That CPEC and CPEC related projects are the key to Pakistan’s economic recovery and an economically viable future is well established. And yet, everything related to CPEC remains clouded in secrecy and so hidden from public knowledge that many quarters are beginning to express an increasing concern.
China’s “One Belt One Road” vision was essentially to result in a Eurasian venture. However, on review of the geography of the region, and the benefits that might accrue from Pakistan’s invaluable geo-politico-economic location, OBOR converted to CPEC. But, that isn’t all.
Gwadar is a deep sea port. This means that the port at land is a natural Dockyard. Even heavily laden ships can dock on land instead of deeper waters to be loaded/unloaded. Naturally, therefore, while this makes commerce infinitely more economic, its value for armed vehicles of military use invaluable. Since all Chinese ports lie on its eastern side, opening into the Pacific Ocean, which is dominated by US ports at all strategic locations, all commercial and naval movements by Chinese are subject to possible interdiction by US vessels.
Consequently, to convert from OBOR to the “Corridor” of CPEC is only possible when it leads out from Gwadar. This is what makes Pakistan invaluable to China and CPEC.
In the meantime, all economic indicators are also indicative of a steep downhill tendency. International and domestic debts have risen to unprecedented heights. The trade imbalance is a record. World Bank/IMF are showing concern.
First, CPEC related investments by China in Pakistan are not DFI, Direct Foreign Investments. These are loans; and project related loans, at that. This means that China is funding projects in Pakistan by providing loans to the government but, only for specified projects i.e. projects approved by the Chinese government. The implication therefrom is, naturally, that these projects are certain to serve Chinese interests but may, or may not serve ours. Also, since the loans are project specific, there has to be a timeline for successive installments. In event of delays, costs invariably escalate but interest continues to mount.
Virtually all projects that China is funding are either to energy related projects or infra-structure related ones. Both kinds have a long gestation period. Therefore, while interests continue to mount, it may take far longer for these projects to start earning in ‘green’ rather than in ‘red’. [The Motorway, is still in ‘red’].
All inter-government loans are based on Libor, London Inter Bank Offered Rates. For some years past, Libor on the Dollar has hovered around 3.5%. Usually, loans are rated at Libor or Libor plus. Libor plus is how much more than the announced Libor will be the interest on a specified loan. Usually, ‘friendly’ loans are at Libor rates.
Due to the mystery that clouds CPEC, the public is unaware of the interest rates of Chinese loans. And, because of the mystery, speculations about the interest is increasing. Most estimates range from 5.2% to 7.5% i.e. from Libor plus 1.7% to Libor plus 4%. These would not only qualify as ‘unfriendly’ to ‘very unfriendly’ rates; they could be back-breaking rates if the projects did not swiftly enter the very high levels of ‘green’ in their economic return.
Second, in any such venture wherein joint ventures are being undertaken in a country with investment from the other, two outcomes are virtually immediate. Foremost is an immediate reduction in unemployment. Even if the entire skilled labor is provided by the investing country, the employment beneficiary of the entire unskilled labor is invariably the host country. This is not happening.
And, it is usually expected that such ventures will, not only be outsourced locally, the purchase of all required materiel will be from the host country. Resulting in an immediate boost to the local industry and economy. The sole industry benefitting so far is the Pakistani cement industry and, to a lesser extent, the steel one.
In fact, newspaper reports stated recently that the Karachi Textile Village for local industry is being shut down, while Pakistan Steel Mill is being asked to donate land for a Chinese Textile Park on it. And Pakistani textile industry, which was responsible to correct the bulk of our trade imbalance is already being squeezed out of business.
Last, China is an agriculture deficient country. Despite, all the dams built on all its rivers, only about 20% of China’s land mass is arable. The US, on the other hand, has about 60% arable land. Even Russia has far more than China.
It is generally known and has been acknowledged by the government that the entire length of the CPEC route will have an agricultural belt; which will develop scientific and economic agriculture and agro-industries. While the government continues to deny that the entire agricultural belt along CPEC will be solely Chinese, the lack of transparency and the fact that China is an agriculture deficient country, continue to fuel rumors to the contrary.
Critics of CPEC are, therefore, concerned that, while CPEC may alleviate our economic woes, we may end up being enslaved to the Chinese instead of the US. Merely change masters. Despite the inherent strength that Pakistan’s geographic location provides to CPEC.