Due to its industrial policies, China created a massive manufacturing-based economy which has created stiff competition among the global, as well as local, Chinese companies in terms of technology and price.
In none of the CPEC projects, China is investing without a purpose. While at most of the projects, the funding is in the form of expensive loans from Chinese Banking firms, some other projects have Pakistan government guarantee to buy their products. It is a win-win situation for China, while Pakistan is slowly getting crushed under the debt.
Chinese Companies enjoy tax holidays, free water, free electricity and Priority treatment while other global competitors, as well as local Pakistani companies, are not able to compete with them. They quote an exorbitant price for the project while other competitors are declared unfit in case their quote is lower. There are numerous examples where Chinese companies are awarded a contract on a single-bid process in Pakistan.
Wherever the project is fast-paced and the return of Investment (ROI) is early and guaranteed, Chinese companies moved fast (For example, Coal-based Power Projects), but where the ROI is slow without a fixed guarantee, they move slowly or not at all and keep escalating the costs of the project. This can be suicidal where the projects are already allocated at an unimaginably high cost. Few examples will throw light on this --
1. For a smaller 392-kilometre stretch of road between Sukkur and Multan was valued at $2.9 Billion or approximately 47,000 Crores Pakistani Rupee which comes out to be around 120 Crore rupees per kilometre stretch of this road.
2. Almost 15,000 Crore Pakistani Rupee at a rate of about 30 Crore per kilometre was spent on just repair and refurbishing of a 487 km road which is part of the main road connecting Khunjereb pass to Gwadar.
3. Budget of Lahore metro Orange line was planned at 26,000 Crore PKR for a smaller stretch of just 27 Kilometres. If we compare the cost with other projects being run at the same time (for example phase II of Delhi Metro) the cost of Lahore Metro is almost double (Even after adjusting all the possible currency conversions).
4. In some of the projects where a Pakistani Firm is in a joint venture, these Chinese Financial Institutions have offered landslide interest rates like 5% or more. For example, in 1223 MW Baltoi Coal Power Plant, a Pakistani Firm Habib Rafiq Limited is in consortium while Chinese firm Harbin Electric is its technology partner. Chinese Banks have given a loan at 5% annual interest rate.
Ironically China has not given even a single penny as a grant. The government to government loan is negligible and all the finances are made by financial institutions like Exim Bank, China Development Bank or ICBC (Industrial and Commercial Bank of China). All the projects are either in the form of loans (concessionary or Commercial) or come with a guarantee from Pakistan government (for example power projects). There are lot many skeletons in the cupboard of Pakistan. That is why they refused to divulge the details of Chinese loans to the International Monetary Fund.
Today, in most of the projects, the repayment period of loans has started while these projects have not even kicked off. Almost in all cases, China has blamed Pakistan for this. Naturally, Pakistan has no option but to take additional loan at highly inflated rates to pay the previously taken ones. Since due to its dwindling economy and poor credit ratings, no international agency is ready to give money- Chinese banks are the only source