The nuances of CPEC

The jumbo-sized component of infrastructural investments made by China in Pakistan may have dazzled the region and brought an air of optimism into the country, the global community is asking some probing questions about the China-Pakistan Economic Corridor’s long-term effect on the debt burden Pakistan is currently shouldering. CPEC, a component of China’s Belt and Road Initiative (BRI), aims to modernise, secure, and link various transport corridors throughout Asia and improve supply lines for imports and exports.

It is expected to bring economic benefits to all the states through which it will pass. Already, CPEC is set to achieve some key milestones in the first phase — much like the speed of the Chinese bullet train. It has been declared a strategic corridor of BRI due to its prospects and fast progress. Thirty out of 40 projects of CPEC costing around $59 billion have been initiated during the Sixth Joint Coordination Committee (JCC) meetings, based on agreements between the Planning Commission of Pakistan and the National Development and Reforms Commission of China. The portfolio of planned projects is expected to exceed Rs100 billion in the medium-term future.

China’s emergence as a powerhouse of the global economy, its status as a nuclear-armed state, and its ever-increasing foreign direct investment around the world have made many diplomats and bureaucrats wary of its motives. One important reason for the BRI initiative as that China is in a process of transition from an exports- and manufacturing- based economy to one driven by domestic consumption. China itself wishes to create and consolidate an alliance to counter the hostility of the US to this newly emergent power, which threatens to displace US hegemony.

Questions have been raised about the transparency of the CPEC project. Much of the planning behind CPEC projects is done directly between the federal governments of China and Pakistan, meaning any information disseminated is usually done through ministerial methods. Facts and figures surrounding the exact nature of investments, their source, and their desired outcomes are deemed to be insufficient by some. To address this, China has held various conferences, both diplomatic and local, in order to inform member states of the BRI about the specifics of transport projects, as well as to invite additional Asian states to join the eventual network. Additionally, Chinese delegation-level visits to Pakistan and vice versa are heavily publicised and the memorandums of understanding clearly outlined by officials from both countries. Pakistan’s planning ministry continues to issue regular handouts about the progress of ongoing projects.

Those skeptical of the eventual outcome of CPEC often point to Pakistan’s fragile security situation as a barrier to the project reaching success. Retrospectively, it can be concluded that many of the indigenous, local threats Pakistan faces from militancy are often the result of poor material conditions and a lack of social mobility — the increased growth potential created by CPEC addresses this problem via increased opportunities for employment through a domestic market that will experience a huge growth spurt in induced businesses. The availability of transport will enable rural areas to prosper, as agricultural products can be taken to urban markets while cutting out the middlemen. Additional energy can transform Pakistan from a primarily-agricultural, low-innovation economy to an industrialised economy. General prosperity should reduce extremism and separatist tendencies, born out of social and economic exclusions. Furthermore, the Pakistan Army has already committed a substantial amount of manpower to manning and securing the corridor.

The CPEC project is of special importance in view of the shifting configuration of power in the geo-political arena. These days indicators show that US global power is on a downwards trend, while China is on a rising trend.

In times of such a seismic shift, the CPEC project puts us on the side of the rising star. Furthermore, it offers us security against the extremely aggressive and hostile stance being taken by the US and India against Pakistan. Many leading academics have suggested that this will be an Asian century, where world leadership passes from Europe-USA to Asia. What will help enormously if we could somehow ease regional tensions and create peace and harmony among our neighbouring countries. Countering hostilities created by centuries of divide-and-rule strategies, and advanced by current political interests will require both skillful diplomacy and a creative rewriting of dominant narratives.

Skeptics about CPEC suggest that leakages, thefts, structural imbalances, and obsolete infrastructure mean that merely adding power to the grid will not solve Pakistan’s power problems. However, this does not take into account the installation of vast new transmission lines that will carry electricity for the entire longitudinal vertical length of Pakistan as a whole, delivering power to communities that simply did not possess it before. In addition, the energy projects in themselves are designed to complement the establishment of Special Economic Zones (SEZ). This allowed China to experiment with different models, in order find successful methods to emulate throughout the economy. Careful attention has been paid to the social dimensions, and social welfare projects are planned for communities in proximity to CPEC projects, to ensure no one feels left behind.

The debt burden to be carried by Pakistan in relation to CPEC is a concern for many, especially since developed nations already are turning to more stringent fiscal conservatism. Pakistan already suffers from a trade deficit, an inability to maintain substantial foreign reserves amidst falling remittances, and stringent repayment timelines for its debt obligations to organisations such as the IMF and the World Bank. It is critical to examine the exact composition of CPEC funding, which can be broken down into grants from the Chinese government, low-interest loans from various state-owned Chinese banking institutions, and funding from the Asian Development Bank. Much of this financial obligation has been negotiated on favourable terms for Pakistan, with low-interest percentages and repayment schedules that stretch well beyond 2030, the year CPEC is earmarked to be fully active in contributing to the Pakistani economy. Increases in exports, manufacturing output, and continued repayment by the federal government vis-à-vis CPEC will additionally allow global credit rating agencies to reassess Pakistan’s credit status in a more positive light. Despite pessimism in the public press, careful calculations done at the finance ministry and the State Bank show that the mounting burden of debt is easily sustainable given the growth trajectory of the economy.

Many remain wary of China’s geopolitical vision, claiming that such transport and energy corridors only serve to increase Sino military presence in the region while also increasing its influence in Pakistan to the point of the latter becoming a vassal state. Such analysis ignores the mutual respect and understanding built between the countries over the last few decades. China and Pakistan already collaborate heavily in fields such as the development and sales of arms, as well as the provision of employment and cultural exchange. Pakistan remains one of the first few states to officially recognise the current CCP administration of China.

There is no reason why mutual trade and cooperation cannot lead to win-win situation, where both parties gain. The caution raised in this connection are justified only in the sense that while CPEC offers Pakistan enormous potential rewards, these can pass us by if we do not take appropriate steps, in terms of recognising and utilising the opportunities created by it. CPEC offers a historic opportunity for Pakistan to become the next Asian tiger. Instead of bemoaning our fate, if we struggle to create a better future, there is no reason why this prophecy cannot come true.

Published in The Express Tribune, November 12^th, 2017.

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