The China Pakistan Economic Corridor (CPEC) began amidst much fanfare in 2015 subsequent to the visit of the Chinese President Xi Jinping to Islamabad, a vital component of the One Belt One Road (OBOR)/Belt Road Initiative (BRI) launched by Jinping in 2013 and touted by the then Nawaz Sharif-led government as the only major source of direct foreign investment.
BRI is defined as a strategic infrastructure development policy decision backed by investment in 30 international organizations and 149 countries including Nigeria, Indonesia, Malaysia, Bangladesh, Egypt, the UAE, Singapore, South Korea, and Israel but with Pakistan the single largest recipient; and within BRI so far CPEC, Boten-Vientiane Railway in Laos and Khorgos land port (connecting Kazakhstan to China by rail) are regarded as flagship projects.
Italy and Greece have also joined the BRI and in this context it is relevant to note that former German chancellor Angela Merkel declared that BRI “must lead to a certain reciprocity, and we are still wrangling over that bit” while in January 2019 French president Macron said: “the ancient Silk Roads were never just Chinese … New roads cannot go just one way.”
US President Joe Biden in early 2019 proposed a counter BRI strategy titled Free and Open Indo-Pacific Strategy, that was supported by 12 countries including India, and stipulated four principles: respect for sovereignty and independence; peaceful resolution of disputes; free, fair, and reciprocal trade; and adherence to international rules and norms. On 11 February 2022 the White House issued a fact sheet on its Indo-Pacific Strategy that included the following pledge: “we will build collective capacity within and beyond the region, including by deepening our five regional treaty alliances with Australia, Japan, Republic of Korea, the Philippines and Thailand, strengthening relationships with leading regional partners including India, Indonesia, Malaysia, Mongolia, New Zealand, Singapore, Taiwan, Vietnam and the Pacific Islands;” and what was almost certainly targeting China and no doubt alienated Pakistan was the pledge of “supporting India’s continued rise and regional leadership.” Actual investment under this Strategy, if any, has so far not been made public.
US officials have also been publicly critical of the CPEC component reflected in the now retired Ambassador Alice Wells statement on 21 November 2019: “CPEC is the Chinese communist party’s largest OBOR Initiative, reflecting over $60 billion in regionally pledged commitment for projects in Pakistan. The Chinese Ambassador to Pakistan, Yao Jing, has repeated the oft-used characterization of CPEC as a game-changer for Pakistan… It’s easy to understand why Pakistan’s previous government leapt at the opportunity to conclude a CPEC MOU. Just like many other countries in the region, Pakistan has huge infrastructure and development needs and for many of my friends in the audience who have spent time in Pakistan, you’ve experienced first-hand those energy shortages… According to Pakistani government statistics, for each megawatt generated by a completed CPEC thermal energy project, developers spent an estimated 1.5 million. In comparison, the cost per megawatt of building non-CPEC thermal plants is half of that, or 0.75 million…what are the burdens that have fallen on the new government to manage, now with an estimated $15 billion in debt to the Chinese government and another $6.7 billion in Chinese commercial debt? Because it’s clear, or it needs to be clear, that CPEC is not about aid. This is almost always the form of loans or other forms of financing, often non-concessional, with sovereign guarantees, or guaranteed profits for Chinese state-owned enterprises that are repatriated to China……On transparency, the lack of transparency can increase CPEC costs and foster corruption resulting in an even heavier debt burden for Pakistan……We hear the familiar Chinese catch phrase win/win cooperation and mutual benefit. But really, CPEC relies primarily on Chinese workers and supplies even amid rising unemployment in Pakistan. And for these projects, Chinese companies are importing materials and equipment from China rather than giving that business to Pakistani companies which would actually create jobs for locals.”
India on the other hand has focused its criticism on CPEC and its unrealistic claim is that it ignores New Delhi’s concerns on its sovereignty and territorial integrity as it passes through Azad Jammu & Kashmir.
A counter-narrative to the US-India stance has been circulating on the internet. Professor D Brautigam at the John Hopkins University, debunked the idea of participating countries having bad experience with China adding that “the evidence so far, including the Sri Lankan case, shows that the drumbeat of alarm about Chinese banks’ funding of infrastructure across the BRI and beyond is overblown…a large number of people have favourable opinions of China as an economic model and consider China an attractive model for their development.” She then proceeded to highlight the fact that Sri Lanka owed more to Japan, the World Bank and Asian Development Bank than to China; and wrote in 2018 that Chinese loans are not currently a major contributor to debt distress in Africa.
Bickram Rana and Jason Ji Xianbai of Singapore’s Nanyang Technological University argue that the debt trap diplomacy argument of the West is “more myth than reality” and while accepting some countries are facing issues with repayment to China they highlight China’s willingness to help these nations restructure debt through partial debt relief though this has not been evident in Pakistan’s case yet.
Center for Global Development, a Washington-based think tank, noted that between 2001 and 2017, China restructured or waived loan repayments for 52 debtor nations, the majority being BRI participants, without seizing state assets, and that the debt trap argument resonates in the US rather than in participating countries due to “the US anxiety about China’s rise as a global power.” This applies to Pakistan even though post 2019 Pakistan’s reliance on Chinese loans for budget support and balance of payment support has risen significantly.
Empirical studies undertaken by various research institutes, Chinese and Western, indicate that BRI impacts positively on the poor; and the charge that the Chinese import their own unskilled labour for BRI/CPEC projects rather than hiring indigenous labour has also been debunked by many governments including Pakistan. It is relevant to note that Western bilateral/multilateral assistance requiring the hiring of consultants and/or skilled labor is almost exclusively sourced from the West.
So why has CPEC impact not been greater on our poor and vulnerable? Three observations are critical. First, the Pakistan government selection of projects was not appropriate. An example is setting up coal fired plants which hindsight shows was not the right way forward either in terms of: (i) locating these plants close to the source of coal to avoid significant health hazards; or (ii) taking account of the fluctuating cost of key fuel inputs that are subject to the vagaries of the international market as well as the rupee-dollar parity – the two factors that are currently impacting massively on the cost of generation for end consumers.
Secondly the agreements signed with the Chinese companies were a facsimile of agreements signed earlier with Independent Power Producers (IPPs) that were to the disadvantage of the consumer as they envisaged capacity payments (irrespective of whether the capacity was purchased or not and payable in dollars). This showed no lessons learned from the contracts signed under the previous power policies 1992 and 1994.
And finally, the general economic mismanagement and poor governance have undermined the gains that could have been visible in spite of poor project selection and contracts signed.
To conclude, there is a need for the executive at the federal and provincial level (unskilled at determining the economic benefits and cost of each project as well as the critical importance of the economic and internal rate of return of each project) to take a back seat to the experts when selecting projects.Anjum Ibrahim, "The CPEC," Business recorder. 2022-11-13.
Keywords: Economics , World Bank , Policy decision , Development Bank , Economy , Joe Biden , Nawaz Sharif , Xi Jinping , Pakistan , Chania , Malaysia , Bangladesh , CPEC , BRI