BY TOM HUSSAIN12 AUG 2018
Favourable deals under the China Pakistan Economic Corridor are in the spotlight as Pakistan’s ruling party looks to uncover corruption under the previous administration
A Tehreek-e-Insaf supporter at a campaign rally in Karachi. Photo: Reuters
As former cricket superstar Imran Khan assumes office as Pakistan’s prime minister vowing to change the way the country is governed, members of his Tehreek-e-Insaf party (PTI) have started to ask embarrassing questions about the perks enjoyed by Chinese companies involved in belt and road projects linking Xinjiang to the Arabian Sea.
Fighting the election on an anti-corruption plank for building a “new” Pakistan, Khan’s party has jump-started its promised public examination of agreements for the China Pakistan Economic Corridor (CPEC) made by the last government led by Khan’s nemesis, Nawaz Sharif.
Sharif’s government released only piecemeal information about CPEC and its officials often made contradictory claims, fuelling criticism that the agreements were poorly negotiated – as well as allegations of corruption involving members of the Sharif family.
The new administration plans to examine deals Nawaz Sharif made with China. Photo: AFP
Chairing a senate committee this week, PTI politician Shibli Faraz questioned the “discrimination” of creating a dedicated US$179 million revolving fund to ensure regular partial payments to Chinese power companies.
Pakistan’s power sector is riddled with debt, created by the government’s inability to keep pace with bills owed to fuel suppliers and independent power producers. Responding to complaints from Chinese companies and to avert possible Chinese pullback on future CPEC projects, the revolving fund was agreed upon by the caretaker administration that oversaw Pakistan’s government during the three-month campaign season and transfer of power.
According to that agreement, the government would finance the fund through expensive short-term borrowing from domestic banks, senior power ministry official Zargham Ishaq told the senate committee. Although the fund was yet to be established, the government was required to implement the agreement as part of its CPEC commitments, he said.
THIS WEEK IN ASIA
Get updates direct to your inbox
Pakistan railway employees prepare a float dedicated to the China Pakistan Economic Corridor. Photo: AFP
The incoming PTI administration might have other ideas, and choose to scrap the agreement on the grounds that the caretaker government exceeded its constitutional mandate. Faraz’s interjection reflects a continuing political sniping in Pakistan, placing Chinese companies in the line of fire.
Another Senate committee this week ordered the national highway authority to provide it with details of a CPEC motorway project in central Pakistan, after PTI member Nauman Wazir claimed favourable terms accorded to the Chinese contractor were tantamount to the “embezzlement” of US$1.1 billion.
Pakistan’s politics is known for its volatility – and the current state of play is no different. Sharif, who is serving a 10-year sentence for corruption after being sacked by the Supreme Court following a petition by moved by Khan and his allies last year, prioritised CPEC projects that helped plug the country’s crippling power shortfalls.
Michael Kugelman, senior South Asia associate at The Wilson Centre, a Washington think tank, said China likely would have been more comfortable with Sharif’s Pakistan Muslim League (PML-N) staying in power, knowing that it had largely agreed with Beijing on the broader terms of CPEC on the whole and had not raised any concerns about the lack of transparent financing plans.
“The PTI’s emphasis on more transparency could certainly be an irritant for Beijing, but at the end of the day this is something the Chinese may well have envisioned happening anyway, especially on the assumption that Pakistan would go to the International Monetary Fund for a loan and have to open its books,” Kugelman told This Week in Asia.
But Sharif is far from done. His Pakistan Muslim League has formed a grand opposition alliance that poses a formidable opposition to Khan’s legislative programme in the directly elected National Assembly, where Khan’s PTI enjoys a thin majority. The opposition alliance already holds a majority in the senate, which has the power to block non-finance bills. It also plans to mount protests against last month’s election, disrupting Khan’s ability to govern in much the same way he had done to Sharif in 2014.
Pakistani opposition leaders, including Shahbaz Sharif, second from left, Nawaz Sharif’s brother. Photo: AFP
Chinese diplomats have repeatedly voiced concerns about political instability and its potential impact on the execution of CPEC projects. Khan, who has little experience as an administrator, has promised “real change”. That, along with the need to keep Sharif in check, would necessitate continuing attacks on past government policies, many of which helped Chinese companies.
Hardline PTI politicians and allies are expected to continue to make noises about CPEC-related corruption by the Sharif administration, leaving it to responsible cabinet members to play down the Chinese connection.
Finance minister-in-waiting Asad Umar said on Wednesday CPEC agreements would be placed before parliament to “ensure transparency”, but there was nothing wrong with them in general – although members of the incoming government have not yet seen the texts. Agreements would only be “reopened” if clear evidence of corruption emerged, he said.
How far the PTI can go in pursuing corruption within CPEC projects is questionable as the military assumed political ownership of the corridor last year by integrating it into national security policy.
Asad Umar. Photo: Bloomberg
“They will take time in rebooting the mindset of an eternally angry opposition, provided all is not lost by then,” said Aamir Ghauri, the editor of The News International, a Pakistani newspaper.
The PTI’s questions about CPEC transparency echoed those raised recently by US Secretary of State Mike Pompeo, ahead of a request for an International Monetary Fund (IMF) bailout by the incoming Khan administration. The bailout is needed to address a yawning trade imbalance worsened by Chinese machinery imports for the US$28 billion of CPEC projects launched over the past three years. Beijing has helped shore up Pakistan’s plunging foreign exchange reserves with US$6 billion of emergency loans, adding to Pakistan’s debts.
A currency trader in Karachi. China provided a US$6 billion in loans to cover Pakistan’s plunging foreign exchange reserves. Photo: EPA
In considering the implications of an IMF bailout, Umar would have to weigh Pompeo’s warning that a bailout application would be subject to intense vetting to ensure US taxpayer dollars did not end up paying Chinese debts.
The US has launched an increasingly aggressive campaign against China’s “Belt and Road Initiative”, which seeks to boost global trade through infrastructure projects. It has recently announced the establishment of a US$113 million fund to aid economic competitiveness in the Indo-Pacific in partnership with Japan and Australia. Soon after, a group of 16 US senators known for their hawkish views on China wrote to Pompeo and treasury secretary Steve Mnuchin asking how the US government could use its influence at the IMF to ensure the terms of a Pakistan bailout “prevent the continuation of ongoing BRI projects, or the start of new BRI projects”.
CPEC has transformed Gwadar, Pakistan, from a small fishing town to a major port. Photo: Bloomberg
The recently approved US defence budget also includes a stipulation by Congress that would require the Donald Trump administration to submit a report by March on China’s use of the belt and road plan to “gain access and influence”.
“Pakistan needs the IMF but the US administration has been uncharacteristically candid in drawing a link between the donor agency’s leaning and the state of US-Pakistan ties,” said Moeed Yusuf, author of Brokering Peace in Nuclear Environments: US Crisis Management in South Asia.
“From everything I am picking up, this doesn’t seem to have been a hollow threat,” Yusuf said in a recent commentary for the Pakistani newspaper Dawn.
This has built pressure on Umar to rebalance Pakistan’s financial exposure away from dependence on China, and to make good on promises to make public the terms of existing CPEC agreements. Some pullbacks on big-ticket infrastructure projects are in any case likely as Khan will be forced to trim expenses, meaning a pullback on some future CPEC projects.
“We look forward to constructive relationships with all important countries and the US is the most important. But the PTI will not have an either-or approach. We want good relations with both the US and China,” Umar said, participating in a US think tank discussion on Wednesday.
With the future of the Pakistan-US relationship shrouded in uncertainty, Khan would not do anything to alienate China in a big way.
“Khan and his government will need to carry out a delicate dance,” Kugelman said. “The immediate objective for Pakistan is to stop the bleeding with its economic crisis, but the broader, more long-term goal is to ensure that it keeps Beijing in its good graces.” ■