Is China-Pakistan Economic Corridor (CPEC) Bane or a Boon for Pakistan?
Pakistan’s life started with aid and grants – which it smartly maneuvered to receive through various machinations – sometimes terror and sometimes with the threat of Nukes going berserk. Over the years, while becoming overly dependent on aid and on grants and imports of goods, the economy and people have become incapable of producing goods and services which can run the economy without the doles from outsiders. Just as a matter of example, the IT sector of India generates $150 bn of revenue.
According to NASSCOM, the sector aggregated revenues of US$147 billion in 2015, with export revenue standing at US$99 billion and domestic revenue at US$48 billion, growing by over 13%.
On the other hand, Pakistan generates a piddly anywhere from $370 million to $2 billion (figure is disputed!) in IT revenue.
While the West used multi-lateral grant agencies to keep Pakistan obligated to it, China has other ways. It has somehow come to be known as the “fair-weather friend of Pakistan” in that “nation with no friends” and it is using that de-facto status to enslave Pakistan in a way that will be unprecedented. China-Pakistan Economic Corridor (CPEC) is the biggest tool that China is preparing to use for enslavement.
China-Pakistan Economic Corridor (CPEC) – The Enslavement Tool
China–Pakistan Economic Corridor (CPEC) is the project that China is investing to connect the Gwadar port to China mainland via Karakoram highway. Networks will be built to connect Gwadar and Karachi seaports to northern Pakistan but also to western China and Central Asia. Also the rail network will be extended where Karachi–Peshawar main railway line will be linked to China’s Southern Xinjiang Railway in Kashgar.
Dreams and Reality of CPEC
Gwadar, the port that China is building and wants to link to mainland China is in Balochistan. It is being sold the dreams of becoming the next Shenzhen with an awesome port, five star hotels and factories producing cars and other goods to be sold to the world! Irony is that the place is so poor and has been so stripped of basic resources that recently when a house was burgled – the thieves took cans of fresh water! Reservoirs have dried up so dramatically. That is why there has been such strong criticism and opposition to the CPEC plan from the Balochis.
The Long Term Plan on China-Pakistan Economic Corridor document released in May 2017 shows what the Chinese are planning and what Pakistan may have in store for it in future. The penetration by the Chinese in telecom and in the agricultural sector will not just be unprecedented for any sovereign nation, but also decidedly disastrous!
“Thousands of acres of agricultural land will be leased out to Chinese enterprises to set up `demonstration projects` in areas ranging from seed varieties to irrigation technology. A full system of monitoring and surveillance will be built in cities from Peshawar to Karachi, with 24-hour video recordings on roads and busy marketplaces for law and order. A national fibreoptic backbone will be built for the country not only for Internet traffic but also terrestrial distribution of broadcast TV, which will cooperate with Chinese media in the `dissemination of Chinese culture`.”
Think of it – the Chinese not just get to create the communication and network infrastructure but also the content of what would be disseminated via those networks! That would indeed be unprecedented for any takeover of a sovereign nation in recent times.
Details of CPEC
What does the CPEC entail? It has two broad components.
The total committed amount under CPEC of $50 billion is divided into two broad categories: $35bn is allocated for energy projects while $15bn is for infrastructure, Gwadar development, industrial zones and mass transit schemes. (Source)
There is a rather very optimistic and huge expectation from this project in Pakistani minds. They are expecting this will increase jobs via better infrastructure and connectivity. In some cases the projections of the benefit are exaggerated. But then there are some folks in Pakistan who are speaking out about the issues with the whole deal. One senator, Tahir Mashhadi, in fact called this another East India company in the making.
“Another East India Company is in the offing; national interests are not being protected. We are proud of the friendship between Pakistan and China, but the interests of the state should come first,” Senator Tahir Mashhadi, chairman of the Senate Standing Committee on Planning and Development, said when some committee members raised the concern that the government was not protecting the rights and interests of the people.
Basically, there is this feeling in some folks that financially it will hurt Pakistan and may lead to the nation being a “slave state” of China for the future.
But does CPEC help Pakistan?
Well, per one report by a leading brokerage houses in Pakistan seems to state that Pakistan will end up paying a huge cost for the investment that China is making. For a loan of $50 bn, Pakistan will end up paying back $90 bn!
Pakistan will end up paying $90 billion to China over a span of 30 years against the loan and investment portfolio worth $50 billion under the China-Pakistan Economic Corridor (CPEC), report of a brokerage house estimated.
The estimated return – sum of principal and interest on foreign currency debt and repayment of profits/dividend on equity investment – shows 40% return on investment.
Although people in Pakistan keep talking about how the CPEC will have a “ripple effect”, but the think-tanks are now saying that the benefit will only be from the creation of infrastructure, not necessarily from the income from those.
“What’s more, since it will be Chinese companies running many of the new power stations, the income from selling the electricity generated will flow out of Pakistan,” Oliver Jones, the researcher for Capital Economics said.
“The short-term boost from construction is unlikely to be as much as the headline figures imply, and in any case there are big doubts the projects will be delivered on the scale that is planned,” he said.
Already 8000 Chinese workers are employed in the project and they will in all probability repatriate the moneys back to their country as opposed to using it to boost the Pakistani economy. Overall, financially – the loan and money repatriation will badly hurt the Pakistani economy.
The IMF raised serious concerns saying that the project will push up Pakistan’s current account deficit to 1.5 per cent of GDP next year. Medium-to-long term issues like increasing capital outflows “could arise from CPEC-related repayment obligations and profit repatriation,” the IMF said in its final review of its three-year loan to the country.
The projects have an estimated debt-equity ratio of 80%-20%, and rather intriguingly (because it is a rip-off!) these investments guarantee a 17% to 20% rate of return in dollar terms on their equity (only the equity portion, and not the entire project cost)! So, China will recover its investment within 26 months while Pakistan will keep paying for it for the next 25 years and beyond!
The Rip-off Deal!
As much as China is granting loans and ensuring Pakistani enslavement, it is selling all these “goods and plants” at steep prices. For example, solar power plants have a locked tariff of US$0.14 per KWh of generated power for the Chinese. Compare this with the tariffs in India of $.04! Quite simply, it is a 350% higher LOCKED tariff – an out and out RIP OFF!!
Sri Lankan Example of Chinese Control
Some years back – under Mahindra Rajapaksa, a President who was rather friendly with the Chinese and was prone to snubbing Indians – Sri Lanka took on “Chinese investment” to build a port, airport and roads. Cut to some years ahead, the Hambantota port region is not fully developed yet, Mattala International Airport is known as the world’s emptiest airport, multi-lane highways don’t have any cars on them and cricket stadium built there has no matches. But the Sri Lankans already owe $8 bn to China. Unable to pay back the Chinese debt, Sri Lanka is now handing over its country’s entire region where the port and airport were built. Basically, Chinese will effectively own that entire land in Sri Lanka for their own strategic purposes of creating power in the Indian Ocean.
China Merchants Holdings (International) Company Ltd is set to take over an 80% share of the Hambantota deep sea port in exchange for eating $1.1 billion of Sri Lanka’s debt to China. This is the same shipping company that expanded and is now running Colombo’s South Container Terminal. As part of similar proceedings, an as yet unnamed Chinese company (possibly IZP, a Chinese informational technology firm) will also take over the debt-riddled, revenue-draining Mattala International Airport in an attempt to turn it around.
Along with headway being made on a prospective 15,000 acre, China-led industrial zone near the Hambantota deep sea port, the development area seems well on the way from being a Sri Lanka national project financed by China to a full-fledged Chinese enclave at a very strategic position on the Indian Ocean.
Sri Lanka had offered China debt-for-equity swaps that included the Hambantota port and Mattala airport before, but these were rejected on the grounds that China preferred to enact such deals via commercial entities rather than through government-to-government exchanges. Sri Lanka seems to have effectively eased China’s qualms in this regard, and the deal is expected to be formalized in the near future.
Sri Lanka was looking to get a hold on its debt problem – but instead it got worse.
The official estimate of what Sri Lanka currently owes its financiers is $64.9 billion — $8 billion of which is owned by China. The country’s debt-to-GDP currently stands around 75% and 95.4% of all government revenue is currently going towards debt repayment.
This helplessness to punch its way out of the debt trap on the Chinese backs and create “next-gen infrastructure” has cost Sri Lanka dearly!
Between 2009 and 2014 Sri Lanka’s total government debt tripled and external debt doubled, as the country engaged in a number of costly undertakings — such as attempting to build a new, multi-billion dollar city in the middle of a jungle (which includes the world’s emptiest international airport), constructing one of the most expensive highways ever made, as well as other pricey endeavors, such as spending $42 million just to remove a rock from the harbor at Hambantota.
It is mind-boggling that Pakistan has not learnt a thing from the Sri Lankan experience of how the Chinese captured and colonized that country’s land without sending a single soldier!
Pakistan is beholden to the Jehadis and terrorists that it has created. Despite the high cost in lives and money, it is hardly likely that it will ever abandon the addiction. Now when it is using malafide ways to not just antagonize its neighbors (Afghanistan and India specifically) and the world – there is every reason to believe that it will be repaid in kind. After decades of taking the hits on the chin, India and Afghanistan are also working to give it back. This is especially so because of how the CPEC runs through the Pakistan Occupied Kashmir – something that rightfully belongs to India per the Instrument of Accession in 1948!
Because of the whole geopolitical quagmire, and due to Pakistan’s own doings – specifically in Balochistan, where it has been involved in a genocide a la the genocide in Bangladesh before the 1971 war – things are bound to heat up along the whole route from PoK to Balochistan.
The strange thing is that IF Pakistan is able to tide over the geopolitical issues, it will find itself in a situation where it is a slave state of China. Even more so than it is now! It is going down either way. But countries like India need to find ways to ensure that in the aftermath China is not found encircling the whole region and trying to carve out territories like it is wont to do. Pakistan is on an existential suicidal spiral, but India cannot feel good about it as it will mean a greater long term danger from China going forward. The real culprit to challenge in these developments – Sri Lanka and Pakistan – are not the looney establishments of those countries, but China’s hegemony.