CPEC is not dead

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Dr Muhammad Shahbaz

During recent months several critics of CPEC, both within and outside Pakistan, have come to claim that the Project is dead and that Pakistan has realized that it was a raw deal for it and therefore, now, wants to extricate itself from the initiative. These critics base their conclusions on the following points:

1. That the Pakistani leadership is not visibly involved in CPEC-related activities and has thus taken a quiet but firm decision to gradually withdraw itself and the country from the project.

2. That China wants to take over Pakistan’s natural resources, ports etc. thus leaving both, Pakistan’s sovereignty and economy in a severely compromised state.

3. That if CPEC is such a big bonanza why have the numbers pertaining to Pakistan’s BoP (Balance of Payments)/FDI (Foreign Direct Investment) not reflected the phenomenon on a grander scale.

4. That the financing and lending arrangements of CPEC are exploitative in their terms and would cripple Pakistan’s economy at the time of repayments.

5. That US’s aid methodology is less focused on benefiting US economy, in the process, than China’s.

This article aims to shed light and examine, dispassionately, these conclusions and the rationale behind them.

First of all, has the Pakistani leadership distanced itself from CPEC and activities related to it? The answer is a resounding no. Though there can be hiccups and India plus Kashmir but the focus on CPEC is being maintained along with other issues. Only on September 13, 2019, Federal Minister for Planning, Development and Reform Mukhdum Khusro Bakhtyar chaired the 58th Progress Review Meeting of CPEC projects in Islamabad. Chinese Ambassador Yao Jing, DCPC Dr. Mohammad Jehanzeb Khan, Secretary Planning Zafar Hasan, representatives from Chinese enterprises and senior officials from relevant ministries also attended the meeting. Speaking on the occasion, Chinese Ambassador Yao Jing said that CPEC is heading in the right direction adding that CPEC is quite different from other Belt and Road initiatives as this flagship project manifests the longstanding friendship between the two friendly countries and will bring prosperity and progress for Pakistan. During the meeting, various projects of CPEC were discussed in detail one by one.

It was informed that the Gwadar Development Authority, headed by Chief Minister Balochistan, has approved the Gwadar city master plan with some minor modifications. Secretary Communications informed that Multan-Sukkur Motorway will be opened soon for general traffic as the work was almost complete. Planning Minister and the Chinese Ambassador appreciated the pace of work on the East Bay Expressway project. Orange Line Train project and ongoing projects in Gwadar were also deliberated upon in detail.

On August 29, 2019, Joint Working Group (JWG) on Gwadar met in Islamabad. China’s National Development and Reform Commission (NDRC) Deputy Director General Mr. Gao jian, PD CPEC Hassan Daud, officials from line ministries, representatives from provincial government of Baluchistan were also present in the meeting.

Secretary Planning Zafar Hasan said that the work on 300 MW coal based power plant will be expedited so that electricity can be provided which is crucial for development of Gwadar. It was also decided that the Joint Cooperation Committee meeting will be held this year in Islamabad in November.

Both sides appreciated the approval of Gwadar Free Zone concessional agreement and it was decided that work on Phase-11 will be expedited. It was informed that five Chinese enterprises have shown interest for investing in Gwadar Free Zone.

It was decided that on the recommendation of government of Baluchistan, the Gwadar Friendship Hospital, Nurses Training Centre and Teaching Hospital will be built. Chinese side stated that in the first phase the hospital will be built and in the second phase the Nursing School and training centre. It was decided that in order to electrify Gwadar Port special provision of solar household projects will be undertaken on priority under socio-economic development plan. Fisherman Training Centre will be incorporated in the vocational training centre. The meeting noted that preparatory work on Gwadar Airport has commenced and work on the project will begin by November this year.

On August 26, 2019, Cabinet Committee on China-Pakistan Economic Corridor (CPEC) met in Islamabad to review progress of various projects under CPEC framework. The meeting was attended by Federal Minister for Railways Sheikh Rasheed, Minister for Maritime Affairs Ali Zaidi, Advisor to PM on Commerce, Textile & Industry Abdul Razzak Dawood, DCPC Dr. Jahanzeb Khan, Secretary Planning Zafar Hasan, Secretaries from different ministries, members Planning Commission and senior officials from provincial governments also attended the meeting.

Secretary Planning gave a detailed presentation to the participants on various projects under CPEC framework. The Committee decided that financing discussion on ML-1 project should be commenced to finalize the mode and PC-1 of the project. The Minister reiterated that it is a very important project under CPEC portfolio and the incumbent Government is committed to fast track it.

And so the list of fervent CPEC related activity involving the Pakistani leadership goes on. There is practically no day when there is no such activity taking place. So the impression being conveyed and mentioned above, that Pakistani leadership is getting itself disengaged from CPEC, is entirely without foundation and is completely baseless.

Similarly the list of CPEC related projects that have already been completed is also worth noting. 2×660MW coal-fired power plants at Port Qasim Karachi; Sahiwal 2x660MW coal-fired power plant, Punjab; Engro Thar Block II 2×330MW coal fired power plant ,TEL 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh; Thal Nova 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh; Hydro China Dawood Wind Farm Gharo, Thatta, Sindh; UEP Wind Farm Jhimpir, Thatta, Sindh; Sachal Wind Farm Jhimpir, Thatta ; Three Gorges Second Wind Power Project and Three Gorges Third Wind Power Project, Thatta; CPHGC 1,320MW Coal-fired Power Plant, Hub, Balochistan; Cross Border Optical Fibre Cable (length 820 km) and several other projects are already complete and operational. And about three dozen other projects are at various stages of progress and/or construction.

China’s rise as an economic super power, starting from the early 90s, entailed following a multipronged and multi-dimensional strategy on several policy fronts. The strategy has had brilliant results, known to all, lifting hundreds of millions of its citizens out of poverty as a result. Increasing the global competitiveness of its economy was one of the cornerstones of the policy that made all of this possible. China’s exports rose from $122bn in 1995 to $2.6trn in 2018, as a result. But before the exports could rise, the development of energy and infrastructure had to take place first. The process eventually led to millions being pulled out of poverty; CPEC has a similar, common sense, natural design that is evident in the pattern of the completion of projects.

Now coming to the point of impact of investment on Pakistan’s FDI/BOP and foreign exchange levels the following point needs to be noted and understood.

CPEC’s implementation is spread over four phases time wise and a similar number of categories, namely, (i) Early Harvest pertaining roughly to 2015-2020. Most of the projects in Early Harvest relate to the energy sector and almost 70% of these have already been completed. The rest are to be completed by the end of the next year. This has contributed enormously towards eliminating load shedding that had an extremely adverse effect on industrial growth.(ii) Short Term Projects, to be completed up to 2022. These include mainly roads, Gwadar’s development, Optic fibre – a substantial part of which has already been completed. Hydel and coal mining projects are also included in this category. (iii) Medium Term Projects are to be concluded up to 2025.These include railways and Industrial zones. (iv) Long Term Projects include Industrial Zones, Agricultural and Tourism sectors’ development and will be concluded till 2030.

The $45bn figure widely quoted in the press is to be spent in the categories mentioned above till 2030. That translates into an annual outlay of $3bn which expressed in percentage terms is less than 1 percent of $375bn economy of Pakistan and hence the less than palpable effect in the national accounting figures. This also underscores the importance of not being too euphoric or expecting immediate results from CPEC. CPEC surely is a game changer but its results will take their own sweet time to exhibit and trickle down.

Another objection regarding CPEC is surrender of territory, read Gwadar, at terms that tantamount to surrender of territory or sovereignty. The truth is that Gwadar has been offered to China on the same terms as were offered to Port of Singapore Authority (PSA) in 2007 i.e. for a 40 year lease on BOT basis. PSA could not deliver and in 2013 the lease agreement for 40 years was signed with China Overseas Ports Holding Company Limited.

The fourth major objection about CPEC relates to repayment of Chinese debt and the supposedly crippling effect of it. One needs to note that the maximum effect of repayments, repatriation of profits and CPEC related imports, in any single year, would be around $5bn and would be felt around 2024/2025 after which it would gradually wane. Our exports around that time are estimated to be at $45bn at least, given the positive impact of completed CPEC projects by then. It, therefore, would be nothing catastrophic and would easily be absorbed.

The last objection is about Chinese money, grants and loans, being spent to buy machinery from China to complete CPEC projects. Do the analysts really mean this as a serious objection? Does Pakistan manufacture that machinery? Or is it expected that China should buy the machinery from the US, with which it has a trade surplus which in the first half of 2019 was $140bn! Moreover, USAid’s methods of aid usage are exactly the same – every conceivable service or good that can be acquired from the US is acquired from there thereby using up a large portion of aid within the donor country.

To be fair to all, it needs to be said that CPEC genuinely makes the US and India nervous. For US a former ally – Pakistan – that it used to deal with in a very transactional manner is going to spin out of its orbit. On the other hand India, a former USSR ally, that feels encircled by China has become quite close to the US. While Russia and China have been steadily coming close since 1991 and cooperate with each other in almost all critical areas. So to say the least the global alignments have completely changed since the end of the cold war. A new economic super power in the form of China has risen and is shaping the environment in its surroundings as well as globally – the objections to CPEC, whether well founded or not, are b