CPEC- some fears

March 16, 2017

CPEC

U.K. Dar

The year is 1717. Mughal Emperor Farrukhsiyar is sick and the Doctor who cured him was an Englishman, William Hamilton. The Emperor rewarded Dr Hamilton, as per his wish, the duty-free trading rights to the British East India Company. Few courtiers raised objections but were dismissed with the notion that a mere trading company cannot endanger the Mughal Empire.  Apprehensions proved right and the rest is history. India remained England’s colony for more than two centuries.

Let’s rerun the script; instead of India and British East India Company read Pakistan and China. The Pakistani economy is in tatters with only China willing to resurrect it. If history could be guide; Pakistan has granted the trading rights to China under CPEC. The scenario becomes bleaker when the details of CPEC are kept under the blanket.

Pakistan government is portraying CPEC as some sort of a magic wand, a game changer which will make Pakistan’s problems disappear. In my opinion, that is not the case. CPEC has some economic benefits, but attached to them are problems.  These problems will overshadow the benefits, if not addressed in the beginning.

Let there be no doubt that CPEC is much more beneficial to China than to Pakistan. China economy is directly linked to its exports of manufactured goods and import of oil and machinery. This requires safe and short routes to the outside world. Major industrial infrastructure of China is around the coastal regions in eastern China. The trade from these areas is dependent upon its main seaports at South China Sea. However, the South China Sea is a disputed maritime territory. Almost all the regional countries lay their claim on its right of use.  In case of any eventuality the trade can be severely hampered causing huge loss to China and its economy. The latest ruling of the Permanent Court of Arbitration against China claims is a further set back to the Chinese interest. Moreover, this route from Chinese port to Persian Gulf is about 13000 KMs.

The western half of China, west of the Hu Huanyong Line which is about 57 % of the mainland with only 6% of its population, remains relatively underdeveloped and poor. The Chinese leadership in order to bridge the gap developed the policy of Western China Development. Through this plan, people were given incentives to develop industrial infrastructure in this region. However, due to long land route between Western China and its seaports in East China, any project becomes economical unviable due to substantive transportation charges. The shortest and economical route for the goods produced in Western china is through Pakistan via Gawadar to Arabian Sea, just 2,000 KM. This route shortens the distance from Western China to outside world by about 12,000 KMs and bypasses the troubled waters of South China Sea.

What Pakistan will get out of this all is mere transition charges whereas the disadvantages are numerous; mainly, Pakistan’s economic sovereignty will be mortgaged to China. The $46 Billion “investment” that the Government claim is basically a loan not a grant.  The interest rates are also exuberant, much more than the international donor agencies. The only way Pakistan can payback this loan is if CPEC is successful and China’s export remains stable and free of global sanctions.  Thus, Pakistan from the transit income, which would be 2 cents on a dollar of Chinese earnings, will be paying back Chinese loan. What happens if China trade experiences downturn, for any reason, in distant future? The project will fails to generate the proverbial golden eggs. How will Pakistan repay this loan then? The risks, $46 Billion loan, are assumed by Pakistan whereas growth, estimated $1 Trillion over the next decade, is for China.

Last but not the least, cheap Chinese goods will flood the Pakistani market and wipe out the local indigenous industry. Let’s not forget that China has $3 trillion foreign exchange reserve, bigger than Pakistan’s entire GDP, and hence a lot of spare cash to subsidize its goods/industry under Western China Development plan. How much Pakistan be subsidizing its local products like textile or football makers to compete with their Chinese counterparts? If someone thinks that he can produce cheaper goods than Chinese then he needs to think again.

The discussions on Pakistani media about CPEC are emotionally influenced rather than logical. Anyone raising fears is termed as a traitor. Pakistani leadership, I have no doubt is well intentioned in CPEC, has not taken into account the long term consequences of taking loans from China and granting access to its land routes. Availability of road infrastructure and overcoming the power shortage are the short term gains. If it is not late then I would urge the Government to re-negotiate the loan repayment plan and obtain safeguards for its local industry. Question should be is CPEC really smart – I would say that if proper safe guards are not ensured than its going to be more harmful for the Pakistan than beneficial in the long run.

U.K. Dar is freelance columnist based in Manchester, UK.

 

1 Comment on this article. Feel free to join this conversation.

  1. rehantahakhanz@gmail.com'
    Rehan Taha Khan March 18, 2017 at 8:28 am -

    Good analysis by the author, but remember fortune favours the brave and in any business risks are always there. CPEC is a risk worth taking.