Thursday, September 21, 2017

CPEC: back into spotlight

 BR RESEARCH  SEP 21ST, 2017 10:57 0 VIEWS: 216

Just as economic observers were beginning to wonder about the future of CPEC in the wake of growing domestic political infighting, the project is back in the news after a hiatus of at least about two new moons.  

In a move to consolidate his power, PM Shahid Khaqan Abbasi initially took control of the CPEC portfolio. But in no time came an about-turn and former CPEC czar, Ahsan Iqbal, found himself back in charge of the multi-billion dollar projects. Some observers are suggesting Chinese influence behind putting Ahsan back in charge. By extension, they say China is now influencing Cabinet appointments. 

Anyhow, less than a week after the PM handed the P-Block back to Iqbal, who will reportedly hold this portfolio along with the interior ministry, the Islamabad Policy Research Institute organised a timely and suitably-titled conference on 'Changing Security in South Asia and Development of CPEC'. 

The Chinese Ambassador Sun Weidong made appearance at that moot and asserted that CPEC was a crucial pilot project, since it had become a leading demonstration in the promotion of OBOR and now entered full implementation stage. Iqbal also seized the opportunity (which some sources say he actually created using his influence) and touted that CPEC was making "tremendous progress" with the completion of infrastructure and energy projects and time was ripe to get benefits from the mega initiative. 

Meanwhile, the FDI data released earlier this week showed that 80 percent of the FDI in August 2017 came from China. "The share of Chinese FDI has been two-third of the total pie since January 2017, which is up from a little over-one third in the preceding six months," this column subsequently noted. The same day, the Bank of China was given clearance by the central bank to commence operations in Pakistan. The cards are falling into place! 

Among softer developments, albeit equally important, was the two-day conference organized by the HEC marking the launch of 'CPEC Consortium of Business Schools' - an effort aimed at academic collaboration between the two countries. That the initiative went rather un-noticed due to political noise is another matter. Another related development is the Khyber Pakhtunkhwa government sending off student to China for Chinese language course, a move similar to that by Punjab seen earlier this year. 

Also, in recent developments, Saudi Arabia became the latest addition to the list of countries who want to join the CPEC. The country's ambassador Nawaf Saeed Ahmad Al Malkiy reportedly told state media that his country is "looking forward" to invest in CPEC and Gwadar port projects. Pakistan has also invited Tajikistan to join CPEC. As to how all these countries will exactly "join" CPEC is a matter that requires much clarity. For now, the mantra is selling well. 

Outside of Pakistan, OBOR-related activities are also picking up. Late last month, Reuters reported that China's large state-owned commercial banks are raising billions to fund OBOR investment, "bolstering ambitions to revive Silk Road trade routes and internationalise the yuan". 

The China Construction Bank Corp (CCB), China's second-biggest lender by assets, was reported conducting roadshows to raise at least 100 billion yuan ($15 billion) whereas Bank of China, the smallest of China's "big four" banks, was aiming to raise around 20 billion yuan. Reuters also reported that Chinese acquisitions in the 68 countries officially linked to OBOR totaled $33 billion as of mid-August, surpassing the $31 billion tally for all of 2016, according to Thomson Reuters' data. 

These OBOR developments are in line with what this column wrote last month: Chinese state-led investments will likely continue for as long as they find strategic value in investing in Pakistan. And with 40 percent of China's trade passing through the South China Sea, the CPEC route, through Gwadar, surely offers China an alternative of strategic importance. 

There are indeed doubts over private-sector FDI inflows from China, especially considering that many of the even state-led project announcements appear to be no more than a fluff so far. Besides, there are bureaucratic delays (such as in the case of Special Economic Zones) and overall issues related to transparency in general and procurement in particular. But perhaps, as is the case of China's own history of development, CPEC's development will also be state-led in early years followed by an active private-sector role on both sides of the border. Perhaps! Perhaps! Perhaps! 

Copyright Business Recorder, 2017

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