Has CPEC failed for both Pak and China? The Excelsior 25 Apr 18
The much-touted China Pak Economic Corridor (CPEC) is unlikely to either be a part of the Belt Road Initiative (BRI), nor benefit either nation to the extent it was supposed to. It would only add to financial difficulties of Pak in the long term.
The CPEC moves through the Karakoram Pass, which remains closed for six months in a year, thus reducing its viability. Chinese efforts are opening an axis available throughout the year has not met with success and is unlikely too in the future. Therefore, CPEC would only remain operational for limited durations.
With India and Afghanistan refusing to join the BRI, despite China claiming it is linking Afghanistan, the CPEC remains only an axis to move Chinese oil and gas to Xinjiang. Pak would never gain from it in any way. It would only provide land for Chinese geo-political requirements. Further, refusal of India and Afghanistan to participate in the BRI ensures that the CPEC can never be linked to it but would always remain a standoff project. Pak remains the ultimate loser.
China has desperately tried to involve India, which has till date refused. Its latest attempt is asking Nepal to be the via media to link China and India, hoping to galvanize the CPEC, which will again be against Indian interests. India remains doubtful on this proposal too.
Complete control of the CPEC remains with China. No Pak investment is being permitted in Gwadar or anywhere on the project. The land route linking Gwadar is through Punjab as China fears that the fuelling of unrest in Baluchistan could be an impediment. This has enhanced internal divide within the nation and added to tensions, as all CPEC benefits would only accrue to Punjab, others being ignored.
All contracts for construction remain with Chinese concerns and the labour is also Chinese, despite China claiming global tenders for each project. Thus, CPEC has not enhanced any employment opportunities in Pak. The restrictions placed by China ensures no Pak concern can ever bid. Restrictions imposed in the contract include a security deposit of USD 5 Billion or five years’ experience in similar construction, which is beyond the capability of Pak companies. Internationally, with instability in Pak, no global concerns would participate.
Reports emanating from Pak indicate that Chinese labour employed are mostly convicts, who remain unruly and undisciplined, leading to regular clashes with Pak police personnel. There have been reports of Chinese even involved in ATM thefts. A report over the weekend indicated the arrest of two Chinese who had launched drones to monitor the new Islamabad airport, adding to security issues.
Pak attempted to charge toll tax for move of Chinese vehicles, but the same was blocked by China, reducing the income it expected to earn. It would also earn nothing from the use of Gwadar as it has only 10% control, with 90% earning going to China.
With phase 1 of the free trade agreement in place, Chinese goods have begun flooding Pak markets, pushing their economy deeper into doldrums. Its traders have begun rising up in arms as they realise that the government’s decisions have impacted them.
The realization that China has exploited them has now begun to dawn and it is too late. Pak, in Nov 17, cancelled the construction of the Daimer-Bhasha dam, slated to be a USD 14 Billion agreement, stating China’s hyper strict conditions for funding the project were ‘not doable and against our interests’. The dam was part of the BRI.
Recently there were reports of Pak backing down from signing the revised free trade agreement with China at the last juncture. As per their minister for state and finance the worries shared by the business community of Faisalabad over the China offer list forced the government to back down. There was opposition from the federal board of revenue and industry after the government announced its plans to offer zero duties to seventy five percent of tariff lines. The Chairman of the standing committee of finance stated that Pak was already running a huge trade deficit with China and these concessions would destroy all industry in the country.
China on the other hand is aware of the deep economic crises Pak is facing. Pak had recently approached China for a USD 5 Billion loan, but the same was turned down. Pak prefers approaching China as against the world bank, despite higher rates of interest, as international monetary institutions are controlled by the US, which can always tighten the screws, if Pak refuses or delays acting against US interests in Afghanistan.
Post being turned down by China, it is resorting to a desperate measure to raise as much as USD 1 Billion from its diaspora by launching an overseas certificate in Dollars and Rupees. Economically Pak’s foreign exchange reserves are at their lowest in three years. Pak’s repayment of loans to China, which would be approximately USD 5 Billion a year has yet to start. Their claims of development rising to plus 5% this year is solely due to Chinese investments and infra development.
The Pak army is aware of the problems being faced by the country, hence have begun tightening internal screws. It has begun believing that it is the politicians who have sold the country. However, they have ignored the fact that senior military leaders, including their present and past army chief’s, praised the CPEC as the saviour of Pakistan, in every public forum. China provides approximately 60% of Pak military hardware only making it more indebted. The politico-military nexus knows it cannot broadcast its doubts on the viability of the CPEC to the public as it could add to the existing turmoil.
The impact is such in Pak, that Mandarin is being taught in every institution in the hope that CPEC would change the character of the nation. The true reality remains hidden. Simplistically put, the CPEC has been a disaster for both, China and Pak. While China would get its money back from Pak by yearly payments or take possession of critical assets, Pak would remain a loser. Its economic mess would only increase, pushing it deeper into financial doldrums.
About the Author
Maj Gen Harsha Kakkar
Retired Major General Indian Army