Anjum Ibrahim
The jury is still out on whether China Pakistan Economic Corridor (CPEC), an over 50 billion dollar commitment by the Chinese in support of Pakistan’s inadequate infrastructure sector, should be credited under foreign direct investment (FDI) where no repayments are required or add to the country’s spiraling foreign debt.
From the Chinese perspective, the CPEC is part of One Belt One Road (OBOR) initiative launched by President Xi Jinping in 2013, estimated to cost over 26 trillion dollars till 2030, encompassing his foreign and economic policy thrust. It aims at reviving the ancient Silk Road connecting China with Europe and Africa through road, rail and sea links; energy projects are also a significant component of OBOR. Thus for PML-N leadership to maintain that CPEC is the outcome of Nawaz Sharif’s efforts alone or that its continuation may be impacted in the event that the elections 2018 do not return the party to power is hogwash. Chinese officials are quietly challenging the PML-N narrative by pointing out that CPEC projects are an outcome of the close relations between the peoples of the two countries, a claim supported by the fact that Pakistan-China relations are generally regarded as being ‘all weather’, in marked contrast to Pakistan’s relations with other powers.
But Pakistan is a parliamentary democracy, however nascent, and therefore it was critical for the elected PML-N government to take parliament on board. Ahsan Iqbal, the man selected by the party to head CPEC projects, has persistently claimed that he did take members of parliament as well as provincial political leadership on board but this claim has been openly and consistently refuted by members of the opposition in the national assembly as well as by the leadership of the three smaller provinces who claim that CPEC projects are Punjab centric. One basic factor that may account for the Punjab centric road projects is the argument that it is cost effective to use the existing road network as much as is possible – and given that roads are more extensively laid out in Punjab relative to the three smaller provinces therefore the first phase of CPEC network is heavily tilted in Punjab’s favour. While this rationale, undoubtedly, strengthens PML-N’s political ambitions in Punjab in the 2018 elections yet it also supports China’s overarching objective: to expand the road network to facilitate Chinese trade to and from the Middle East through Gwadar port, which is also under Chinese control. The three smaller provinces insist that the primary objective of expanding the road network should be to strengthen linkages with their underdeveloped regions thereby promoting development. This clearly is not a priority objective, at least not during the ongoing phase of CPEC projects.
There is, therefore, clearly a lack of transparency in CPEC projects, with the exact terms and conditions at which funds are being procured from China for specific projects not known. Some reports indicate that China has agreed to extend loans for infrastructure projects at 1.6 percent in contrast to loans extended by multilaterals for infrastructure projects at between 5 to 8.5 percent. In marked contrast, the PML-N government has been increasingly relying on extremely expensive commercial loans from the external banking sector at rates close to 12 percent. However, state control is apparent in all three Chinese companies dealing with financing CPEC projects - Exim Bank of China, China Development Bank and Industrial and Commercial Bank of China. Additionally those Chinese companies awarded the construction contracts are insisting on tax concessions and on Chinese machinery imports that has raised our import bill considerably leading to a significant widening of the trade deficit. However, Ahsan Iqbal continues to insist that CPEC projects are an investment – a claim not substantiated by a commensurate rise in foreign direct investment inflows.
Additionally, there are reservations expressed by both the members of the opposition as well as sector experts about the feasibility of specific energy and railway projects approved by the PML-N government. An example is setting up coal plants in Sahiwal and Rahimyar Khan which would imply transporting coal, at great cost both in terms of money and health, to these cities given that coal plants are located at or near the source of the coal – domestic source or imports at the port.
OBOR projects have come under considerable criticism by the opposition in other countries and with a change in government projects agreed have been revisited. In 2015 the Sri Lankan government lost the elections with the then opposition arguing that China had funded “white elephant” infrastructure schemes. This was witnessed in other South East Asia countries - from Indonesia to Laos to Myanmar to Thailand – where China’s mega projects were billed as controversial by the opposition.
In Malaysia, the surprise victory of Mahathir Muhammad is partly being attributed to his sustained criticism of OBOR projects on two counts: (i) “without actually conquering the countries, they (Chinese) have managed to increase their influence over many countries in South-east Asia,” Mahathir stated and concluded that this had dented Malaysia’s non-aligned status with deeper military-to-military Chinese ties, portraying the ousted Prime Minister Najib Razak as the plaything of a foreign power; and (ii) Chinese initiatives have brought few benefits to average Malaysians, and instead have raised the country’s indebtedness and led to an influx of Chinese unskilled labour; Mahathir repeatedly targeted a power-asset sale to a Chinese company, in a deal designed to pay off debts linked to the mammoth 1Malaysian Development Berhard (1MDB) graft scandal alleging that Razak channeled nearly USD 700 million into his private account.
In marked contrast in Pakistan, there is a general consensus that CPEC can be a game changer – a view shared by the establishment which is providing security to Chinese workers, as well as by all political parties notwithstanding serious and legitimate concerns noted above. The overarching reason for this widespread support for CPEC is that in Pakistan bilateral grant assistance has all but dried up while multilateral assistance is unlikely unless Pakistan goes back on another International Monetary Fund programme which would entail implementing some politically extremely challenging conditions. China, it is argued, is the only country that remains interested in putting money into Pakistan.
To conclude, while it is certainly true that Chinese assistance under CPEC - be it investment or loans – will fuel growth with a consequent impact on employment but whether PML-N wins the next elections or not there is a need to revisit projects for technical sustainability and for maximizing development rather than relying on an outdated ‘trickle down’ concept that leaves the rich richer and the poor poorer.
