US Assistant Secretary of State for South Asia Alice Wells virtually put the cat amongst the pigeons in a speech at the Wilson Center in Washington on November 22, 2019 in which she cautioned and warned Pakistan about the pitfalls of the China Pakistan Economic Corridor (CPEC) project. The thrust of her remarks about CPEC centred on the risk of Pakistan being pushed deeper into an already stifling debt burden, non-transparent and overpriced projects fostering corruption, and jobs and profits being repatriated to China. She argued that CPEC was not aid but a form of financing that guarantees profits for Chinese state-owned enterprises (SOEs), with little benefit for Pakistan. She advised us to ask tough questions of the Chinese regarding why they were pursuing an economic model in Pakistan that was so different from the model they themselves had pursued to achieve high economic growth. She also touched on the lack of transparency regarding the terms on which projects are being pursued under CPEC. She pointed to the $ 15 billion debt to the Chinese government already accumulated, along with $ 6.7 billion commercial debt.
Ms Wells underlined that these were loans, not grants, whose deferment in case Pakistan is unable to meet scheduled repayments would still leave an overhang that would hamstring Imran Khan's reform agenda. (It is another matter that this has already happened, not because of CPEC, but because, according to Hafeez Sheikh, the government does not have the money.) Alice Wells also pointed to the fact that CPEC projects did not offer jobs to Pakistanis since both workers and supplies came from China, in the middle of a desperate need for jobs for Pakistanis. In contrast, Ms Wells argued, although the US could not muster SOEs to invest in Pakistan but private US companies offered a better economic model since they brought with them values, processes and expertise to build local capacities. She also touched on Gwadar port being developed by China, pointing to Indian (and, one could argue, western) sensitivities regarding the possibility of it morphing into a military-naval base for the Chinese virtually at the mouth of the Gulf through which some 25 percent of the world's oil supplies pass.
In response, Chinese Ambassador to Pakistan Yao Jing, Federal Planning Minister Asad Umar and his ministry dismissed Alice Wells' critique as ‘uninformed', off the mark and propaganda. CPEC would not burden Pakistan with crippling debt, they asserted, and Yao Jing reiterated China's adherence to its solid relations with Pakistan by saying if Pakistan was unable to meet its debt obligations to China, the latter would not insist on it but defer the repayments. The argument was also mooted that US, western and multilateral sources of lending were far more stringent on repayment conditions and schedules, with little or no flexibility or room for manoeuvre.
Alice Wells' frank critique of CPEC comes amidst a period of rebuilding the turbulent US-Pakistan relationship and Washington's recent launch of a major offensive against Chinese President Xi Jinping's signature Belt and Road Initiative (BRI), of which CPEC is a part. Wells' critique could be interpreted as a sign of Washington's worry that it is losing strategic space in its relationship with Pakistan to rising global rival China. But it would be foolish to dismiss her arguments out of hand simply as propaganda or simply motivated by Washington's strategic interests.
Whatever else one may say about it, there is no gainsaying the fact that China committed over $ 60 billion in investment in Pakistan under CPEC when no other country or international institution was willing. The initial phase of CPEC involves communications infrastructure and energy projects, with the Special Economic Zones (SZEs) along CPEC to be now developed in the second phase. This is all to the good, but irrespective of Alice Wells' motivations, there do exist questions in Pakistani minds about CPEC for which clear answers are required.
First and foremost, the lack of transparency regarding CPEC is something that dates back to the previous Pakistan Muslim League-Nawaz (PML-N) government, with Minister in charge Ahsan Iqbal unable to satisfy queries regarding the shape and terms of CPEC. That situation continues to this day, leaving a residue of concern and confusion. Wells has referred to the possibility of surrender of assets and diminishing sovereignty if repayment schedules are not met. Perhaps she had in mind the case of the Hambantota port in Sri Lanka, which the Chinese developers took over under a 99-year lease when the recipient country was unable to service its debt incurred for what appears with hindsight to have been an unfeasible project in the first place (being off the main sea lanes passing by Sri Lanka, most traffic being handled by Colombo port on the western, opposite side of the island). There have been sketchy reports of similar actual or potential takeovers by China of projects that could not service their debts in Africa and Latin America. But while these examples may serve as a cautionary tale, China's approach in CPEC appears different for the following reasons.
CPEC's main aim is the development through trade (and its concomitant industrialisation) of its westernmost and troubled province of Xinjiang. The rapid but inherently unequal development of China over the last 40 years has produced, despite lifting 700 million people out of poverty and into a middle class existence, imbalances between the cities and the countryside, the eastern seaboard versus the inland hinterland, and between the obscenely rich billionaires and the middle class on the one hand and those ‘left behind' amongst the working class and peasantry. Xinjiang is particularly sensitive since it has not been able to avoid the spillover from the Afghan wars in the shape of a Muslim extremist movement that seeks to break away from China. CPEC offers, through Pakistan and the new developing port of Gwadar on the Balochistan coast, a lifeline for the rapid development of Xinjiang to be able to offer the Muslim Uighurs of the province the same deal that has been implemented in the rest of China over the last four decades: economic prosperity (through the embrace of capitalism) in exchange for loyalty to Communist Party rule.
Pakistan does not enjoy a reputation as a good negotiator. CPEC illustrates this truth. China's need to obviate Muslim fundamentalism and extremism amongst the Uighurs could have been leveraged by Pakistan in its own interests. But old habits die hard, and Pakistan's addiction to client state status (first the US, now arguably China) blinded us to the cards we held in our hand. Concerns amongst our business community about Chinese practices of leveraging project investment under CPEC to allow exclusive imports of Chinese plant and machinery and overwhelmingly Chinese technicians and even labour first found expression in the early days of the Imran Khan government when Advisor Razzak Dawood gave an interview to the Financial Times to the effect that local businesses had yet to benefit from the spoils of CPEC. This annoyed the Chinese, and according to Mushahid Hussain, COAS General Bajwa had to rush to Beijing to mollify our Chinese friends.
The BRI, of which CPEC is a relatively small part, is the outcome of four decades of rapid capitalist development in China, whose outcome in line with the historical tendency of developed capitalism is now to seek outlets for investment abroad since the domestic market is no longer enough. Whereas western powers exercised this tendency initially through colonialism and imperialism, after WWII, they have instituted a worldwide system of extracting surplus from the developing world without (necessarily) occupying foreign lands. So while it is difficult to swallow Alice Wells' rosy picture of western capitalism and its ‘benign' effects in countries like Pakistan, we need to be aware of the risks a late developing capitalism in China could entail for us and our best interests.