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CPEC: Alice’s (mis)adventures

February 03, 2020
The writer is an analyst.
The writer is an analyst.

IF stirring controversies is part of the present-day diplomat’s job, then it sits somewhere on top of Alice Wells’ job description at the US Department of State. Since Pakistan shrugged off the concerns she voiced about CPEC from Washington, the diplomat left the comforts of her home to travel to the Pakistani capital with more revelations.

Unsurprisingly, the ensuing debate earned her no accolades but scathing criticism from Beijing and Islamabad. Besides, it left many Pakistanis — including this writer, who considers CPEC as an economic opportunity for the country — wondering if they could distil this diplomatic hubbub for some valuable insights.

Ambassador Wells charged CPEC in November 2019 with poor commercial viability and lack of transparency. She claimed Pakistan owed “$15bn debt to Beijing and $6.7bn to Chinese commercial banks”.

Is the Beijing-Washington spat over CPEC a welcome development for the common Pakistani?

A day after, the minister for planning, Asad Umar, disputed those figures by disclosing that the public debt to China stood at $18bn. Of that, $4.9bn relates to CPEC projects and the rest was borrowed from the Chinese government and commercial banks to stabilise forex reserves and finance trade deficit.

A few weeks later, the Chinese embassy in Islam­abad in a rebuttal to Wells’ claims stated that Beijing had provided $5.9bn of concessional loans, booked as public debt, for CPEC’s transportation projects. Ad­­d­i­­tionally, Chinese companies and their partners in­­vested $12.8 in the energy sector and are themselves responsible for their ventures’ commercial viability.

Who will dispute that numbers don’t lie, but they are utterly deceptive when cherry-picked — and that’s how this exchange appears to have unfolded in some aspects. Regardless, the public statements of Umar and the Chinese embassy suggest that the amount owed to the Chinese government, commercial banks and investors combined is nearly $30bn. The breakdown: concessional loans of $6bn for public infrastructure projects; $13bn of public debt borrowed from the Chinese government and banks; and about $11bn of equity and commercial loans for CPEC’s power project. The volume may grow in the coming years. For instance, the ML-I project to upgrade the railway between Karachi and Peshawar at an estimated cost of $8.2bn alone will have a major impact.

Before we Pakistanis heed Wells’ advice and pose ‘tough questions’ to our government and China, there are tougher questions that demand necessary soul-searching for Washington and an explanation to the American public. For example, despite allocating tens of billions of tax dollars in economic assistance to Pakistan, why has the State Department failed perpetually to earn widespread goodwill in the country? Pakistanis are eager for Washington to come clean on its patronising and strengthening of unelected regimes in their country and undermining their nation-building exercise endlessly. And when, if ever, will it abandon its local cronies who are the principal beneficiaries of the so-called ‘development aid’?

On part of the Chinese embassy, its willingness to disclose financing details of CPEC projects is commendable, but most of that information is already in the public domain. For being in its sixth year, it’s most appropriate for CPEC to yield the outcomes that can dispel critique of it effectively. Its success is crucial for the Chinese leadership who’d wish to showcase it as a success story of the Belt and Road Initiative (BRI) to become a trusted partner for the Global South. On the contrary, critics may argue that if Beijing cannot nurture a mutually beneficial partnership with its purported ‘iron brother’ what well-being can it promise to others?

Some matters require Beijing’s immediate attention to end doubts about CPEC’s economic viability for Pakistan. For instance, it’s a norm for the Pakistani government to issue sovereign guarantees to independent power producers to mitigate high country risk. The advent of Chinese funding set a new, costly precedent. In addition to sovereign guarantee, Chinese banks required IPPs to buy an insurance cover from China’s state-owned insurance company, Sinosure.

For every dollar owed in principal and interest, IPPs pay an insurance premium of 7pc to Sinosure, which is prohibitively high. It’s no secret that these commercial banks are owned by the state who de­­f­i­nes their lending practices and priorities too. One wishes for these banks to have placed faith in Pak­istan’s sovereign guarantee as put by international lenders, which would result in savings of tens of billions of rupees for the local ratepayer. A corrective measure in this regard will reinforce Beijing’s commitment to the well-being of the Pakistani public.

For Pakistan, this debate, or spat, has strategic and economic implications. Firstly, we need to understand the context of Wells’ rhetorical critique. The US policy of vilifying China’s economic diplomacy endeavour, the BRI, is well known. For being a major pillar of the BRI, CPEC will naturally attract Ame­rican criticism. And Pakistan’s fragile economy and its decades-long dependence on American handouts make it the cheapest punching bag for Washington. Islamabad must realise that it doesn’t belong in the boxing ring among two global heavyweights and should refrain from reacting irresponsibly.

Secondly, our government must stop being a desperate borrower and be transparent in its financial dealings. For instance, we were told that Pakistan borrowed $13bn from the Chinese government and commercial banks but were not given sufficient information about the lending terms. Has it ever occurred to our decision-makers that such murky practices may undermine the reputation of our allies such as China? Moreover, whomsoever we invite to fund public infrastructure they will demand their risk be priced adequately. But what led the PML-N government to offer unprecedented incentives for power projects under CPEC, which prompted doubts about the transparency and competitiveness of this strategically important endeavour?

To sum up, whatever the price tag, $60bn or $600bn, for CPEC to vindicate President Xi’s pledge of promoting inclusivity and mutual prosperity through the BRI, the time is ripe for CPEC to outgrow the mould of diplomatic cajoling and transform itself into an enduring venture of economic cooperation. It’s fair to expect that Beijing won’t shy away from taking measures to ensure that CPEC starts benefiting common Pakistanis sooner than later.

The writer is an analyst.

Twitter: @sohaibrmalik

Published in Dawn, February 3rd, 2020


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