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CPEC: Is there cause for alarm?


The writer is a member of staff..

A NUMBER of articles in the past week have created some undue anxiety about the China-Pakistan Economic Corridor. Let us put it in plain English at the outset: CPEC is not another East India Company. That comparison is specious and entirely unhelpful, even if some find it useful purely as a metaphor.

There are two reasons why the comparison is unhelpful. First, the East India Company had an element of force, something totally absent in the present case. Second, the East India Company gradually shed its trading activity and acquired governance responsibilities, taking on the administration of land revenue and justice, as well as education and the maintenance of an armed force. CPEC is moving in an entirely different direction.

The only area where the comparison might work is in the extraction of a surplus from Pakistan and its transmittal to China. But, even here, it must be kept in mind that the surplus is not being extracted through the use of force or from land revenue (or taxation in the present case), but purely from debt servicing and the repatriation of profits. All foreign investment involves these elements, not just the one coming from China. So at the same time that we are hearing about the arrival of Chinese investment under CPEC, we also have auto makers entering the Pakistani market from Korea and Europe, as well as a Dutch company acquiring stakes in the food sector. This is not necessarily a ‘creeping colonisation’.

The short answer is no. The long answer is not yet.

News about a research report put out by Topline Securities, which claimed that Pakistan will repay $90 billion on CPEC investments of $50bn, sparked a new round of anxiety-laden commentary on social media and television. The report itself is sound, and the figure of $3bn per year as repayment obligations is similar to what others have calculated. My own calculation on CPEC repayments, published in this column a few weeks earlier, gave me a figure of $3.5bn, while former State Bank governor Dr Ishrat Husain calculated $3bn.

But that is not a colonial level of surplus transfer. It certainly means that the projects being set up under CPEC are not for free, nor should they be seen as ‘concessional’. This is not a ‘gift horse’ that we are dealing with. The most that this figure ought to tell us is that we need to be careful in negotiating the terms, and ensuring that appropriate reforms to boost the economy’s productivity and competitiveness accompany the implementation of the project.

CPEC is best seen as an opportunity, not as some sort of manna from heaven that will come and solve all our problems. The worst mistake is to view CPEC as some sort of self-paying enterprise, as if the investments will somehow generate the required level of economic activity to automatically fulfil all the repayment obligations that they bring. This is a mistake because it cannot be taken for granted, and since it appears the government is indeed proceeding under this assumption, it is imperative for us to ask how they have calculated the returns from the investment.

The important question to ask is what will be the impact on domestic industry of the special incentives being given to Chinese investors. And connected with this question is the larger question of transparency. Thus far, too much of the project is shrouded in secrecy, and whatever information is being released appears to be carefully vetted.

Take as an example the question of repayment obligations. Thus far the only figures we are seeing are rough calculations produced by independent observers. The State Bank has told us nothing about the projected burden on the foreign exchange reserves due to CPEC outflows, and the IMF has given us a rough estimate that the total could add up to 0.4pc of GDP per year. It appears the government is not sharing the requisite project details with either of the two institutions, nor is it saying anything meaningful about how it has calculated the repayment obligations connected with the projects. All we have is a misleading statement from Sartaj Aziz that CPEC project loans will be serviced at 2pc, which is true for about a quarter of the total projects at best.

Minister for Planning and Development Ahsan Iqbal put up an indignant Facebook post saying he is “amazed at baseless and myopic propaganda against CPEC” by those who are asking “why special zones for Chinese companies” are being created. He points out that China is relocating much of its industry to other countries due to rising wages in China. “If those companies are being attracted to come to Pakistan what is the harm?”

The harm, Mr Minister, is when your own government is putting out mixed messages. In one place we hear that the zones are for the Chinese companies, and in another we are reassured that they will be open to all. So what exactly is ‘baseless’ here, the ‘propaganda’ of those who are asking this simple question or the assurances being put out by your own government? And who is more myopic, the one gorging himself on foreign debt comfortable in the assurance that the future will pay for itself, or the one asking what repayment obligations come with these inflows and what is the plan for meeting them?

We don’t need more anxiety concerning CPEC, but we do need answers. When we frame our understanding of the enterprise in terms like ‘East India Company’, it warps our perception of the whole thing, and does not help in framing the right questions. The government can help allay some of this growing scepticism and anxiety by being more forthcoming with the details, and certainly a lot straighter with its answers. Snapping at the questioner is no way for a government minister to behave


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