CPEC: Perils ahead for Pakistan

Published: May 11, 2016
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A view of the port city of Gwadar. PHOTO: REUTERS

A view of the port city of Gwadar. PHOTO: REUTERS

China’s ship-borne trade currently amounting to $5 trillion may triple over a decade, much of which will be passing through Gwadar-Kashgar route. Undeniably, Gwadar not only holds enormous promise for Pakistan and China, but also Central Asia and Eurasia. However, there are still slips between the cup and the lip from the perspective of domestic economy.

CPEC to introduce technology in agriculture

Currently, Pakistan is basking in the glory of an economic corridor to China, a country known for dumping its goods and redundant technology globally. Notwithstanding enormous trade deficit amounting to $5 billion, the multilayered corridor is going to impact Pakistani industry adversely, sans stringent protections and implementations in place.

Trade ties were established after signing a bilateral agreement in 1963. By the end of 2002, Pakistan and China inked the Preferential Trade Agreement giving tariff relief to a limited number of products. Four years later, the two nations signed a Free Trade Agreement (FTA), which came into force in July 2007. Ever since, Beijing and Islamabad have held talks, at least half a dozen rounds, to hammer out the nitty-gritty of a two-phased trade agreement.

The FTA with China envisaged the gradual liberalisation of tariff on goods in various phases. In the first phase, which was from 2007 to 2011, both sides decided on the removal of tariff on 30% of the products. The second phase envisions reducing duties on 90% of the tariff lines to further liberalise trade.

A study by Pakistan Business Council in 2013 concluded that Pakistan has not benefited from the FTA with China for two reasons: firstly, business community was not consulted while finalising the document and secondly, the ministry of commerce team simply lacked homework and imagination both.

Govt accused of not sharing details of CPEC projects

Marred with inconsistent government policies, shortage of energy and trained manpower, Pakistani businessmen believe they will not be able to compete with Chinese products which are cheaper, better and come with lesser restriction to the consumer market. Furthermore, economists see the top most importer with reduced or no taxes as a serious blow to a country which collects almost half of its total revenue through levies.

Since emphasis on exports has never been a serious priority for Islamabad, rarely an FTA signed by the commerce ministry has yielded positive results for the economy. For that matter, one with China will have to be the hardest. Compared to Chinese imports worth around $500 billion, Pakistan’s share is a meagre $5.5 billion despite geographical proximity and the much clichéd taller-than-Himalayas-and-deeper-than-the-oceans friendship.

For now, Nawaz government fantasises the China economic corridor more for its own political ambitions rather than national interest. The coordination between the office of Ahsan Iqbal, Pakistan’s point-man on China-Pakistan Economic Corridor (CPEC), and commerce and finance ministries is nearly non-existent. Characteristically lacking in-depth homework, the government is working in isolation from think-tanks and universities. CPEC affiliated projects have little input from other stakeholders, including the political and business community and local people.

The nervous business leaders are not only scared of massive dumping of goods but also smuggling of goods from China at the same time. Chinese investment in special economic zones is another fantasy unless Islamabad accepts investment with lasting technological relevance and good profit margins besides other factors.

Forgetting its pre-election rhetoric about eliminating load shedding within a year, the Nawaz government has revised the target by the end of its term in 2018. With power cuts lasting longer and political anarchy becoming more rampant, there remain no visible catalytic factors to boost the country’s economy, especially exports. So far, lower oil prices have been a blessing in disguise for the tax-friendly regime.

CPEC project: No chance of corruption, says Ahsan Iqbal

Given Pakistan is already putting all economic eggs in one basket, its stakes are high. Learning from mindless policies of Ziaul Haq on the Afghan front, Pakistan can avoid being trapped in an economic whirlpool for many decades to come. If Beijing is spending billions of dollars on CPEC, it’s neither for Pakistan’s makeover nor for the PMLN’s success in 2018 elections. Alone Ahsan Iqbal can’t visualise the fate of Pakistan’s peasants, labourers, consumers and entrepreneurs with their respective advantage.

Naveed Ahmad is a Pakistani investigative journalist and academic with extensive reporting experience in the Middle East and North Africa. He is based in Doha and Istanbul. He tweets @naveed360

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Reader Comments (32)

  • Parvez
    May 11, 2016 - 5:18PM

    A better option will be to make Pakistan a province of China.Recommend

  • Irslan shah
    May 11, 2016 - 5:37PM

    The author is discussing about the perils
    When the have not yet started the basic steps
    China likely will abandon this. If Pakistan does not work with full steam on this project .
    There are benefits as Pakistan needs to access Central Asia and its people and start doing business deals
    There is lot of ancestral history of present day Pakistan to Central Asia and it needs to be exploited in all spheres including business and personal
    First step is to get there and get there fastRecommend

  • Seadorff
    May 11, 2016 - 5:50PM

    CPEC is the foundation of modern day AVATAR of British East India Co. , replicated by China on the shores of Pakistan.Recommend

  • wiserneighbour
    May 11, 2016 - 6:13PM

    What Pakistan has to offer to the world technologically superior products compared to China? If Pakistan is accessing central Asia for its export,except items like rice,textile,mangoes and small arms ,nothing worth competing with other countries.In the above categories, India is also a strong contender.What the author says is cent percent true.If the benefit is by charging levies,by FTA majority of the so called levies are waived off.By cheaper Chinese imports,Pakistan will strangulate local production .Preferential policies will cone under WTO scanner.Recommend

  • quatro
    May 11, 2016 - 6:16PM

    The vast majority of CPEC money is dedicated to power plants – Gwadar/pipelines/roads are tossed in by politicians who have tried to create an image of “value added” but it doesn’t take much to blow through that smoke. Recommend

  • zizpong
    May 11, 2016 - 7:11PM

    @seadorff exactly, it’s a no win situation for Pakistan unfortunately. Big economic/stratagic game played by clever China. India will become a Pakistan trying to match China and play Chabar game. Although India might see success owing to their planning and strategic depth. In the end both the giants might see economic benefits and also cooperate. But Pakistan might end up becoming a mere Transit point and dumping ground.Recommend

  • Feroz
    May 11, 2016 - 7:43PM

    Nobody knows all the details about the project. Lack of transparency reflects murky dealings which can come back to haunt the country. Provincial harmony should not get affected by one Province getting undue benefits. Put all the plans on a website so that debate can start and any changes necessary be made.Recommend

  • james
    May 11, 2016 - 7:56PM

    Western countries won’t be coming to CPEC SEZs for obvious reasons. With China;s economy slowing and development of manufacturing bases elsewhere, CPEC SEZs are doomed to fail spectacularly..Recommend

  • Haji Atiya
    May 11, 2016 - 8:01PM

    @Parvez:
    In fact we hear the Sharifs intend to dry lease the entire country to China for 90 years !Recommend

  • Buzzkill
    May 11, 2016 - 8:26PM

    China is exploiting Pakistan’s vulnerabilities & its contempt for India to the fullest. The Chinese know well that Pakistan is counting on their support for everything from the diplomatic front as well as economic front as it has no other suitors. Anyone, who has dealt with the Chinese knows that they are shrewd & don’t think emotionally whereas Pakistanis are the exact opposite. If Pakistanis think that the US has been a bad ally, wait & see what China does with you guys. Recommend

  • Raj
    May 11, 2016 - 8:36PM

    First let me wish all the best to Pakistan for successful implementation of CPEC. Also, pakistan must know that, the CPEC’s primary beneficiary is the China and since it wants to expand its trade, it is using Pakistan. That is all. So, pakistan need not feel so submissive to China and oblige. Even if pakistan has negotiated for a tough trade in favour of Pakistan’s interest, definitely it would have got. Because, global economy is faltering and China is having excessive capacity which it wants to use among the world powers. So, OBOR and CPEC is a must for China. Thus, pakistan should understand this point and treat the CPEC in this light and negotiate a better deal such as job opportunities to locals instead of chinese labourers, supervisors, industries and exports, internediate processor etc. Otherwise, it is like a transactional relationship with China. Please don’t do this for the sake of better pakistan. I am an Indian and if i have to adopt an unbiased opinion, i view like this. But of course, you can discard it if you do not agree.Recommend

  • Perils
    May 11, 2016 - 8:45PM

    Pakistan survives through perils. All alliances have disadvantages but Pakistan must look at the advantages as it has few choices. Exchanging perils of Western colonialism/neo-imperialism with that of the Chinese, is all Pakistan has on offer.Recommend

  • May 11, 2016 - 8:57PM

    hope Gwadar stays safe from Afghan-Indian joint-terrorism. . . Recommend

  • curious2
    May 11, 2016 - 10:07PM

    @Parvez: Not sure becoming a province of a Country that doesn’t like Muslims makes much sense for Pakistan. I have always been confused by Pakistan’s admiration for a country which goes to great lengths to keep Pakistanis from even visiting – doesn’t get much press in Pakistan for some reason.Recommend

  • Babloo
    May 11, 2016 - 11:18PM

    For China : Free Pakistani land to build a road connecting China to a port. The land is free for China and Pakistan pays the cost of building the road in the form of a loan from China. So he project is literally at no-cost to China.

    For Pakistan : To sell tea, biscuits etc to the drivers as they drive by and 36 Billion dollar loan that it has to pay back with interest.

    Win-Win situation.Recommend

  • Hella
    May 12, 2016 - 12:05AM

    Pakistan has no options but to put all its eggs in the Chinese basket. If not China then who else? Pakistan’s policy makers and businessmen have only option, pray that China is benevolent and does not strangle Pakistan.Recommend

  • Usman Khan
    May 12, 2016 - 12:51AM

    The problem is the illusion that china is our friend. China is no ones friend except its own. FTA with china is a joke for any country in the world, while the world tries to tax Chinese goods so that local market could compete or atleast some money is made by the government though levies, Pakistan is removing tariffs. The grants on CPEC will be directly given to Chinese companies that will work to benefit China the most, each and everything from consultancy to material to manpower will be imported. Pakistan will only benefit from the trickle down effect. You can already see Chinese laborers working on China backed projects in Pakistan. These jobs were meant to be for Pakistanis or so we wished.Recommend

  • hamza khan
    May 12, 2016 - 12:58AM

    @quatro:

    ouch…indian burnol alert! hahahahRecommend

  • hamza khan
    May 12, 2016 - 12:59AM

    @james:

    the SEZs are not china dependent, they will be integrated with universities and have preferential access to chinese markets. china slowdown is still 100x what your pathetic economy running on terrorism can muster in thousands of years. Recommend

  • Mohammad Saleem
    May 12, 2016 - 4:17AM

    The writer has conveniently overlooked the existence of another important seaport being built by India in the vicinity of Gwadar that is bound to overshadow the Gwadar seaport. The former seaport will be used by Afghanistan and the Central Asian Republics to the Chagrin of Pakistan’s rulers.Recommend

  • Sridhar Kaushik
    May 12, 2016 - 8:46AM

    @zizpong:
    Read the link: https://www.quora.com/Is-Irans-Chabahar-port-important-to-India
    Chahabar is beneficial for Afghanistan as well as Iran.
    Gwadar is beneficial only for China as an alternate route to the Indian ocean by passing the Malacca Strait.
    Whatever trade may or may not happen through it will be in addition to the above objective.
    There is an insurgency brewing in Balochistan. Western powers, not just India, are against Gwadar. So, Gwadar will not be a profitable thing for China.
    China itself acknowledges this but has to do it for strategic purposes.
    Recently, China seems to be having second thoughts. Iran has offered to provide safe route as Chahabar port is not far from Gwadar.

    http://www.pakistantoday.com.pk/2016/01/30/national/china-mulling-trade-route-with-iran-as-pak-leadership-bickers/Recommend

  • pakitanidood
    May 12, 2016 - 8:55AM

    CPEC can be beneficial to Pakistani exports. China has a lack of religion and lack of brides for its males due to one child policy. Pakistan has surplus of both. Win win for all!Recommend

  • imran
    May 12, 2016 - 10:37AM

    why indians so conscious about cpec.??
    means some thing good in this project for Pakistan.
    aftter all we are enemies since 1000 years.
    and remain enemies till the end of this world.Recommend

  • Rahul
    May 12, 2016 - 11:36AM

    @hamza khan:
    “ouch…indian burnol alert! hahaha”

    Did you read the title Hamza? Maybe you’re confusing “perils” with “pearls”. Perils ahead for Pakistan means problems ahead for Pakistan regarding CPEC. How will that make us jealous for us to use burnol???Recommend

  • vinsin
    May 12, 2016 - 1:16PM

    @imran:
    There was no Pakistan 1000 yrs back.Recommend

  • Komal S
    May 12, 2016 - 5:58PM

    @Babloo:
    Actually Tea/Biscuits won’t work. It should be dimsums and they have to bring Chinese to make good dimsums. I can’t see a win-win anywhere.Recommend

  • BigFact
    May 12, 2016 - 8:39PM

    The piece has little substance and focuses on non-issues rather than the big facts. Does the author even know that CPEC is much more than just roads? Fact is, China-Pakistan have trumped India here. To make it worse, by openly sponsoring terrorism in Pakistan (against CPEC), India has angered China which is going to pay back for sure. RAW’s insane policies have ensured India gets no easy access to the rich CARS or any piece of the CPEC pie. Rest is hogwash. Recommend

  • BigFact
    May 12, 2016 - 8:46PM

    Chabahar is a sad story- too much talk- too little on ground. Wait, India will now spend $20 billion in Iran.
    Right after it has paid back the $5 billion it already owes the Iranians.Recommend

  • Np
    May 13, 2016 - 1:12AM

    @Parvez:
    China is already frustrated with Ulghurs and stops them from practicing Islam including forcibly breaking roza. What is the likelihood that it would welcome 200 million more Muslims?Recommend

  • Salman
    May 13, 2016 - 6:34AM

    Well, if it is really a bad thing, then why Indians are carried away on sabotaging CPEC? Why? And this is one of their new techniques, to tell us that it is really not very beneficial to us. Well, that’s completely wrong. CPEC is not just roads and transport. It is an essential asset to rebuild the industrial power of our country. Recommend

  • BigFact
    May 13, 2016 - 8:05PM

    @Rahul
    Scary stuff in there for Pakistan, right?
    Actually, not quite.
    Seen that piece. It’s just about the LNG, not an issue as it is not amongst the signed CPEC projects. We have options.
    That said, the Indians’ focus on tiniest of Pakistan’s problems is hardly a surprise. Since 14 Aug, 47, the Indians have been hoping and praying and predicting and making all efforts for Pakistan’s failure. Sadly, it’s going to be an endless wait.
    Most of the work done by RAW in Baluchistan, FATA and Karachi has been exposed to the world and totally undone.Recommend

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