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Pakistan learning CPEC lessons the hard way, losing the plot

The alternative for the country would be to relinquish the control of some ambitious CPEC projects to China as was the case in Sri Lanka – with a debt for equity swap formula coming into play

Ashis Biswas Published at 01:22 AM April 27, 2018

Picture shows Chinese trucks stand on a pontoonAFP

Lately, China has launched a well orchestrated publicity blitz targeting dissenting opinion in Pakistan, outlining how the CPEC (China Pakistan Economic Corridor) project will improve the living standards of millions of people in the region. This will be achieved through increased earnings, job creation and higher industrial production, year on year.

In three phases, China proposes to invest over $56 billion in CPEC. Apart from building spanking new highways, rail and air links between Gwadar port in Pakistan and Xinjiang province, the construction of power plants, tourism facilities, agro processing units, and mines are also planned.

Predictably, the new spin by Chinese media counters the strong contrarian international narrative on the project that emanates from other countries, which highlight only the negatives.

However, there are strong indications that Pakistan has already suffered a loss of control in several sectors of the CPEC project. No wonder the Chinese media has been reporting that Pakistan should benefit economically even in the short term.

For instance, no one can deny that Pakistan will earn major revenues through tourism in its remote Federally Administered Tribal Areas (FATA) and its wildly beautiful, picturesque mountain regions once the CPEC road-rail network becomes operative. Even hardline Pakistanis may be finally reconciled to their fancied loss of “the Vale of Cashmere” once the cash registers start ringing and the tourists stream in.

The good times will not end here. With increased power supply available, Pakistan’s crippled factories and the long suffering populace will heave a sigh of relief as industrial production picks up – improving lives. This should mean more jobs, new opportunities and a possible increase in exports.

As a further sweetener to the CPEC basket, China will back Pakistan in international forums on terrorism and help it shore up its defences. It has just supplied modern missile defence technology that should stop Islamabad from feeling vulnerable to the expanding might of Indian rocketry.

What should bring delight to most diehard Pakistan-based media pessimists is that their country – thanks  to the help and attention it receives from China and the renewed interest from Russia in recent years – is far from being “a failed state,” the dominant theme of many Indian/Western analysts.

Chinese workers pose for a picture with Pakistani soldiers during the opening of a trade project in Gwadar port on November 13, 2016 AFP

It may be argued that so far none of this has happened. Pakistanis are naturally worried that very few jobs have been created, let alone the 50,000 expected within the first phase of the CPEC. Most workers have come from China because their work in the factories – whether in power plants, agro processing units or in mining – have to be complete as soon as possible. Few Pakistani workers can match their skills.

More worryingly, there is hardly any reverse traffic from Pakistan towards China, going to Xinjiang. Very few Pakistani businessmen in textile and other sectors have made any mark on the Chinese market, finding it hard to match production costs. In terms of exports and imports, Pakistan was  and remains heavily mismatched vis-à-vis the Chinese.

As new “jobs,” some 15,000 policemen have been deployed to maintain security for the Chinese (paid for by the Pakistan government), not to mention the slew of class III and IV grade jobs (security guards, doormen, attendants, delivery personnel, and others who happen to be on regular payroll) available on the going projects.

Still, it would be surely foolish to deny that once production gets under way from the power plants, mines, etc, things would not improve. At present, Pakistan’s rate of annual GDP growth is around 5.8%, which is expected to rise to around 7% next year largely on account of the ongoing CPEC works.

The question arises, given this mixed outlook for the future where positives certainly exist, why is there  hardline criticism of the CPEC in the Pakistani media.

The fact is, in some crucial sectors of CPEC, Pakistan’s sovereignty has already been challenged. The ruling establishment in Islamabad is doing Pakistan’s citizens a disservice by not announcing certain matters related to the implementation of CPEC. It maintains a largely opaque procedure on giving the public even basic information.

It goes to the credit of the Pakistani media that journalists and political observers have still sniffed out the changes that have come over in bilateral relations between the two countries.

At all stages, the Chinese set the tune – they constantly re-order the priorities of implementing particular projects – stressing one road linkage or pressing ahead with a railway project, often ruling out and shelving projects discussed earlier.

The Chinese have also insisted that financial dealings be carried out without using US dollars in some cases, asking for  renminbis and Pakistani rupees instead. As CPEC forms part of the ambitious $1 trillion-plus One Belt One Road (OBOR) Chinese infra-project, gradually replacing the dollar with other currencies is part of the long term Chinese economic dream.

The Chinese will retain an estimated 30% or more of the $56 billion they will invest by employing Chinese workers and technicians, not to mention the amount earned from Chinese factories working overtime to produce equipment for the power plants and highways to be set up in Pakistan.

What is even more worrying is that the Chinese are known to have tried to work out an understanding with the rebellious Balochi groups and factions which are in constant opposition with Pakistan. The idea is to prevent the Balochis from attacking or sabotaging Chinese projects and to ensure that the non-Punjabi Pakistanis, whose territory has also been used for CPEC, get some economic benefits and become undeclared stakeholders in CPEC. All this was done without any consultation with Islamabad.

Through the anti-terror resolutions at the last BRICS (Brazil, Russia, India, China and South Africa) summit, China also served notice to Pakistan that it should not expect an eternal open-ended commitment from Beijing on terrorism. To keep its options open even on CPEC, China has already appealed to Iran to use the highway from Xinjiang to Gwadar – receiving a positive response. It continues to urge India to do the same through track II efforts (unofficial or undisclosed, diplomatic efforts).

Two other factors also worry Pakistan in the long run, especially following the experience of Sri Lanka over the handover of the China-built Hambantota port and other assets to Beijing. There are reports suggesting that Pakistan may have to repay as much as $90 billion to China in 30 years, according to one estimate, having accepted loans from Chinese banks as opposed to other international agencies.

Pakistan’s dilemma

Is Pakistan really in a position to make such huge repayments, given the state of its economy? Its present forex reserves are among the lowest in South Asia, despite the usual hefty remittances it receives from West Asia and elsewhere. Can it be counted on to repay at least $5 billion to China, year on year, for long periods in the foreseeable future, given its record of political volatility?

The answer is no

The alternative for the country would be to relinquish the control of some ambitious CPEC projects to China as was the case in Sri Lanka – with a debt for equity swap formula coming into play.

No wonder the Pakistani media continues to fret about the long term impact of CPEC project.

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