Leaked documents reveal China's plans to gain a controlling stake in large swathes of Pakistan's economy, from farms and textiles to power projects, even the stock exchange.
By Ananth Krishnan in Beijing |
July 20, 2017
When Mao Zedong's People's Liberation Army marched into the restive Muslim-majority region on China's western frontier in 1949, the Chairman decided to christen the People's Republic's newest province Xinjiang, literally meaning 'new frontier'- a historical name used intermittently for China's borderlands. Today, for many in Beijing, Pakistan is China's new new frontier. If the 20-year blueprint envisioned by China's leaders and Pakistan's current government comes to fruition, Beijing will soon have a say in how almost every aspect of the Pakistani economy is run.
In the three years since the China Pakistan Economic Corridor (CPEC) project was launched, this transformation has already begun to unfold. A draft CPEC masterplan, conceived of by China's National Development and Reform Commission and Pakistan's ministry of planning and published by Pakistan's Dawn newspaper, and the most sweeping Chinese assessment till date about the project- an internal review undertaken by Beijing's Renmin University and shared with India Today- both underline the enormous scale of the planned economic takeover, from roads and power plants to even agricultural projects.
PAKISTAN'S NEW OLD FRIEND
Today, Chinese companies are building and managing the country's key transport networks, from national highways to Lahore's metro rail. China has bought a stake in Pakistan's stock exchange. It is building Pakistan's power sector, coal plant by coal plant, and will eventually, many experts believe, have a say in how much Pakistani citizens pay their government for electricity.
Ties between China and Pakistan go back to the early 1960s, a relationship forged in their mutual animosity towards India in the wake of their respective wars. Since then, both governments, and particularly militaries, have developed close relations. China has supported Pakistan as a counterweight to India in South Asia, most notably through its continuing support of the country's nuclear programme. China, however, fell out of prominence in the wake of America's 'war on terror' after the September 11, 2001 attacks. This also coincided with Beijing more carefully balancing its growing relations with India after the 1988 normalisation of ties. In the years following 9/11, the US began leaning heavily on Pakistan for its war in Afghanistan, emerging as the biggest financial donor.
That is now no longer the case. China has now replaced the US as Pakistan's biggest benefactor. The launch of CPEC has only further reinforced this position: China's trade with Pakistan has already risen threefold in the past few years, to $13.7 billion in 2015-16, up from just $4 billion in 2007. Today, China accounts for 40 per cent of Pakistan's foreign direct investment, which is only around $2 billion. According to the Pakistani government, it was China's $600 million that contributed to a 38 per cent rise in FDI in 2015-'16.
THE TAKEOVER BLUEPRINT
CPEC will usher in an even more sweeping takeover of the Pakistani economy. A draft masterplan says thousands of acres of Pakistani land will be transferred to Chinese companies to grow crops, build meat processing plants and develop free trade zones. Chinese garment factories will, en masse, be transferred to Pakistan, while China will manage and run tourism projects and special economic zones along the southern coast, with rather ambitious plans for even yacht clubs and hot spring hotels to develop an unlikely tourism hub in the restive Balochistan province, of all places.
"There are fears that Pakistan will become just another province of China, or will be reduced to being a 'vassal state'," S. Akbar Zaidi, a leading Pakistani political economist and professor at Columbia University's School of International and Public Affairs, has argued in a paper.
For Beijing, the stakes are high. The internal assessment by Renmin University's Chongyang Institute for Financial Studies, which sent scholars to visit Pakistan and study CPEC projects late last year, warned of numerous risks, from political infighting in Pakistan to terrorism. The report, however, came to the final conclusion that the only way for China to guarantee success is to assume even more sweeping control.
'Neither China nor Pakistan can afford the consequences of the failure of constructing the corridor,' the Chinese report concluded. 'If the current uncertainty was to continue, it would not only delay the opening of the flagship project but CPEC would end up becoming a burden on China and have a great negative impact,' it said, of President Xi Jinping's pet One Belt, One Road (OBOR) initiative.
The most surprising aspect of the draft masterplan is its revelation of the wide ambit of conceived projects. Previously, CPEC was thought to be limited to power and infrastructure projects in Pakistan. The $46 billion cited estimate of the total initiative envisages $11 billion investment in highways and transport networks, and $35 billion in coal and hydropower plants aimed at tackling Pakistan's energy deficit.
The draft plan, however, reveals that CPEC will eventually be far more sweeping than power plants and roads: it envisages a complete takeover of almost every aspect of the Pakistani economy. Agriculture, surprisingly, is the focus. Around 6,500 acres will be leased to China for agricultural demonstration projects, the masterplan draft says. It lists 17 projects, including a fertiliser plant with an annual 800,000 tonne output. Vegetable and grain processing plants with a 1 million tonne capacity have also been planned.
Power projects that will cut Pakistan's soaring energy deficit are also central to the plan. China has announced 17 projects with a total investment of $35 billion. The first of these, a coal-powered plant at Sahiwal in the Punjab, went online in May. Pakistan suffers an energy deficit of around 7 GW, with a capacity of 22 GW that, however, only produces around 12 GW a year. The total energy from China's projects, once they go online in the next few years, is an estimated 12.1 GW, which China says will end up bridging Pakistan's energy gap and ultimately contribute between 40 and 50 per cent of the country's energy needs. In addition to this, the Chinese are planning to overhaul Pakistan's road and rail infrastructure. Apart from upgrading the Karakoram highway that will serve as a key arterial link connecting Xinjiang and Gwadar, it is already being used to ship goods transported from Xinjiang by road, by sea to West Asia-China is also revamping the country's crumbling national highway and railway network, starting with upgrading sections of the Karachi-Peshawar road and rail line.
THE XINJIANG MODEL
Essentially, the 'Xinjiang model' will be adopted in Pakistan. In the 1950s, Mao set up the Xinjiang Production and Construction Corps (XPCC), a state within a state tasked with carrying out agriculture and development projects in what was then China's wild west. The CPEC plan even conceives of a role for the XPCC. 'We will impart advanced planting and breeding techniques to peasant households or farmers by means of land acquisition by the government, renting to China-invested enterprises and building planting and breeding bases,' it says.
'China-invested enterprises will establish factories to produce fertilisers, pesticides, vaccines and feedstuffs' while 'China-invested enterprises will, in the form of joint ventures, shareholding or acquisition, cooperate with local enterprises of Pakistan to build a three-level warehousing system (purchase and storage warehouse, transit warehouse and port warehouse)'. China will even construct a national storage network of warehouses for Pakistan, starting in Islamabad and Gwadar and then in Karachi, Lahore and Peshawar.
The draft also outlines a move to transport China's waning textile industry, currently grappling with rising wages, to Pakistan. As a start, a cotton processing plant with a 100,000 tonne output has been planned. The longer-term plan, Renmin University's assessment suggests, is 'shifting China's garment industries directly to Pakistan'. Beyond the lower wages and availability of land, China sees the favourable export tariffs Pakistan enjoys as a motivation.
'With Pakistan in 2015 acquiring duty-free access to the EU even as China's tariffs increased from 9 to 12 per cent, this is worth considering,' the study advises. China is also planning to develop Pakistan's mineral resources, particularly in Balochistan and Khyber-Pakhtunkhwa, eyeing gold reserves as well as setting up marble and granite processing sites.
HEART OF THE PLAN
Gwadar, a dusty town of less than a hundred thousand people that sits on the Arabian Sea in Balochistan, is the CPEC hub. China has already built a port here that it is managing. Beyond the port, which will give China access to the Indian Ocean, it envisages a free trade zone and manufacturing hub that could serve as a launch pad for exports to West Asia and Africa. China has already secured a 23-year tax-free deal for its companies that will operate out of Gwadar.
The CPEC masterplan rather ambitiously even envisages a coastal tourism belt in restive Balochistan, planning 'international cruise clubs' in Gwadar that would 'provide marine tourists private rooms that would feel as though they were "living in the ocean''.' A coastal tourism zone will feature 'yacht wharfs, cruise homeports, nightlife, city parks, public squares, theatres, golf courses and spas, hot spring hotels and water sports', the Dawn report noted, running all the way to the Iran border.
China sees the Gwadar port as the heart of the plan. The Renmin University study forecasts an ambitious annual cargo throughput of 300-400 million tonnes, more than 10 times Pakistan's current biggest port, Karachi, and, the study pointedly adds, almost equivalent to India's total current throughput. The university's researchers found that Gwadar, still nowhere close to capacity, had been transformed under Chinese management. In February 2013, the China Overseas Port Holdings Limited acquired the rights to operate the port from the Singapore Port Authority, which left the port in a state of ruin, 'filled with rubbish and garbage', until the Chinese took over. Since then, a first shipping route was opened by the Chinese state-run Shipping Ocean Company (COSCO) in May 2015 exporting local seafood to Dubai. In November, the first CPEC export was flagged, as a convoy carrying 60 containers of a range of Chinese goods, from machinery to appliances, to be exported to West Asia and Africa, arrived in Gwadar after travelling 3,000 kilometres from Xinjiang along the Karakoram highway.
China is certainly more than aware that a lot can go wrong with this ambitious economic blueprint in one of the world's most volatile regions. A significant portion of the Renmin University assessment was devoted to assessing risks, the biggest of which, in the Chinese view, is Pakistan's unpredictable domestic political environment. For instance, it cited a project in Sindh that faced a lack of support from the local government. 'The project is ratified by the federal government but the Sindh government believes the centre does not have the authority,' it said. The report also noted the heated controversy between states over the CPEC's alignment, with widespread resentment that Punjab, where Prime Minister Nawaz Sharif and his brother Shahbaz, the chief minister, are dominant figures, was acquiring prime projects.
The Chinese study warned of 'ethnic and provincial conflicts in Punjab, Sindh and Balochistan', but was optimistic that most provinces and parties were supportive as 'except Balochistan no other ethnic group party opposes CPEC'. The report concluded that a government under Nawaz Sharif would ensure the project's progress, expressing concern about his weakening domestic position after the Panama Papers revelations. 'If there are no exceptions, the chances for PML-N (Sharif's party) to reassume power are high, and the continuation of the government can guarantee the continuation and support of the government to CPEC,' the report said.
Security is the other major concern, highlighted by the kidnapping and reported killing of two young Chinese from Quetta, Balochistan, in May. The Chinese study cited a number of other incidents that had targeted its citizens in 2016. In May, a Chinese engineer at the Kazmu project was targeted by a bomb attack claimed by an outfit called the Sindh Revolutionary Force. Two months later, a bomb attack in Quetta killed 74 people, while in November last year, a team from a Chinese oil and natural gas exploration company was targeted in an attack by a group called the Baloch Revolutionary Army in which two Pakistani security personnel killed.
The Pakistan army has deployed a special security division of 15,000 troops to protect Chinese personnel and assets, but the report argued that 'a troop size of 15,000 can hardly guarantee the safety of projects around the country.... And considering that Pakistan needs to deploy a large number of troops in its eastern borders adjoining India and now needs to deploy troops in Afghan border, allocating 15,000 is the largest capacity.' The wider concern was because of security, Chinese staff in Gwadar, for instance, will have to be 'cloistered within the Chinese zone as the situation around the city is not stable'. The Chinese report worried this will alienate the local population because 'Chinese personnel are carrying out work under the protection of armed forces and this inhibits improving relations with local people to the extent that it could lead to opposition and lack of people's support'.
Then there are the financial hazards. China's exposure, so far, is much less than the advertised $46 billion figure, with estimates that in the past three years, its total investments would be in the $5 billion range, spent largely on coal power projects that are being built, the widening of the Karakoram highway and sections of the Karachi-Peshawar expressway.
Chinese assessments suggest the $46 billion figure that Pakistani officials regularly cite may not materialise for a long time yet. The CPEC draft masterplan from China's planning agency noted, as the Dawn reported, that 'Pakistan's economy cannot absorb FDI much above $2 billion per year without giving rise to stresses in its economy....It is recommended that China's maximum annual direct investment in Pakistan should be around $1 billion'-a damning reality check to fanciful figures of $50 billion being invested in the country.
For some in Pakistan, the long-term fear is that this blueprint will, as economist Zaidi notes, render it a 'vassal state' deep in China's economic orbit. After one year of the project, bilateral trade was up 15 per cent to $13.77 billion in 2015-16, while Pakistan's trade deficit with China was a whopping $12 billion. There are already murmurs of discontent about the favourable terms for Chinese companies.
"Estimates range from Pakistan having to pay $3 to $3.5 billion annually back to China for the next 30 years for Chinese loans after 2020, to a probable severe balance of payments crisis," argues Zaidi, noting how in Sri Lanka and Tajikistan, "with rising costs and debts incurred by the host countries, large chunks of land were handed over to the Chinese in lieu of unpaid funds. Sovereign guarantees to Chinese power producers have been made, where the Pakistan government will, 'if the power purchaser defaults on payments, pick up the liability and pay 22 per cent of the bills of Chinese power producers upfront'". As he puts it, "CPEC is a Chinese project, for Chinese interests." And Pakistan, he says, just happens to be part of the geographical terrain.
IMPLICATIONS FOR INDIA
What does it mean for India? On May 13 this year, India refused to participate in China's Belt and Road with a strongly-worded statement. "No country can accept a project that ignores its core concerns on sovereignty and territorial integrity," MEA spokesperson Gopal Baglay said. OBOR passing through Pakistan-occupied Kashmir is the primary reason New Delhi boycotted the project. For long, India has held the Kashmir issue as a bilateral dispute with Pakistan, with no room for outside intervention. China has now willy-nilly become a party to it. "Since CPEC was announced, Pakistan has stepped up its activities inside Kashmir. Funding to separatist elements has increased," says Jayadeva Ranade, former additional secretary in the Research and Analysis Wing (R&AW). The presence of Chinese personnel within Pakistan is something India must take into account in the event of hostilities, he says.
For instance, China and Pakistan have begun joint patrols in PoK near the Xinjiang border, Chinese media reports have said. Even as China now lambasts India as a "third party" with a "hidden agenda" for "intervening" in its dispute on the Doklam plateau with Bhutan, Beijing has quietly deployed its frontier troops on the soil of PoK, which India considers its territory. In the event of an Indo-Pak conflict, Indian officials do not expect China to intervene directly, but the infrastructure it is laying down in PoK can be used to back Pakistan with massive logistics support.
The larger concern is that collusion between the two countries is now assuming sinister dimensions. Gwadar is likely to become China's second overseas naval base after Djibouti near the Gulf of Aden. The port also sits astride the sea routes from where more than 55 per cent of India's energy needs flow in. China's clandestine backing of Pakistan goes back decades starting from the alleged transfer of nuclear weapon blueprints in the early 1980s. The 2016 sale of eight Yuan class submarines to Pakistan not only attempts to checkmate the Indian navy in its backyard, but adds another nuclear dimension. Pakistan is now working to equip them with nuclear-tipped variants of the Chinese 'Babur' land attack cruise missiles.
Then there is the diplomatic protection China offers Pakistan, which some in Delhi believe is emboldening Islamabad to hurt Indian interests. In the past, Beijing had largely kept away from issues such as the Kashmir dispute. That caution is now giving way to what some see as an open backing of Pakistan. This was evident in Beijing issuing stapled visas to Indian residents of Jammu & Kashmir-which subsequently ended after India stopped defence exchanges-even while it opened the door to Pakistani residents from Gilgit-Baltistan to freely cross the border into Xinjiang to open up trading offices in Kashgar, where ironically India had a consulate and trading presence until 1950.
This renewed China-Pakistan nexus has once again begun to cast a shadow on India's relations with China. In two issues that have recently strained relations-China's blocking of India's attempts to sanction the Pakistani terrorist Masood Azhar at the United Nations Security Council 1267 sanctions committee and India's failed entry to the Nuclear Suppliers Group-the Pakistan factor has loomed large in China's calculus. Beijing in 2016 stymied the bid to sanction Azhar, and once again in January placed another 'technical hold' on a fresh application backed by the US, UK and France. On the NSG, Beijing's officials have openly said that "other non-NPT countries" (those that have not signed the nuclear non-proliferation treaty) besides India also had legitimate aspirations to join the grouping, referring to Pakistan. Chinese nuclear negotiators pointedly visited Islamabad after talks in Delhi to underline how Beijing is linking India and Pakistan, despite the impeccable non-proliferation record of the former and the questionable track record of the latter. As Beijing further deepens its economic and strategic embrace with its 'iron brother', its relations with India are set to undergo a transformative shift. And for Delhi, confronting this renewed China-Pakistan nexus has become perhaps the most pressing diplomatic and military challenge.
(With Sandeep Unnithan