CPEC- Is it benefiting Pakistan or is China bleeding Pakistan?
- In Foreign Policy
- 12:48 AM, Nov 10, 2016
- Sona Roy
The China Pakistan economic corridor (CPEC) is a $46 billion, infrastructure development project between the two countries, a part of Chinese one-belt-one-road initiative. This project includes rail and road connectivity, gas pipeline network, power plants and development of transit corridor facilities. This proposed “silk route” will connect land locked portion of china, Kashgar city of Xinxiang to Gwadar port Pakistan leading to Arabian Sea, crossing through Khunjerb pass in Gilgit Baltistan.
Presently China’s access to Middle East and Africa is through the Strait of Malacca, which is a long distance route. Apart from the distance the other issues on this route happen to be China’s dispute with several south eastern countries because of its demand of sovereignty on several islands in the South China Sea.
Question is why is China investing in CPEC?
CPEC is China’s grand plan of “One Road One Belt” which includes the land based silk route and Maritime Silk Route. Through this China hopes to be the most dominant nation in the region, because it understands that the future growth is going to happen in the Indo-Pacific region, which includes south east Asia, greater Eurasia, Western Australia and Eastern Africa.
Gwadar port will not only connect the land locked province of china, Xinxiang to the port city of Pakistan, but will also provide Chinese access to the Arabian Sea. This will be as close as 600 km to the east of Strait of Hormuz through which 35% of world’s oil shipment passes. This makes this corridor an important strategic and economic trade corridor. The rail route and highways proposed under this corridor will cross the entire length of Pakistan and thus reduce the distance for Chinese goods moving towards the Western Hemisphere countries by almost 2000 miles.
Another very important aspect to be considered is China’s “String of Pearls” policy, which is basically a network of military and commercial facilities along China’s sea lines of communication, from the mainland china to Port Sudan and crossing Middle East.
China already has its military and commercial presence in many countries around India, like Burma, Bangladesh, Sri Lanka, Maldives and the recently added Seychelles. Though the “String of Pearls” strategy has never been mentioned by china anywhere officially, it’s alleged to be China’s global strategy to develop blue water capabilities. It involves establishing a series of nodes throughout the region, and each node represents a pearl.
What is Pakistan’s position in CPEC?
While discussing Pakistan’s position in this deal called CPEC it’s important to discuss what is Pakistan supposed to get, vis-a-vis what is Pakistan actually getting. CPEC plan incorporates an extensive network of rails and roads crossing through the entire country of Pakistan. It incorporates heavy infrastructure development projects and mega power plants too.
1- There will be an 1100km long highway between Karachi and Lahore, while the existing Karakoram Highway will be completely overhauled and reconstructed.
2- The rail line between Karachi and Peshawar will be upgraded and modernized. The rail network of Pakistan will be extended till Kashgar in china. It will be a 4000km long rail-road network from Gwadar to Kashgar.
3- There will be an extensive network of pipelines to transport liquid natural gas and oil which will include transport of gas from Iran too.
4- Mega power plants will be constructed with an investment worth $33 billion to help Pakistan’s acute energy deficit.
5- There will be approximately 13 special economic zones along the corridor.
Now let’s look at the fine print
1- The finances- The entire CPEC agreement is divided into two parts- $35 billion for the mega power plants and $11 billion for infrastructure development. The funds are not AID, it’s a LOAN, let’s get this fact straight. Out of the $11 billion investment in infrastructure, China is spending 20% and the rest 80% comes from Pakistan, which again comes as a loan from China to Pakistan.
Basically Pakistan is going to pay for a corridor which will benefit china the most, and it will also maintain and guard it. Pakistan has already added a CPEC tax to raise money. Pakistanis who use the highways will be paying high toll tax and increased rates of rail fare.
2- Gwadar port will not be of much use to Pakistan as they already have Karachi port, and the mere addition of a new port does not increase trade. Gwadar is meant for trans-shipment and is quite close to two already established trans-shipment ports of Salalah and Jebel Ali, making the competition extremely stiff. Yes what Pakistan will be getting is a 10% discount on charges of Pakistani goods that will be received at Gwadar, how is that economically beneficial, keeping in mind the building and maintenance cost of that port? China on the other hand gets its long standing wish for a warm water port.
3- As per their plan china will be moving some of its industries to Pakistan but the point no one mentions is that, these are the industries which are either unused or are highly polluting ones like Chinese plastic and petro-chemical industries. They also include obsolete coal plants that it wanted to get rid of anyway. Moreover, these industries will be run by the Chinese, infrastructure support comes from Chinese including the material to be used, the steel, the cement, the engines etc. If I put it in simplest words, Pakistan will take loan from china and with that loan it will buy material from china, to build infrastructure that will be used by china. In fact china is building a city in Pakistan exclusively for Chinese, the building, maintenance and security again falls on Pakistan.
4- Now for the trade part- Trade between Pakistan and India is already a shut case and unless the trade ties are renewed between India and Pakistan, it will only be a single route trade. There will be goods coming from China on which Pakistan earns nothing, but nothing much going from Pakistan to China, remember there’s no export from Pakistan to China. So effectively it will be china using CPEC to export its goods to Asia, Central Asia and Africa. An economic corridor means a route that connects manufacturing hubs, ports and every other economical component. Where is Pakistan’s manufacturing hub?
5- The loan that comes to Pakistan from China, comes with an interest rate of 27%, highest heard so far. If Pakistan defaults loan, it will be disastrous for its economy and its currency. And if it takes another loan to repay the previous loan, the current exchange rate will at least be triple, leaving the country bleeding to death, Africa is a living example of this. These loans will come from Chinese banks like AIIB and China Import Export Bank to run industries which will be run by Chinese. The Pakistani government will be paying off the debt through tax collected from these industries which is again very low because the Pakistani government has given a huge tax exemption to these Chinese industries to recover their investments. Perfect scenario for a badly bleeding economy.
6- Since the major workforce in these industries moved by china or set up by china, will be Chinese, including the administrative staff, it will surely give boost to employment ratio of china. I’m not sure how much will it benefit Pakistan other than the local labor. According to Chinese law, state owned companies hire only Chinese people, which means, no employment for Pakistanis. In Africa where china has invested, even the provision stores belong to Chinese and locals are not allowed to open any store. Even security of CPEC is being negotiated to be outsourced to the PLA.
7- South China Sea- the main aim of CPEC is to make the South China Sea a heavily militarized zone and Gwadar will be China’s naval port. China needed Pakistan to use its coastline to have access to the Indian Ocean and have a closer military base to Central Asia and Afghanistan. How is transporting goods through a high mountain range infested with terrorists going to be cheaper for china, compared to the already existing route? Does that mean CPEC is no economic corridor and just an opening for china to enter Gwadar and make it their naval base?
8- China has made a well calculated move through CPEC and they will surely extract their investment with huge returns. China will recover its investment within one-fourth of the stipulated time of 25 years. The power tariff that Pakistanis will have to pay is much higher than what is paid by India and also more than what’s paid by developed countries. This expensive electricity will cripple Pakistan’s economy which is already in shambles.
9- Since a major portion of CPEC passes through terrorist infested and troubled areas of Pakistan, security will be a major issue, and what will eventually come out is, Pakistani army getting richer and after a point china will deploy its own army citing security reasons- the ‘ideal’ way of infiltrating and capturing a country. Remember a big Chinese population would have already migrated to Pakistan as workforce for Chinese industries by then. China has struck a deal knowing that it will bleed Pakistan’s economy in just few years and an economically unstable Pakistan in fact is beneficial for china. It won’t be surprising if china claims sovereignty on the CPEC region which as a matter of fact includes Pakistan’s most mineral and natural resource rich provinces. What baffles me is the ignorance of Pakistani people about this.
These details in fine print are kept away from Pakistanis by the Pak establishment and anyone raising questions is quickly labelled a R&AW agent. Pakistani people are fed some mythical stories about CPEC but there’s no substantial statistical or economic study that can back these claims of employment opportunities, creating new business, creating export revenue, building forex etc. CPEC projects are spread over a period of 30 years and by the end of it Pakistan will be nothing but a Chinese colony; another Tibet in the making.
Image Credits: http://currentaffairs.gktoday.in/tags/china-pakistan (provided by the author)
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