CPEC and a dwindling Pak economy CENJOWS 25 Nov 19
https://cenjows.gov.in/article-detail?id=224
CPEC and a dwindling Pak economy CENJOWS 25 Nov 19
Speaking at the Woodrow Wilson International Centre for Scholars, Alice Wells, the top US diplomat for South Asia warned Pakistan that the China-Pakistan Economic Corridor (CPEC) would push Pak deeper into debt. The CPEC is planned to link China’s Xinjiang province to Pakistan’s Gwadar port on the Arabian Sea. It would open a land route for Chinese oil imports, preventing Chinese shipping coming under threat as they transit the Indian Ocean.
Alice’s talk was described as ‘unusually specific’ by the international media. She gave multiple examples of how China was raising costs adding to Pak’s financial burdens. She spoke specifically on the example of upgrading the railway line from Karachi to Peshawar.
She urged Islamabad to examine ‘the burdens that are falling on the new government to manage with now an estimated $15 billion debt to the Chinese government and $6.7 billion in Chinese commercial debt’. She further clarified that Pakistan needs to understand that China is providing loans and not grants.
Her comment, ‘This is almost always the form of loans or other forms of financing, often non-concessional with sovereign guarantees or guaranteed profits for Chinese state-own enterprises that are repatriated to China,’ angered China. She added that the project employs Chinese workers, hence does not add to employment within the country.
The Chinese Ambassador to Pakistan, Yao Jing, reacted immediately. He stated he was ‘shocked and surprised’ at Ms Wells’ speech which ‘fully exposes her ignorance of Pakistan-China relations.’ He added that if Pakistan was in need, China would never ask Pakistan to repay its loans in time. There was no mention of writing off the loans. With specific reference to the railway project he stated that that the project’s cost is around $9 billion; however, it is only an estimate.
The Pak foreign minister, Qureshi, countered Alice’s comments and stated on 24th Nov, ‘Pakistan does not agree with that view. We have rejected that view.’ He added, ‘We do not think that the burden of CPEC will increase our debt burden.’ Dr Firdous Awan, special assistant on information and broadcasting to Imran stated, ‘This great corridor will open new paths for economic development and prosperity in the entire region, not just for Pakistan and China.’
It was on grounds that the One Belt One Road project of China (of which the CPEC is a major part) is designed to trap vulnerable countries and the CPEC transits through disputed territory that India did not support the project across the globe. On India’s objections, Alice Well stated, India has been ‘crystal clear from the outset on the geopolitical elements of the project globally.’
Pakistan, in its desperation for funds and development, has failed to learn from the examples of Sri Lanka and Maldives. Sri Lanka was compelled to hand over the Hambantota port to China for 99 years and Maldives, after the change of the presidency, was informed by the Chinese that they owed China USD 3.4 Billion. The Sri Lankan port takeover was globally criticised. China was accused of exploiting vulnerable countries and forcing them into a debt trap.
Kenya may also have to hand over the Mombasa port, should it fail to clear its mounting debt to China. A report stated that 20% of Africa’s external debt is owed to China. The Philippines is discussing whether China can shut of its electricity by remote control, in case there are differences between the two nations, as China owns 40% in its National Grid Corporation, its sole power transmission line.
In Pakistan, China already has complete control over the Gwadar port for 40 years. It is also building a ‘Chinese only’ city at Gwadar to house half a million Chinese nationals at a cost of USD 150 million. They would with time become Pak citizens. It has already made similar townships for its citizens in Africa and Central Asia.
China, in Jan 2017, purchased 40% ownership of Pakistan’s only stock exchange, based in Karachi. This is the first time that Chinese companies have acquired shares in a foreign stock exchange. Thus, they would control the Pak economy.
There is no doubt that the entire funding behind the CPEC is shrouded in mystery. No one seems to be aware of the true costs and benefits which may accrue. Beijing’s funding has led to imports of Chinese equipment and materials, increasing Pak’s current account deficit and external debt.
According to an IMF report published in July this year, Pakistan’s total public external liabilities in March 2019 stood at $85.4 billion of which it owes one-fourth of it to China. The State Bank of Pakistan put the total external liabilities at $106 billion. Increasing debt forced Pak to slow down the CPEC and presently most projects are running behind schedule.
There were also reports that China had also slowed down its investments and construction on account of multiple reasons, primary being accusations of corruption in the projects. Further, with Pak approaching the IMF, China was watching the terms and conditions being laid down by it.
Imran, when not the Prime Minister, had objections on the CPEC, however, post become the PM changed his views and began backing the project. Whether this was done on the behest of the army chief, who ensured his appointment, remains unclear. There is no doubt that the Pak army, based on its dependence on China for its arms supply, is behind the project. It has no concern for the increasing national debt, which remains the responsibility of the puppet government.
Thus, the army has ensured that a retired officer and ex-DG ISPR, Lt Gen Asim Bajwa, was appointed as the head of the CPEC Authority. The authority is tasked at accelerating the pace of CPEC projects. This will also lead to their army chief becoming the driving force behind the CPEC. In public forums, senior army officers have praised the CPEC as being a game changer.
General Bajwa, the army chief, has on multiple occasions assured the Chinese on security and progression of the CPEC. In return, the Chinese welcomed his extension of three years. The Chinese statement read that he is an ‘old friend’ of the Chinese government who has made ‘robust’ contributions to the bilateral relations. This also reinforced China’s proximity with the Pak army, which it sees as the guarantors of the CPEC. It is the first time that the Chinese have responded to an internal appointment anywhere globally.
The Baluchi’s who fear the Chinese exploiting their resources have regularly attacked CPEC projects. Their boldest attack was on Gwadar’s Pearl Continental Hotel in May this year. To ensure security of the Chinese working on the CPEC, the Pak army has raised two divisions.
Chinese engineers and labour working on projects, have on multiple occasions attacked Pakistani police officials. They have begun treating Pakistani’s in their own country as second class citizens. Fearing slowing down of projects, due to such incidents, Pakistan acts against its own police elements, rather than anger the Chinese.
Realistically, the CPEC would only reach its full potential and be beneficial for Pak, if India and other countries of the region join in and contribute in its exploitation, thereby giving Pak revenue. Without Indian participation, the project is bound to be a burden. In the current dispensation this is unlikely and hence Pak gaining revenue from the project to repay loans to China would never happen.
Pak has realised this shortcoming, and as per an article in the Asian Review of 23rd Nov, ‘to this end, Islamabad is pitching the corridor to Iran, Saudi Arabia and other countries that might benefit from it.’ This was further justified by Abdul Hafiz Shaikh, the PM’s advisor on finance when he added, ‘We need all the revenue we can get to make this project financially feasible.’ The article also stated that China demanded changes in Pak’s planning and development ministry as also wanted the minister of communication and railways replaced.
In the ultimate analysis, while China would gain in terms of connectivity, the entire loss on the project would be borne by Pakistan, as acceptance by other nations is unlikely.
The words of Alice Wells will prove true in a few years when Pak begins to repay its loans, despite all assurances by Pak and China. The Pak army, which backed the project for its own benefits, would push the civilian government to face local wrath, while it would continue watching from the side lines.
For India, the greater the Chinese investment in Pak, the greater would be its deployment in the country. There are reports of Chinese soldiers being seen in Pakistan’s Thar desert and along the LoC. They may soon also deploy their warships in Gwadar or in Jiwani where they are expected to construct a new naval base.
China would also be compelled to provide Pak all support, diplomatically and militarily, to ensure the country can generate funds to repay the loans. This could further embolden Pak in its support to anti-India terrorist groups.
About the Author
Maj Gen Harsha Kakkar
Retired Major General Indian Army