicing
- 646 million $ return on investment
- 1.9 billion $ repayment of principal amount
However,
as per the statements of government of Pakistan, it will get the loans on 2
percent interest rate from China to be repaid in 25 years. In addition,
Pakistan’s former chief economist was of the view that, Pakistan's debt and
other repayments on China's "Belt and Road" initiative will peak at
around $5 billion in 2022, but will be more or less equipoised by the transit
fees charged on the new transport corridor[4].
It is expected that Gwadar-Xinjiang corridor will be operational from June next
year, hence Pakistan expects up to 4 percent of global trade to pass through it
by 2020.
Dispelling any such impressions, Prof Sun Hongqi, Adviser to
the President of China on Pakistan Affairs maintains that[5]:
“Loan repayments
for the China-Pakistan Economic Corridor (CPEC) projects will start in the
financial year 2023-24 when economic growth rate of Pakistan will be much
higher than present (and then country will be in a better position to bear the
financial liabilities),”
Mitigated
by the fact that Pakistan’s Industrial sector is facing shrinking due to costs
of and shortage of electricity. Pakistan is repaying loans by promising to buy
the electricity the Chinese are selling; this agreement can lower costs in most
businesses because in the recent past:
- · Most businesses have been forced to buy expensive generators due to power crisis
- · Many businesses have had to cut production due to limited availability of electricity
- · Finally loan repayment is to start after “2023-24”giving Pakistan’s government space to kick-start growth making loan repayment easier.
III.
CPEC - Secrecy Element:
According to critics, the real problem is the
secrecy on the mode of repayment by the government and lack of transparency in
this aspect. They believe the government is also reluctant to share the data
with IMF or World Bank. But the IMF has released a tentative figure of 0.4
percent strain on GDP due to these repayments. There is skepticism that no
concrete proof of a program to return those debts, liabilities and return on
Investment is visible from government quarters.
However,
the government has already declared that the funds will be repaid with 2
percent interest rate. The repayment of loans are calculated at 3.5 billion
dollar annually. The former Governor State Bank of Pakistan, Ishrat Hussain
believes 3 billion dollars, a figure that is mostly agreed upon by most
economic experts, can be repaid annually[6].
The Long term CPEC Plan has already alleviated the concerns of all the
stakeholders as well as the federating units while certain clauses are being
revisited to safeguard the rights of provinces.Certain level ofsecrecy
pertaining to strategic thinking of the projects is necessary because it keeps
negotiations flexible because it prevents excessive confusion due to
politicization and lack of expertise. Furthermore, it allows for constant
revision and curtails fear mongering. However, the federating units should be
kept informed to enhance mutual trust between the federation and its
constituents.
IV.
Chinese Security Concerns Vs Hidden
Costs of CPEC:
There
are assertions regarding security conundrums in Pakistan such as Baloch
insurgency which constantly targets Chinese workers as well as Army and
government installations. The prime example can be found in the recent Chinese
consulate attack. Furthermore, China has some apprehensions regarding ties
between Afghan Taliban and Uighur militants in China. The TTP and Islamic state
can also join the forces and pose a potential threat to the viability of
project through insecurity.
Pakistan’s
government included 2 projects through the Public Sector Development Program
(PSDP) for the year 2015-16 which included 2 projects related raising civil
armed forces (CAF). One project constitutes 22 CAF wings costing 7.54 billion
rupees while additional 6 CAF wings will cost 2.350 billion rupees to
Pakistan’s national exchequer. This cost accumulates to over 10 billion wile
20-30 percent increase is expected due to land prices escalation. Furthermore
Gwadar Task Force is another force which is commanded by a brigadier, while its
expenses to be shared by Federal and Baluchistan government although most of
revenues of Baluchistan government flows from federal government, it is
expected that federal government will bear the brunt of this cost. As a result
of increased spending, the federal government decided in September 2016 to
increase capital cost on all machinery and equipment owing to security cost.
Furthermore, NEPRA (National Electric Power Regulatory Authority) is directed
to include the tariff escalation, hence the burden may be passed to the
consumers and households in the form of increase in power and gas surcharges.
In July 2016, CPEC project director, Retd. Major General Zahir Shah announced
that out of all Chinese investment, at least one percent will be spent on security
related purposes.
It is a fact that Pakistan is facing
genuine security concerns as the CPEC is not only an economic venture but is
also a vital strategic project of immense geo-strategic, geo-economical and
geo-political importance. The scattered attacks on consulates and Chinese
personnel have occurred on multiple times. The recent attack on Chinese
consulate claimed by the Indian funded Baloch separatists is a testament to the
fact[7][8].
The western propaganda and neighboring India is actively averse to the
development of the project. Owing to the immense importance of this project,
the security must be provided at all cost without any hesitation by Pakistan.
Therefore, it has been decided by the government to pass on one percent burden
of power sector (Independent Power Producers or IPPs) to the consumers. Having
said that, a case for levying security tax on Chinese goods can be made in the
advanced stages.
There
is a fundamental flaw in the notion that for years, Pakistan has not been able
to attract investment to extract its many natural resources due to a lack of
security. No analysis of cost is complete without noting that the opportunity
cost for not raising spending on security was missed economic opportunity.
Pakistan needs to signal its capacity to protect foreign investment. In case it
succeeds, we can attract and increase foreign investments in Pakistan.
The
previous National Assembly’s Standing Committee on Planning and Development
Abdul Majeed Khan KhananKhail voiced concerns regarding the maintenance and up
gradation of roads in view of CPEC related heavy trucks passing through the
routes. In the past NATO was allowed to transit with minimum to no charges,
while former chairman of the National Highway Authority (NHA) Mohammad Ali
Gardezi told the Public Accounts Committee in May 2012 that the roads were left
dilapidated and the national exchequer suffered a loss of Rs100 billion due to
NATO traffic on our routes[9].These
are the hidden cost in addition to security cost to be borne by the Government.
In
essence, the assumption is based on NATO’s heavy logistical traffic on
Pakistan’s already stressed Grand Trunk Roads. One should always be cognizant
of these facts because the increased traffic will ultimately increase
maintenance costs. In contrast to the security arrangements, these can be
mutually shared. The fine details will be subject to the agreement of both the
governments and needs conscious attention of the concerned authorities.
However, Pakistan may undertake
steps to mitigate these issues from the beginning and agree on a feasible terms
of agreement. In detailed CPEC long term plan, major areas of cooperation has
been highlighted encompassing a holistic approach. Furthermore, roads are meant
to be used while we can recoup the portion of the costs with transit fees. It
is important to note that maintaining infrastructure is the government’s
responsibility regardless of how infrastructure is used.
NadeemulHaque
(Chicago-trained economist and former deputy head of Planning Commission of
Pakistan) is of the view that the cost of doing business in Pakistan is very
high which may not encourage the industry (referring to power tariffs and
government taxes/duties). These factors may slow down the progress of the
country. Furthermore, he is of the opinion that the economic improvement in the
past tenure was due to the low oil prices globally. The rise in the prices of oil
has affected our economy. Consequently, in his prophetic analysis, we are
knocking the IMF’s door again. Mr.Nadeemul Haque refers to IMF as Pakistan’s
emergency ward and forecasted that we may remain under its shadow for distant
future to come.
Sakib Sherani,
an economic analyst and founder of Macro Economic Insights, also supports Mr.
Nadeemul Haque's argument that oil prices in the global market determines
whether Pakistan will seek to bail out owing to financial troubles.
Dr.
Salman Shah, (former finance minister 2007-08) believedthat the previous
government was not interested in reforms but winning the next general
elections, therefore, it was not concerned about going back to International Monetary
Fund (IMF). His prophetic analysis proved to be correct.The government must
follow the recommendations of the veteran economist to implement domestic
structural reforms in order to avoid the IMF’s strict terms of credit.
The
whole point of CPEC’s Special Economic Zones is that they are business hubs
with low cost of doing business, and minimal taxation. As far as oil costs are
concerned, Pakistan should not be automatically seen as having no options but
the IMF. Pakistan is already exploring credit arrangement from friendly
countries with reasonable success. It has
developed good relations with gulf countries for years and indicated their
willingness to partner with China on BRI[10].
VII.
Pakistan’s Unsustainable Economic Model
and CPEC:
Historically,
in 2007 the moment the oil prices went higher, the government decided not to
pass on the burden to the consumers owing to election appeasement of the masses.
Resultantly, the circular debt rose to an alarming level and foreign exchange
reserves hit a dangerous level. Same is the case in 2013 elections and the
current environment is again pointing towards that direction owing to the
steady rise in oil prices in international market.
According
to Salman Shah, in the light of the above challenges, Pakistan will have an
additional strain on the economy in the form of the CPEC repayments in the
coming years.
- Power plant payments
- Tariff payments
- Capacity payments
- Loan repayments
Additionally,
previous government has artificially kept the Pakistan Rupee strong by more
borrowing and not allowing it to depreciate naturally, which resulted in a
steep drop when the new government assumed the office. These are all the
challenges which are confronted by a fragile Pakistani economy.
Pakistan’s
engagement with China is hardly ‘unsustainable’. First the Chinese have a stake
in successful project implementation in Pakistan because:
- China has many international partners and it needs to show that its investments can be mutually beneficial.
- BRI is a large international project. So Pakistan has many countries to provide mutual support over concerns about the project.
- The Chinese have a track record of being flexible negotiators considering the case of the defaulting Greece according to finance minister Yanis.
4 It
is expected that the Pakistan government must be in knowledge of all the details
of the project which at time is unfair because the CPEC is likely to be
experimental, where the government will see which projects work has the
potential to be successful. However, there is an inherent risk of failure to
meet certain objectives. The main point is that the Chinese are patient
investors who will not abandon the project if something unexpected occurs.Scattered
attacks on Chinese and their firm commitment is a proof of the fact. Simply
put, Pakistan’s economic model is workable.
VIII.
Special Economic Zones (SEZ’s):
The
senate standing committee on planning and development observed that Chinese
will finance Special Economic Zones (SEZ’s). These zones are located in the
following order[11]:
- · Rashakai Economic Zone , M-1, Nowshera
- · China Special Economic Zone Dhabeji
- · Bostan Industrial Zone
- · Allama Iqbal Industrial City (M3), Faisalabad
- · ICT Model Industrial Zone, Islamabad
- · Development of Industrial Park on Pakistan Steel Mills Land at Port Qasim near Karachi
- · Special Economic Zone at Mirpur,AJK
- · Mohmand Marble City
- · Maqpondass SEZ Gilgit-Baltistan
Some
critics have raised fundamental questions regarding the planning of such
“Special Economic Zones”. These are:
- Is financing concessional or on commercial terms?
- Energy and water requirements (we don’t know)?
- Water supply (from where it will be supplied)?
- Gas supply and its impact on the national grid?
Ø Will
there be new transmission lines or the existing ones will supply power?
Ø Supposedly
some Chinese will be living in SEZ’s, so what are the security arrangements
(will CPEC force patrol inside the SEZ’s or that function will be left for
provincial police)?
Ø If
there is no direct tax levied on these industries, will their procurement from
local sources be taxable. What about Pakistan buyers buying their output, will
they be taxed with sales tax on transaction etc.?
Comparison
is drawn to Sri Lanka’sHambantota port whose majority stakes were handed over
to Chinese as the Sri Lankan government was unable to repay the liabilities[12]. The
Chinese are given 15000 acre of land to build an industrial zone and housing
for Chinese personnel. The reports of giving the policing rights to China
inside the zone has sparked massive protests in January last year[13]. It
is feared that in case of non-repayment, the Chinese government may demand land
for lease as well as policing rights which will make the area as a small colony
resembling that in Sri Lanka. Furthermore, only Chinese investors will be
allowed to invest in SEZ’s while using local power and water supply. The idea
of not including Pakistani investors may be counterproductive to local
investors.
In
essence the critics lie their basic argument around these allegations such as:
Will
they create employment opportunities for locals andcontribute to the exchequer
in the form of taxes? In case it fails to do so, then government must explain
that how it will be beneficial to a common man. Furthermore, critics have
raised the concerns that only Chinese investors will be allowed to invest in SEZs
while the recruitment of Pakistani workers may not guaranteed. If it is
designed for only Chinese investors then how the local industry will survive is
the real question and whether any steps had been taken to alleviate their
concerns. According to skeptics of CPEC, these are all key questions shrouded
in secrecy.
However,
Pakistan and China has mutually agreed to make economic enclaves or SEZs will
be all inclusive and rumors regarding the entry of only Chinese investors is a
mere fabrication. The detailed long term plan of CPEC allays most of the fears
and anxieties amongst the cynics with emphasis on greater details and clearing
the air on many aspects of the said projects. Most of the components related to
the criticism are already encompassed in the detailed plan.
IX.
CPEC-Blessing or Trojan Horse:
Dr.NadeemJaved,
former chief economist, Planning Commission of Pakistan, believes that with the
advent of CPEC the existing Pakistani business community is anxious although
their anxiety is based on myths and perceptions. The data is open and available
on website online and there is no concealing of facts by the government. According
to him the business community realizes that the economy will grow at a fast
rate but they are unsure what percentage of share will they be able to capture.
The emergence of new competitors will result in new winners and losers.
Therefore the business community’s apprehensions are baseless.
He
added that data from existing projects reveals that workforce employed is at
the ration of 82 percent local and 18 percent foreign. Therefore the conspiracy
theories of importing the Chinese workers is untrue. Why would the Chinese
import twice expensive Chinese labor in comparison to Pakistani labor? He adds that Raw material like cement, steel
and crushed stone is also acquired from local market.
Ehsan
Malik, CEO, Pakistan Business Council is of the view that the relocated 20
million Chinese jobs due to rising labor costs can be attracted by proactive
policies from government but so far it seems a far cry[14].
Furthermore,
he also expressed his reservation that do we have the capacity to neutralize
the repayment of 3-5 billion $ outflow with increased exports?
Additionally
the environmental considerations are not well taken care of. The coal-fired
power plants may be a source of cheap electricity but combined with 7000 trucks
of traffic on CPEC routes on daily basis may amount to hazardous situation for
our environment.
Nevertheless,
Mr. Ehsan is optimistic that CPEC can be a huge only our priorities are prudent
and pragmatic. Citing example of British era investment in irrigation which is
still enduring and one of the biggest investment in Subcontinent. He hopes that
CPEC will also last for quite some time provided the quality of infrastructure
is of the same quality as British. This project may not be taken for granted
like a “Gift horse”, else it has the potential to become a “Trojan Horse”.
X.
Exploitation of GilgitBaltistan’s
Status:
Misinformation
is created among the GilgitBaltistan masses that Government of Pakistan is
declining the foreigners to visit Gilgit-Baltistan to suppress the voice local
people. Furthermore it portrays the Government of Pakistan and China as
colluding on this while the government of Gilgit-Baltistan is also involved in
this scheme. These reports blame China and Pakistan for economic murder of
locals and scheming to vacate the area so that China can establish its
satellite colony there. These incongruous allegations also alleges that the
world’s great game is being played in Gilgit-Baltistan. Our neighbor India is
also colluding with local miscreants’ to spread that Pakistan is not ready to
grant GB with a constitutional status, and conveniently refer to its status as
part of the Kashmir issue. The critics raise a question that; How CPEC is
passing through a disputed territory?
Some circles are of the view that if someone
asks for economic uplift in GB, they are given a count of previous projects
completed in Musharraf and Zardari’s tenure. If a genuine voice is raised, the
person is termed as a traitor. The also allege that the ban on tourism is
economic murder of common people.
But,
According to Ayesha Saddiqa (Foreign Policy Analyst and Author of Confrontation
to Conciliation: India-Pakistan Relations), the main concern is the absorption
of occupied valley of Kashmir by India replicating Pakistan’s absorption of GB[15].
Hence, India is the one instigator in this case and must meet international
conventions and norms. Furthermore, China has expressed its deep commitment to
the earliest completion of the project with an emphasis to benefit not only
Pakistan but the whole region. Deliberately highlighting GB as disputed may
have two inherent goals for India, which is to conceal its own atrocities in
Occupied Jammu and Kashmir and distract the development of CPEC through
unnecessary involvement. Intrinsically, a belief exists among the Indian
echelons of power that strong and prosperous Pakistan will be more detrimental
to India’s illegal occupation of the occupied Valley.
It
is a fact that people of GB have endured huge sacrifices for the motherland
Pakistan. The concerned quarters in establishment must be cognizant of the fact
that people of GB only wants constitutional rights under the constitution of
Pakistan. If the establishment remains ignorant of the needs of common people,
then various subversive elements may be inclined to instigate the masses to
raise the voices of separate homeland which is contrary to the national
security interests of Pakistan.
Furthermore, a fabricated story is being spread
across the western media with concerted efforts from neighboring India
regarding constitutional status of Gilgit-Baltistan (GB) as a main cause of
concern for Chinese. Therefore, it is argued that Chinese may be reluctant to
invest in a project that is “supposedly” going to pass through a region that is
disputed. Hence on Chinese pressure, Pakistan was able to give a minimum legal
status to Gilgit-Baltistan but these actions may damage Pakistan’s longstanding
stance on Kashmir issue on which Pakistan has invested politically and economically.
The ban on tourism is not in place and these assertions are made time and again
to evoke resentment and anxiety among the local masses in view of massive
economic activities in GB. The enhanced scrutiny on traveler from few listed
countries is being done to ensure their safety and to undertake all the
necessary precautions.
It
is a fact that people of GB have endured huge sacrifices for the motherland,
Pakistan. The concerned quarters in the establishment must be cognizant of the
fact that people of GB only wants constitutional rights under the constitution
of Pakistan. The people of GB have legitimate concerns regarding the grant of
constitutional status of separate province inside federation of Pakistan. If
the establishment remains ignorant of the needs of common people, then various
subversive elements may be inclined to instigate the masses to raise the voices
of separate homeland which is contrary to the national security interests of
Pakistan. Pakistan is facing fifth generation warfare in where certain elements
are trying to create a sense of mistrust among state of Pakistan and people of
Gilgit-Baltistan in order to obtain their vested interests. It is very common
to use people’s vulnerabilities like economic and legal issues as a cover to
brainwash the patriotic people of GB. This propaganda is rife and mostly
funded by our neighboring India for fulfilling its agenda to conceal its
illegal occupation of Jammu and Kashmir and dilute its essence as a genuine
struggle.
XI.
Chinese Concerns on Security Highlighted:
There
are assertions regarding security conundrums in Pakistan such as Baloch
insurgency which constantly targets Chinese workers as well as Army and
government installations. The prime example can be found in the recent Chinese
consulate attack.Furthermore, China has some apprehensions regarding ties
between Afghan Taliban and Uighur militants in China. The TTP and Islamic state
can also join the forces and pose a potential threat to the viability of
project through insecurity.
XII.
Environment Safety:
According
to District Forest Officer Riaz Khan Tanoli, in Siran forest that lies in lower
Hazara, saw 10,075 trees being chopped to make way for CPEC route. Heavy
machinery can be seen polluting the environment with cloud dust. Furthermore,
the construction of the 59.1-kilometre Hasan Abdal to Havelian section has
resulted in chopping of over 2,000 fruit trees and 25,500 forest trees
according to Environmental Impact Assessment (EIA)by NHA.
The
environmental experts believe the CPEC project may deprive the areas from
Haripur to Thakot with 70000 mature trees. This situation has serious
consequences for the environment
Coal
fired power plants emitting carbon dioxide in the air, coal mining resulting in
methane is harmful for environment and cutting of huge amounts of tree in
northern areas of GB and Khyber Pakhtunkhwa is also a major climate concern.
Experts believe proper assesments of environment has not been done yet.
It
is however important to balance environmental priorities with concerns of
Pakistan’s economic development and poverty alleviation. The incumbent has
already Bonn challenge of planting a billion trees and which was authenticated
by WWF[16].On
the other hand environmental costs like poisoned rivers and melting glaciers
could trigger natural disasters. The question however has more to do with
Pakistan’s environmental policies and negotiations than the perceived detriment
of CPEC.
XIII.
Chinese Businesses
Favored Over Domestic:
The
29 industrial zones and parks being established under CPEC will be given
preferential treatment, tax holidays and higher rate of return. Such
initiatives may attract Chinese investment although local industries are
apprehensive and demands from the government to withdraw such incentives or
grant the local industry with same incentives, in order to make the environment
competitive else the local industry stands marginalized in front of superior
Chinese expertise.
The
fact of the matter is that Pakistani Industries are already competing Chinese
Pakistani goods. However, the government does have the leverage to protect its
industry. Hence, in this case it should negotiate with the industry rather than
ignoring the positive aspects of CPEC.
XIV.
Displaced Local
Population’s Compensation:
The
issue of dislocation of communities that lie in the way of corridor and
government is bounded to give them a suitable relocation. Furthermore,
livelihood of fishing communities in Gwadar is badly affected due to fishing
ban citing maritime security concerns by the government. These communities should
be adequately accommodated. The nationalist parties are also voicing concerns
regarding marginalization of local community due to the surge in workers from
other provinces.
4.
Is CPEC Really a Game Changer?
Some other critical aspects of the CPEC are:
Ø To
what extent will Chinese companies include Pakistan in intellectual property
rights (IPR) and technology transfer? Generally, the global trends indicate
that companies are reluctant to do so, but this aspect is crucial in further
development of commerce and industry in Pakistan[17].
Ø Pakistani
industries stand exposed to the floodgates of Chinese companies. The government
needs to evolve a strategy to protect the local industry. If steps are not
undertaken, then Pakistani local industries may never recover and fail
miserably in competition.
Ø Gwadar
will be tax free zone, which may undermine Pakistan to levy taxes and hence
collect revenue. Gwadar may become a hub of activities in future and Pakistan
may not be able to fully harness its potential owing to this limitation.
Pakistan will have to look for alternative sources to raise the funds to pay
back the CPEC liabilities.
Ø If
the liabilities are not repaid then China may demand mortgaging the assets of
Pakistan which will be a breach of sovereignty. Owing to Pakistan’s volatile
and fragile political and economic environment, such an outcome cannot be ruled
out.
Special
Economic Zones (SEZs) are specially designated facilities for lowering
technology transfer and lowering the product costs.Pakistan can easily request
for the technology transfer at any stage. Something that Chinese have been keen
to pursue themselves. Gwadar is designed to enhance trade and encourage
business. The businesses by its virtue creates jobs and by linking them to the
economy, it will have positive impacts on the economy. Furthermore, transit
fees up to Chinese border will be adequately taxed to offset any tax amnesties
in Gwadar tax-free zone. Furthermore, Gwadar is packaging itself as an
attractive destination for foreign direct investment which is possible if it is
tax free zone.
I.
Renegotiating Free
Trade with China and Inclusion of Iran:
Two
main issues need to be sorted out in the backdrop of CPEC to ensure Pakistan’s
integration with the region keeping in view India’s aversion. These steps are:
Ø Renegotiating
the Free Trade Agreement talks with China. The current agreement is severely
disproportionate leveraging the Chinese products and flooding Pakistani
markets. The Trade deficit in 2013 was 4.1 billion dollars which jumped to 9.1
billion dollars which is a huge amount. The Pakistani government and Business
community is facing hard time to convince about renegotiating the unfair terms.
Ø Linkages
with Iran can be explored through energy cooperation. But later such overtures
can be expanded to different industries. But currently no such visible
initiative is taking place. Furthermore, Power Purchasing Agreement (PPA) may
be renegotiated considering the plummeting oil prices in global market. We need
to be proactive in such steps as they will serve Pakistan’s vital national
interests.
II.
Geostrategic
Repercussions of CPEC:
China
needs a secure route oil rich hydrocarbon producing countries via Arabian Sea.
The Gwadar is relevant not only in economic context, but for geostrategic
reasons. The shipping lanes on Strait of Malacca is a possible chokehold for
China.
The
bigger picture is that Chinese will build and Finance CPEC to create an option
B in case Indo-US nexus chokes Strait of Malacca with the help of other allies
like Japan. Pakistan will face the brunt of social and political disruption in
the meanwhile. Innocent lives will be lost owing to security concerns and a big
game on the surface of Pakistan by proxies from various countries.
Majority
of investments in CPEC is earmarked for power projects to the tune of 36
billion dollars. In the last budget of 2016, sales tax and custom duties on
different products for special economic zones were slashed. But the benefit was
not extended to the local industry. Therefore, there are concerns among local
wire and cable producers hence they demanded the government to treat the local
industry with same relaxed tax regime as for imported wires and cables, in
order to make them more competitive and protect their interests[18].
Currently,
a sales tax of 17 percent has to be paid in order to buy wires and cables from
local industry. The custom duty on base metals such as copper cathode and
aluminum ingot is 3pc while one percent additional custom duty is levied. These
raw materials are not produced locally and has to be imported hence increasing
the cost of production. The industry also demands 10 pc regulatory duty on
foreign imports in order to protect local industry.
Contrary
to popular beliefs about CPEC, apart from an amalgamation of Industrial
advancement projects, highways and energy projects, it is strongly based on a
long term clear direction towards agriculture development.
Main cooperation areas include[19]:
- · Lease farm implements such as tractors and other machienry
- · Plant protection machinery
- · Energy saving pump equipment
- · Precision fertilization drip irrigation equipment
- · Planting and harvesting machinery.
Fertilizer
plant with an annual output of 80000 tons wheat will be the first step in that
direction[20].
In addition, vegetable processing
plant will be developed in Asadabad, Islamabad, Lahore and Gwadar. Sukkur will
see a meat processing plants are planned
with an expected annual output of 200,000 tons per year as well as two
demonstration plants processing with an expected output of 200,000 tons of milk
per year[21]. In crops, demonstration
projects will be set up on more than 6,500 acres for high yield seeds and
irrigation, predominantly in Punjab. While in transport and storage, it is
aimed to develop “a national logistics network, and enhance the warehousing and
distribution network across major cities of Pakistan” with an emphasis on
grains, vegetables and fruits. Storage centers will be established in Islamabad
and Gwadar in the initial phase to be followed by Karachi, Lahore and Gwadar in
the next phase. In the third phase, one additional storage base will be
established in Karachi, Lahore and Peshawar.
5.
Conclusion
It
is regrettable that the CPEC is being met with so much suspicion. No doubt it
is true that Pakistanis should be careful to judge proposals that will affect
their lives, but scrutiny should not turn into unfair and unnecessary
suspicion. It is acceptable to be concerned about costs and our environment but
comparing this agreement to a new form of colonialism, and China to the new
East India Company is a bit unfair. Pakistan needs to signal to its prospective
investors that it has the capacity and capability to protect its economic
interests inside its territory. Ultimately we believe that CPEC is good for
Pakistan; it brings investment, jobs, and a chance to connect with our
neighbors and increase our regional security. Trade with China means a
challenge for our industry, however, it does not mean that we let this
opportunity slip away with an emphasis on protecting our industry. Simply put:
right now how well this project goes depends upon our government’s ability to
seize this chance to transform Pakistan’s economy. Furthermore, it should also
enhance the consensus among all federating units of Pakistan through
transparent dissemination of information to concerned stakeholders.
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[1]Husain.
Khurram, CPEC cost build-up, The Dawn
News, December 15, 2016.
[2] Ibid
[3] ibid
[4]Jorgic. Drazen, Four percent of global trade to pass through
CPEC by 2020, Business Recorder, May
11th, 2017
[5]Mahmood. Amjad, CPEC not responsible for Pakistan’s
economic woes, says China, The Dawn News, October 23, 2018
[7]Baloch
Separatist Leader Defects in Moscow, Blames India for Hijacking Struggle, Sputnik International, February
23, 2018
[8]Ali. Imtiaz Ali, Baloch separatist leader HarbiyarMarri
among 13 booked for Chinese consulate attack, The Dawn News, November 24,
2018
[9]Raza.
Syed Irfan, NA panel cautions govt over
CPEC use by Chinese trucks, The Dawn News, February 28, 2017
[10]Jamal. Umair, The Future of CPEC: Enter Saudi Arabia?,
The Diplomatic, September 27, 2018
[12]Mourdoukoutas.
Panos, China Is Doing The Same Things To Sri Lanka That
Great Britain Did To China After The Opium Wars, Forbes, Jun 28,
2018
[13]Husain.
Khurram, CPEC enclaves, The Dawn
News, March 09, 2017
[16]Hutt. Rosamond, Pakistan
has planted over a billion trees, World Economic Forum, July 02, 2018
[19]Khan. Mubarak Zeb, Cable, wire manufacturers say tax breaks
under CPEC hurting industry, April 16, 2017
[20]
Ibid
[21]
Ibid
