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Can Pakistan handle CPEC impact?

  • Published at 02:23 pm October 7th, 2017
  • Last updated at 04:45 pm October 7th, 2017
Can Pakistan handle CPEC impact?
In South Asia, no project has occasioned more controversy and generated more interest than the China-Pakistan Economic Corridor (CPEC). This 3,218km highway, stretching from Xinkiang in Southwest China to the Gwadar port in Pakistan, according to experts, has the potential to change the economic profile of the region, over time. Part of the impressive ‘One belt one road’(OBOR) global infrastructure building initiative of China, this highway is poised to revive the glory days of the old silk trade route. The project would take at least 15 years to complete in phases. Pakistani authorities are naturally excited about the prospects and benefits of the massive project, which would cost nearly $75 billion (revised estimates). Their optimism is justified, seeing that this is the biggest investment in FDI terms for a single infrastructure project in all of Asia. At least 700,000 jobs would be generated, mostly in Pakistan, over the next five years in a major boost to its flagging economy. On paper, Chinese plans for economic development along the highway are impressive. On the anvil is a slew of major projects that would rev up power generation, expand road and railway network, involve building airports, and setting up industrial and tourism hubs. Among sectors that would directly benefit are agriculture, finance, tourism, human resource building and industries. The depth and range of the projects are mind boggling. CPEC targets at generating 9,000MW power from thermal coal-based units and hydro power resources, involving a $3,000 million scheme for the upgrade of transmission system. Some units will go into operation early next year. For roads, modern highways stretching up to 1,000km are being built, and 1,872km railway tracks are being laid. By 2020, about $45 billion will be spent. By then, the activity relating to the CPEC would amount to 17% of Pakistan’s GDP, estimated to push up its annual rate of growth by 2.5%. All in all, Pakistan sees this project and its promised benefits as part of a win-win situation all the way. The Gwadar port will be a shipping hub comparable to Hong Kong, Dubai and Singapore, they hope. Also, with their manufacturing capacity enhanced, Pakistani textile exporters can ship their stuff to West Asia, Africa and Europe. The Chinese have thrown in an additional sweetener by offering their aid at unusually low concessional rates. Islamabad would never have got such terms from the World Bank or the IMF. Keen to get OBOR off the ground in Asia, Beijing attaches the highest priority towards speedy completion of the project. It is also a matter of Chinese prestige, with India hardly participating in the BCIM corridor project, the OBOR's Eastern arm, to show the world the benefits of the CPEC on the West. India opposes the CPEC on grounds of sovereignty, as it runs through the disputed Pakistan occupied Kashmir claimed by India as its own territory. Much of the CPEC through the insurgency-affected Baluchistan region. Several Chinese officials and workers engaged in construction have been killed or kidnapped by local militants who have declared a war against Pakistan. Islamabad has deployed over 15,000 specially trained troops to provide 24/7 security for the Chinese personnel at work at its own expense. If things go according to schedule, then, there should be no opposition to such a project which would benefit Pakistan’s economy enormously. Yet, there are serious misgivings among Pakistan experts, media analysts and political observers as to whether the CPEC would really be a boon or a bane for Islamabad. There have been a series of programmes on major Pakistan TV channels critically analysing certain intriguing aspects of the project and its implementation. Pakistani officials have been questioned, why the specific terms of the bilateral agreement between Beijing and Islamabad have not been made public. Who were the signatories and why people of Pakistan have not discussed the details involved openly? Visibly uncomfortable officials have only said that they had been told that the details had been worked out ‘at the highest level’, but little else. It came to light later that the Ministry for Planning Development and Reforms is the lead Pakistani agency in charge of CPEC matters, despite the lack of experience of its officials in the implementation of such a major project of this scale. The people had been taken for granted amidst the high flown rhetoric used by Prime Minister Nawaz Sharif and Chinese President Xi Jinping to discuss and finalise all details relating to the CPEC between 2010 and 2013. Just why should China be so interested in doing so much for Pakistan, asked some analysts, what would China take back by way of repayment? The answer should worry all well wishers of Pakistan. The most optimistic assessment shows that even at the unusually favourable terms set by Beijing regarding repayment, Pakistan would be still required to pay back at least $7 to $8 billion in EMI for the next 43 years. “Given its present economic situation with its international debt of $72 billion, and exports dropping by 15.4% during the last three years, it is difficult to see how Pakistan can be counted on to pay back China on such terms for long,” says one analyst. It is being argued that once the volume of Sino-Pak trade picks up and there is an impressive traffic of goods both ways, Pakistan would be able to access the vast Chinese market with its estimated 400/500 million strong middle class. However, even a cursory analysis would expose the hollowness of such projections. The Chinese, with their massive exporting capacity usually dominate bilateral trade with every country including India and the US. India imports five times as much as its exports to China. Compared to India, Pakistan with only .06% of its population paying income tax, contends with a very poor tax to GDP ratio. While China dominates every sector of trade and manufacturing, 60% of Pakistan’s dwindling exports are provided by textiles, in which Pakistan has fallen behind India and Bangladesh. Many textile units have closed because of power shortage, lack of orders or other reasons. The future too does not look too good with Pakistan ranked 160th in the world in literacy with an estimated 25 million children not attending any kind of school, and literacy rising to only 60%. Its pharmaceutical and cement producing units can hardly compete with international competition. The CPEC would make it easier for China to move its goods in an endless traffic from its relatively underdeveloped western province right into Pakistan. However, the trucks and other vehicles heading from Pakistan to China would have very little to carry by way of exports, say observers. In other words, CPEC would bring the 40/50 million strong Pakistan middle class within close reach of the Chinese manufacturers. To take a concrete example, Pakistani policymakers claim that with more power being available, closed textile mills would reopen and exports to China and other countries would pick up. Actually the cost of production of textile items in Pakistan are much higher than in China. As for accessing power, the projected cost per unit of solar power would be at least Rs21(Pak) and more than twice the present domestic rates. Further, the Chinese, with their superior technology and advanced production mode, are known to be building new factories close to the Xinkiang terminal of the CPEC. The objective is to move the items produced into Pakistan as quickly as possible for exporting them to other countries in Asia, Africa or Europe by sea. What worries textile entrepreneurs in Pakistan is that some of these new units are also producing textiles. Analysts say it seems that Chinese will further strengthen their hold on the high end of the international textile markets, instead of aiding the ailing Pakistani textile sector. For Pakistan, the best way forward economically is a long term strategy that would seek to restore its strength in large scale manufacturing of high quality, value-added goods, targeting lucrative export destinations. But this calls for a high level of expertise applied diligently over the long term. Can Pakistan afford it? The task seems difficult given the country’s present situation and its relative isolation on account of its ambivalent policy on international terrorism. “International finance feels little attraction for volatile, terrorism-affected states. In a way china can take advantage of Pakistan’s isolation, as it did with Myanmar until a few years ago. Look at where Myanmar is today,” says economist Shounak Mukherjee. In case Pakistan falls behind in its repayment schedule to China, the debt-equity swap arrangement in the bilateral agreement on CPEC may come into play. Provisions are made for ensuring repayment in kind instead of cash. Where bilateral trade with China is concerned, two countries have found out the hidden costs involved. The Sri Lankan government has been forced to agree to arrangements whereby at Hambantota, not only the port, but the local power plant and much of the airport is currently under Chinese control with Beijing taking home nearly 90% of the total income generated. And Venezuela, also a victim of US-based restrictions, has to repay China for its financial help with its oil – only with the price of oil staying low, repayment is becoming harder by the month for Venezuela. There is another name for such bilateral arrangements for defaulting countries – handing over their assets to the stronger partner.
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