StraightShooter
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Didn't Pakistan already try this during 1999 Kargil war? How would it be any different in the future?
Has China taken over Pakistan?
- Thread starter StraightShooter
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Didn't Pakistan already try this during 1999 Kargil war? How would it be any different in the future?
Hamza913
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1999 was when Musharaf went rogue and attacked Hindustan for God knows what reason (popularity, maybe?).
bananarepublic
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what we know that 3/4 of the CPEC investment is in energy sector so most of their investment will be given back to them what is the main issue is the falling exports . the money taken for motorways are BOT process similar to M1 and M2 which even though in those worst conditions at that time were paid.....
but to me the Chinese Pakistan relation would be similar to south Korea and USA relation
but to me the Chinese Pakistan relation would be similar to south Korea and USA relation
StraightShooter
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CPEC cost build-up
Khurram HusainUpdated Dec 15, 2016 12:06pm
1417
75
The writer is a member of staff.
IN remarks given at a conference in Islamabad, Sartaj Aziz is reported to have said that loans being taken under CPEC projects will be repaid at two per cent interest spread over 20 to 25 years. He is about one-quarter right.
What Aziz is not telling us, unless his comments were not reported in full, is that more than two-thirds of the money committed for the ‘early harvest’ projects is actually on commercial terms. Of the total $28 billion that come under the ‘early harvest’ projects, a full $19bn are in the form of foreign direct investment on commercial terms and even the agreement signed in November 2013 between the governments of China and Pakistan that created this raft of investments mentions that these will follow “market principles”.
In those project documents that are publicly available, the debt service terms are 7pc to 8pc with many of them pegged to six-month Libor and include Sinosure, which is the fee for reinsurance of all loans that Chinese banks require all foreign borrowers to have.
Then there is the equity portion. Most of the projects coming in as direct investment have a debt-to-equity ratio of around 80:20, or in some cases 75:25. And in most cases, return on equity (ROE) is guaranteed at either 17pc or 20pc.
So let’s do a little math here. If $19bn are coming in as investment on commercial terms, and 80pc of that is debt with the remaining as equity, what is the size of the outflow as debt service and return on equity that we can discern?
My math tells me that the debt service outflows will be about $1bn and the return on equity will be $646 million if it is kept at 17pc. Add to that $1.9bn as repayment of principal. That means an annual net outflow of $3.546bn per year once commercial operations begin.
To properly afford the CPEC projects, the country will need to lift its exports, boost its productivity, and give a large spur to private enterprise.
Somebody please tell me what I’m doing wrong here. You can tweak the numbers a bit, say debt service will be 6pc and not 7pc as I’ve assumed. ROEs are unlikely to be lower than 17pc. In one case at least, that of Karot Hydropower, Nepra had granted 17pc ROE to the sponsors but they have submitted a review petition asking for this to be raised to 20pc “so as to encourage the investor to invest in the hydropower sector”.
So how much is $3.546bn? Compare it with last fiscal year’s figures, when interest payments on external debt were $2.1bn, and income (for foreigners) from investments in Pakistan was $3.2bn. Pakistan’s total interest outflows (on government borrowing alone) were $1.1bn in fiscal year 2016.
In the case of CPEC investments, it is difficult to see how these will be booked, since technically they will not be on government account: each project will earn its own money and service its own obligations, whether to its creditors or its sponsors, from its own cash flow. Therefore these outflows (and I’ve only calculated the interest on them, the repayment of principal is on top) will not be booked as external debt service obligations of the state since they are not public debt (even though they are publicly guaranteed), and only the repatriated profits will be booked as income from investments.
It is difficult to compare government debt figures with CPEC-related investment though, because they are both booked differently since the former is a direct loan whereas the latter is an investment against a loan. But they both place a burden on foreign exchange reserves, which will need to increase correspondingly if we are to extract the proper benefit from CPEC projects and not be left with a herd of white elephants whose costs weigh the macro economy down more than their output lifts it up.
How many of us are reassured that the government has done its homework properly to ensure that this does not happen? The more I hear government leaders telling the people that these are all concessional loans that carry an interest charge of 2pc payable in 25 years, the less reassured I feel because they are telling us less than a quarter of the full story and stopping there, to leave us with the impression that there are no further costs beyond this.
In reality, to properly afford the CPEC projects that are being undertaken, the country will need to lift its exports, boost its productivity, and give a large spur to private enterprise to get the wheels of domestic investment moving again. To some extent, this is happening. Cement, for instance, is doing quite well. Cement, incidentally, is probably the only product the Chinese projects are sourcing locally, with everything else imported from Chinese firms, with loans taken from Chinese banks.
On the surface, these figures are not alarming. Pakistan’s economy can indeed absorb them, and still profitably benefit. But so far, the IMF and the State Bank are both warning that for the country to carry its external debt burden, exports need to increase rapidly. The State Bank has also been warning about the increasingly short-term nature of external debt, pointing that “domestic commercial banks have also been taking short-term loans from foreign banks to bridge the payment gaps”.
I’m no expert in this field. But just looking at what is happening on the external front of our economy makes me a little nervous and I need some reassurance. We’ve heard about “record-high reserves” before too, only to find ourselves knocking on the IMF’s door within a year.
And I’m even less reassured when I read what the government told the IMF in the last review when the Fund raised the issue of a growing Chinese debt burden being taken on. They were told that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC-related outflows”.
Wonderful.
The writer is a member of staff.
khurram.husain@gmail.com
Twitter: @khurramhusain
Published in Dawn December 15th, 2016
https://www.dawn.com/news/1302328
IMF warns of looming CPEC bill
Khurram HusainUpdated Oct 17, 2016 08:46am
7454
210
GROWING Chinese investments in Pakistan have the potential to lift the economy’s potential output, but the repayment obligations that come with this investment will be serious, warns the IMF in its latest and final review of the just concluded programme.
“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the Fund in a short evaluation of the impact of CPEC related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen” within manageable levels during these years.
The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over $5.7 billion, while inflows under the corridor will touch 2.2pc of projected GDP in that year. Gross external financing needs of the country will jump almost 60pc by then, from a projected $11bn for the current fiscal year, to $17.5bn in 2020.
Pakistan will see $27.8bn in “early harvest” projects under CPEC in the next few years, with the remaining $16bn coming over a longer timeline stretching out to 2030.
“Pakistan will need to manage increasing CPEC-related outflows,” warns the Fund, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”.
Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run”.
The Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed.
“Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms” the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. In addition, “allowing greater downward exchange rate flexibility” will also be necessary.
The matter of rising CPEC related outflows was discussed between the Fund staff and the government during the discussions prior to the review. The government told the Fund that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC related outflows,” according to the report.
For the Fund, CPEC outflows are one of the medium to long term risks facing Pakistan’s economy. It calls for “sound project evaluation and prioritisation mechanisms based on effective cost-benefit analysis and realistic forecasts of macroeconomic and financing conditions” to help mitigate the risk.
It points out “a need to ensure transparency and accountability in project management and monitoring”, pointing specifically at the power purchase agreements being signed with Chinese IPPs, calling on the government to ensure that the cost of power purchase “remains favourable” for the distribution companies and consumers.
Published in Dawn October 17th, 2016
https://www.dawn.com/news/1290523
March 27, 2017 11:00 am JST
Pakistan wrestles with growing 'Chinese corridor' debt
Analysts say burden of economic agreement with Beijing may be unsustainable
TOM HUSSAIN, Contributing writer
A Chinese truck convoy last November opened the overland route through Pakistan to the Indian Ocean port of Gwadar. (Courtesy CRS Public Relations)
ISLAMABAD -- Two international lending institutions and Pakistan's central bank have raised concerns about the debt burden of a huge China-led infrastructure program on the country's improving but fragile finances.
Surging Chinese imports for the initiative, known as the China-Pakistan Economic Corridor program, have complicated Pakistan's balance of payments problems during its second year of economic recovery following a decade of conflict with Taliban insurgents and their al-Qaeda allies.
Chinese machinery imports for power generation and transport infrastructure will reach $27.8 billion in the fiscal year ending in June 2021. The CPEC aims to build roads, railroads and energy infrastructure across Pakistan.
The Pakistan government has said that further projects costing $16 billion are expected to be implemented by 2030, while preparations are continuing for additional elements following negotiations in December that expanded the program's overall cost to $55 billion from $46 billion.
Soldiers and police stand guard as a Chinese truck convoy enters a town in the western Pakistani province of Baluchistan, home to the port of Gwadar. (Courtesy CRS Public Relations)
Pakistan and China have been close diplomatic and defense allies since the 1960s. Underlining the broadening of the relationship through CPEC, a 90-member honor guard from the People's Liberation Army participated in Pakistan's national day military parade in Islamabad on March 23 -- the first appearance by Chinese troops.
However, the World Bank and the International Monetary Fund have both expressed concerns about the financial strains caused by the CPEC program. "Sovereign guarantees associated with the CPEC project [will] elevate fiscal risks over the medium-term," the World Bank said in its Global Prospects Report for 2017, published in January.
In October, the IMF said the execution of CPEC projects would create a surge in foreign direct investment and other external funding inflows, but the import requirements of these projects "will likely offset a significant share of these inflows, such that the current account deficit would widen."
In a further illustration of international concern, the global credit ratings agency Fitch said on Feb. 6 that Pakistan's "increasing gross external financing needs could increase the country's vulnerability to shifts in investor sentiment." Fitch affirmed its non-investment grade "B" rating for Pakistan's sovereign debt, with a stable outlook.
The State Bank of Pakistan, the central bank, has been more cautious on the impact of CPEC, but warned in a monetary policy statement in January that "going forward, with the risks to the external sector, the need of financial inflows would grow further."
Prominent local economists have also expressed serious concerns. Hafiz Pasha, a former finance minister, and Ashfaq Hassan, a former adviser to the Finance Ministry, have estimated that CPEC loans will add $14 billion to Pakistan's total public debt, raising it to $90 billion by the fiscal year ending June 2019.
"The government policy of short-term borrowing is risky and at a high cost," Pasha said, speaking on a local television in January.
Noting that Pakistan has extended sovereign guarantees to CPEC project loans and subsequent profit repatriations, Pasha and Hassan projected that debt servicing payments would rise to $8.3 billion in the fiscal year ending in 2019, widening the current account deficit to 4% of gross domestic product from less than 1% in the fiscal year ending June 2015, the year before CPEC was agreed.
Without an improbable increase in exports to at least $36 billion by the fiscal year ending June 2019, from the currently stagnant level of $24 billion, Pakistan would have to request renewed balance of payments support from the IMF by the year ending June 2019, they said.
Alarmist
Mohiuddin Aazim, an independent economic analyst based in Karachi, said the projections by Pasha and Hassan were alarmist because they classified borrowing for CPEC power projects as public debt, while the government and multilateral lenders consider it to be private debt held by independent power producers.
The China-Pakistan Economic Corridor passes close to tribal areas previously controlled by Taliban insurgents, such as the northwestern city of Dera Ismail Khan. (Courtesy CRS Public Relations)
"Foreign debt servicing in case of energy projects will be a responsibility of Chinese companies that will come and set up energy production units, so this should not create additional debt servicing burden on the part of Pakistan," Aazim said in an interview. "The much-feared increase in our import bills would be compensated by a simultaneous increase in foreign direct investment that these Chinese and other foreign companies will bring in."
Finance Minister Ishaq Dar has also played down concerns about Pakistan's indebtedness. In an article published by local English-language newspapers on Jan. 31 he said external debt servicing obligations would not average more than $5 billion a year up to the fiscal year ending in June 2021.
However, economists using Ministry of Finance data have predicted that the external account deficit will soon widen to unsustainable levels, requiring renewed balance of payments support from the IMF.
"Debt servicing and fuel imports for the new power plants will increase external payment obligations quite substantially in the next three years," said Sakib Sherani, CEO of Macro Economic Insights, an Islamabad-based consultancy. "While Pakistan's current [foreign exchange] reserves position is adequate, it is likely to need to head to the IMF by 2019 at the latest," Sherani said.
To strengthen its foreign exchange buffer, Pakistan negotiated fresh foreign loans totaling $25 billion in the three fiscal years ending in June 2016, while spending $11.95 billion on external debt servicing, the Finance Ministry reported in October. Total foreign public debt increased to $57.7 billion from $48.1 billion, at a cumulative growth rate of 6.3% a year. In the three-year period ending June 2016, the ratio of net debt to GDP remained unchanged at 60.2%, while the fiscal deficit was reduced to 4.6% of GDP from 8.2%.
Since returning to the international capital markets in 2014, after a seven-year absence, Pakistan has issued Eurobonds and sukuk (Islamic bonds) worth $4.5 billion to build up its foreign currency reserves. A $1 billion five-year sukuk issued in October was priced at a historically low yield of 5.5%, compared with 6.75% for an identical issue in November 2014. Foreign-exchange reserves peaked at $23.5 billion in October, but fell to $21.82 billion in the week ending Feb. 10.
The concerns about CPEC come as optimism about Pakistan's economic future rises on the back of cooling domestic conflict and growing consumer demand. Pakistan offers investors a market of about 200 million consumers in which about 70% of the population is 30 or younger.
Coupled with a surge in domestic consumption that followed the decisive phase of the conflict in 2014 and 2015, CPEC will push Pakistan's GDP growth to between 4.9% and 5.3% in the fiscal year ending June 2017, according to recently upgraded forecasts by multilateral lenders and ratings agencies.
In its Global Prospects Report, the World Bank revised its projection for Pakistan's GDP growth in 2016-17 to 5.2% from 5%. It said CPEC-associated improvements in energy and infrastructure, as well as recovering agricultural output and external demand for exports, would push growth to 5.5% in the fiscal year ending in June 2018 and 5.8% in the fiscal year to June 2019.
However, in a separate outlook report published in November, the World Bank warned: "Pakistan's continued growth is not guaranteed."
The bank added: "In the short- to medium-term, sustained progress on energy reforms, CPEC implementation and widening the tax net will be important. Without these structural reforms and other efforts to improve the investment climate, Pakistan's rate of investment will remain weak and its consumption-driven growth will eventually slow down."
http://asia.nikkei.com/Politics-Eco...les-with-growing-Chinese-corridor-debt?page=1
Khurram HusainUpdated Dec 15, 2016 12:06pm
1417
75
The writer is a member of staff.
IN remarks given at a conference in Islamabad, Sartaj Aziz is reported to have said that loans being taken under CPEC projects will be repaid at two per cent interest spread over 20 to 25 years. He is about one-quarter right.
What Aziz is not telling us, unless his comments were not reported in full, is that more than two-thirds of the money committed for the ‘early harvest’ projects is actually on commercial terms. Of the total $28 billion that come under the ‘early harvest’ projects, a full $19bn are in the form of foreign direct investment on commercial terms and even the agreement signed in November 2013 between the governments of China and Pakistan that created this raft of investments mentions that these will follow “market principles”.
In those project documents that are publicly available, the debt service terms are 7pc to 8pc with many of them pegged to six-month Libor and include Sinosure, which is the fee for reinsurance of all loans that Chinese banks require all foreign borrowers to have.
Then there is the equity portion. Most of the projects coming in as direct investment have a debt-to-equity ratio of around 80:20, or in some cases 75:25. And in most cases, return on equity (ROE) is guaranteed at either 17pc or 20pc.
So let’s do a little math here. If $19bn are coming in as investment on commercial terms, and 80pc of that is debt with the remaining as equity, what is the size of the outflow as debt service and return on equity that we can discern?
My math tells me that the debt service outflows will be about $1bn and the return on equity will be $646 million if it is kept at 17pc. Add to that $1.9bn as repayment of principal. That means an annual net outflow of $3.546bn per year once commercial operations begin.
To properly afford the CPEC projects, the country will need to lift its exports, boost its productivity, and give a large spur to private enterprise.
Somebody please tell me what I’m doing wrong here. You can tweak the numbers a bit, say debt service will be 6pc and not 7pc as I’ve assumed. ROEs are unlikely to be lower than 17pc. In one case at least, that of Karot Hydropower, Nepra had granted 17pc ROE to the sponsors but they have submitted a review petition asking for this to be raised to 20pc “so as to encourage the investor to invest in the hydropower sector”.
So how much is $3.546bn? Compare it with last fiscal year’s figures, when interest payments on external debt were $2.1bn, and income (for foreigners) from investments in Pakistan was $3.2bn. Pakistan’s total interest outflows (on government borrowing alone) were $1.1bn in fiscal year 2016.
In the case of CPEC investments, it is difficult to see how these will be booked, since technically they will not be on government account: each project will earn its own money and service its own obligations, whether to its creditors or its sponsors, from its own cash flow. Therefore these outflows (and I’ve only calculated the interest on them, the repayment of principal is on top) will not be booked as external debt service obligations of the state since they are not public debt (even though they are publicly guaranteed), and only the repatriated profits will be booked as income from investments.
It is difficult to compare government debt figures with CPEC-related investment though, because they are both booked differently since the former is a direct loan whereas the latter is an investment against a loan. But they both place a burden on foreign exchange reserves, which will need to increase correspondingly if we are to extract the proper benefit from CPEC projects and not be left with a herd of white elephants whose costs weigh the macro economy down more than their output lifts it up.
How many of us are reassured that the government has done its homework properly to ensure that this does not happen? The more I hear government leaders telling the people that these are all concessional loans that carry an interest charge of 2pc payable in 25 years, the less reassured I feel because they are telling us less than a quarter of the full story and stopping there, to leave us with the impression that there are no further costs beyond this.
In reality, to properly afford the CPEC projects that are being undertaken, the country will need to lift its exports, boost its productivity, and give a large spur to private enterprise to get the wheels of domestic investment moving again. To some extent, this is happening. Cement, for instance, is doing quite well. Cement, incidentally, is probably the only product the Chinese projects are sourcing locally, with everything else imported from Chinese firms, with loans taken from Chinese banks.
On the surface, these figures are not alarming. Pakistan’s economy can indeed absorb them, and still profitably benefit. But so far, the IMF and the State Bank are both warning that for the country to carry its external debt burden, exports need to increase rapidly. The State Bank has also been warning about the increasingly short-term nature of external debt, pointing that “domestic commercial banks have also been taking short-term loans from foreign banks to bridge the payment gaps”.
I’m no expert in this field. But just looking at what is happening on the external front of our economy makes me a little nervous and I need some reassurance. We’ve heard about “record-high reserves” before too, only to find ourselves knocking on the IMF’s door within a year.
And I’m even less reassured when I read what the government told the IMF in the last review when the Fund raised the issue of a growing Chinese debt burden being taken on. They were told that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC-related outflows”.
Wonderful.
The writer is a member of staff.
khurram.husain@gmail.com
Twitter: @khurramhusain
Published in Dawn December 15th, 2016
https://www.dawn.com/news/1302328
IMF warns of looming CPEC bill
Khurram HusainUpdated Oct 17, 2016 08:46am
7454
210
GROWING Chinese investments in Pakistan have the potential to lift the economy’s potential output, but the repayment obligations that come with this investment will be serious, warns the IMF in its latest and final review of the just concluded programme.
“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the Fund in a short evaluation of the impact of CPEC related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen” within manageable levels during these years.
The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over $5.7 billion, while inflows under the corridor will touch 2.2pc of projected GDP in that year. Gross external financing needs of the country will jump almost 60pc by then, from a projected $11bn for the current fiscal year, to $17.5bn in 2020.
Pakistan will see $27.8bn in “early harvest” projects under CPEC in the next few years, with the remaining $16bn coming over a longer timeline stretching out to 2030.
“Pakistan will need to manage increasing CPEC-related outflows,” warns the Fund, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”.
Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run”.
The Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed.
“Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms” the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. In addition, “allowing greater downward exchange rate flexibility” will also be necessary.
The matter of rising CPEC related outflows was discussed between the Fund staff and the government during the discussions prior to the review. The government told the Fund that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC related outflows,” according to the report.
For the Fund, CPEC outflows are one of the medium to long term risks facing Pakistan’s economy. It calls for “sound project evaluation and prioritisation mechanisms based on effective cost-benefit analysis and realistic forecasts of macroeconomic and financing conditions” to help mitigate the risk.
It points out “a need to ensure transparency and accountability in project management and monitoring”, pointing specifically at the power purchase agreements being signed with Chinese IPPs, calling on the government to ensure that the cost of power purchase “remains favourable” for the distribution companies and consumers.
Published in Dawn October 17th, 2016
https://www.dawn.com/news/1290523
March 27, 2017 11:00 am JST
Pakistan wrestles with growing 'Chinese corridor' debt
Analysts say burden of economic agreement with Beijing may be unsustainable
TOM HUSSAIN, Contributing writer
A Chinese truck convoy last November opened the overland route through Pakistan to the Indian Ocean port of Gwadar. (Courtesy CRS Public Relations)
ISLAMABAD -- Two international lending institutions and Pakistan's central bank have raised concerns about the debt burden of a huge China-led infrastructure program on the country's improving but fragile finances.
Surging Chinese imports for the initiative, known as the China-Pakistan Economic Corridor program, have complicated Pakistan's balance of payments problems during its second year of economic recovery following a decade of conflict with Taliban insurgents and their al-Qaeda allies.
Chinese machinery imports for power generation and transport infrastructure will reach $27.8 billion in the fiscal year ending in June 2021. The CPEC aims to build roads, railroads and energy infrastructure across Pakistan.
The Pakistan government has said that further projects costing $16 billion are expected to be implemented by 2030, while preparations are continuing for additional elements following negotiations in December that expanded the program's overall cost to $55 billion from $46 billion.
Soldiers and police stand guard as a Chinese truck convoy enters a town in the western Pakistani province of Baluchistan, home to the port of Gwadar. (Courtesy CRS Public Relations)
Pakistan and China have been close diplomatic and defense allies since the 1960s. Underlining the broadening of the relationship through CPEC, a 90-member honor guard from the People's Liberation Army participated in Pakistan's national day military parade in Islamabad on March 23 -- the first appearance by Chinese troops.
However, the World Bank and the International Monetary Fund have both expressed concerns about the financial strains caused by the CPEC program. "Sovereign guarantees associated with the CPEC project [will] elevate fiscal risks over the medium-term," the World Bank said in its Global Prospects Report for 2017, published in January.
In October, the IMF said the execution of CPEC projects would create a surge in foreign direct investment and other external funding inflows, but the import requirements of these projects "will likely offset a significant share of these inflows, such that the current account deficit would widen."
In a further illustration of international concern, the global credit ratings agency Fitch said on Feb. 6 that Pakistan's "increasing gross external financing needs could increase the country's vulnerability to shifts in investor sentiment." Fitch affirmed its non-investment grade "B" rating for Pakistan's sovereign debt, with a stable outlook.
The State Bank of Pakistan, the central bank, has been more cautious on the impact of CPEC, but warned in a monetary policy statement in January that "going forward, with the risks to the external sector, the need of financial inflows would grow further."
Prominent local economists have also expressed serious concerns. Hafiz Pasha, a former finance minister, and Ashfaq Hassan, a former adviser to the Finance Ministry, have estimated that CPEC loans will add $14 billion to Pakistan's total public debt, raising it to $90 billion by the fiscal year ending June 2019.
"The government policy of short-term borrowing is risky and at a high cost," Pasha said, speaking on a local television in January.
Noting that Pakistan has extended sovereign guarantees to CPEC project loans and subsequent profit repatriations, Pasha and Hassan projected that debt servicing payments would rise to $8.3 billion in the fiscal year ending in 2019, widening the current account deficit to 4% of gross domestic product from less than 1% in the fiscal year ending June 2015, the year before CPEC was agreed.
Without an improbable increase in exports to at least $36 billion by the fiscal year ending June 2019, from the currently stagnant level of $24 billion, Pakistan would have to request renewed balance of payments support from the IMF by the year ending June 2019, they said.
Alarmist
Mohiuddin Aazim, an independent economic analyst based in Karachi, said the projections by Pasha and Hassan were alarmist because they classified borrowing for CPEC power projects as public debt, while the government and multilateral lenders consider it to be private debt held by independent power producers.
The China-Pakistan Economic Corridor passes close to tribal areas previously controlled by Taliban insurgents, such as the northwestern city of Dera Ismail Khan. (Courtesy CRS Public Relations)
"Foreign debt servicing in case of energy projects will be a responsibility of Chinese companies that will come and set up energy production units, so this should not create additional debt servicing burden on the part of Pakistan," Aazim said in an interview. "The much-feared increase in our import bills would be compensated by a simultaneous increase in foreign direct investment that these Chinese and other foreign companies will bring in."
Finance Minister Ishaq Dar has also played down concerns about Pakistan's indebtedness. In an article published by local English-language newspapers on Jan. 31 he said external debt servicing obligations would not average more than $5 billion a year up to the fiscal year ending in June 2021.
However, economists using Ministry of Finance data have predicted that the external account deficit will soon widen to unsustainable levels, requiring renewed balance of payments support from the IMF.
"Debt servicing and fuel imports for the new power plants will increase external payment obligations quite substantially in the next three years," said Sakib Sherani, CEO of Macro Economic Insights, an Islamabad-based consultancy. "While Pakistan's current [foreign exchange] reserves position is adequate, it is likely to need to head to the IMF by 2019 at the latest," Sherani said.
To strengthen its foreign exchange buffer, Pakistan negotiated fresh foreign loans totaling $25 billion in the three fiscal years ending in June 2016, while spending $11.95 billion on external debt servicing, the Finance Ministry reported in October. Total foreign public debt increased to $57.7 billion from $48.1 billion, at a cumulative growth rate of 6.3% a year. In the three-year period ending June 2016, the ratio of net debt to GDP remained unchanged at 60.2%, while the fiscal deficit was reduced to 4.6% of GDP from 8.2%.
Since returning to the international capital markets in 2014, after a seven-year absence, Pakistan has issued Eurobonds and sukuk (Islamic bonds) worth $4.5 billion to build up its foreign currency reserves. A $1 billion five-year sukuk issued in October was priced at a historically low yield of 5.5%, compared with 6.75% for an identical issue in November 2014. Foreign-exchange reserves peaked at $23.5 billion in October, but fell to $21.82 billion in the week ending Feb. 10.
The concerns about CPEC come as optimism about Pakistan's economic future rises on the back of cooling domestic conflict and growing consumer demand. Pakistan offers investors a market of about 200 million consumers in which about 70% of the population is 30 or younger.
Coupled with a surge in domestic consumption that followed the decisive phase of the conflict in 2014 and 2015, CPEC will push Pakistan's GDP growth to between 4.9% and 5.3% in the fiscal year ending June 2017, according to recently upgraded forecasts by multilateral lenders and ratings agencies.
In its Global Prospects Report, the World Bank revised its projection for Pakistan's GDP growth in 2016-17 to 5.2% from 5%. It said CPEC-associated improvements in energy and infrastructure, as well as recovering agricultural output and external demand for exports, would push growth to 5.5% in the fiscal year ending in June 2018 and 5.8% in the fiscal year to June 2019.
However, in a separate outlook report published in November, the World Bank warned: "Pakistan's continued growth is not guaranteed."
The bank added: "In the short- to medium-term, sustained progress on energy reforms, CPEC implementation and widening the tax net will be important. Without these structural reforms and other efforts to improve the investment climate, Pakistan's rate of investment will remain weak and its consumption-driven growth will eventually slow down."
http://asia.nikkei.com/Politics-Eco...les-with-growing-Chinese-corridor-debt?page=1
Azadkashmir
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well pak did invite india to cpec but instead thier bums are burning. maybe indians should go to river ganges to cool down.
Khan_patriot
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Dude, is Ramadan getting to you so bad??
No one is repeating 47, 65, 71 or 99. Any cross LOC infiltration is from either party is going to boil over into all out war. The times of state on state conflicts is over, its all about proxies, soft power, economic prowess and ppower projection. It would be very stupid for either country to get involved in a high intensity war. The Pakistani wet dream of crossing the Loc and liberating the Waadi needs to die. Wehave got enough on our pates already.
Hamza913
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Dude, is Ramadan getting to you so bad??
No one is repeating 47, 65, 71 or 99. Any cross LOC infiltration is from either party is going to boil over into all out war. The times of state on state conflicts is over, its all about proxies, soft power, economic prowess and ppower projection. It would be very stupid for either country to get involved in a high intensity war. The Pakistani wet dream of crossing the Loc and liberating the Waadi needs to die. Wehave got enough on our pates already.
It won't die until we've taken IOK.
I know it probably won't happen anytime soon, but if the opportunity arises we must take it.
StraightShooter
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June 14, 2017
The New East India Company?
Invasions are expensive. Take the American invasions of Iraq and Afghanistan, for example. Combined, the…
By Aasim Zafar Khan | Cover Story | Published 4 days ago
Invasions are expensive. Take the American invasions of Iraq and Afghanistan, for example. Combined, the two misadventures have cost the United States a total of $2.4 trillion to date. And in both campaigns, the US has eventually withdrawn, without having achieved any of their desired aims. Iraq didn’t have any weapons of mass destruction (WMD). But today, thanks to the invasion and the ensuing jihad, they now have the Islamic State.
Afghanistan is not any better. The Taliban movement is stronger than ever, there is no democracy outside Kabul, and numerous terror groups such as Al Qaeda, the Islamic Movement of Uzbekistan, and the Lashkar-e-Jhangvi, to name a few, continue to operate in the country’s eastern and northern regions.
Fort St George on the Coromandel Coast. Belonging to the East India Company of England
The most powerful type of invasion is economic. Most wars are usually fought for this reason. Iraq was never about WMDs and Saddam Hussein. It was about oil. And while there are key economic reasons for the invasion of a particular country, what if you take the invasion out of the equation and leave the economics behind? Take the East India Trading Company (EITC). Formed for the exploitation of trade in East and Southeast Asia in 1600, it gradually became involved in politics, and later started acting as an agent of British imperialism in United India from the early 18th century to the mid-19th. However, due to the presence of other European trading companies, the EITC required military power as well. Little by little, the EITC established its military supremacy over the other Europeans in the area, and this culminated in the seizure of Bengal in 1757.
A general view of Pakistan’s Gwadar deep-sea port
Eight years later, the Mughal Emperor at the time granted the EITC the right to harvest the revenues of Bengal, Bihar and Orissa. And the precedent was set.
In Pakistan today, the Chinese are everywhere. In marketplaces and movie theatres, in schools and at hospitals. Not that this is something new, because the Chinese have always been around. But by and large, in the past they were mostly involved in running restaurants and/or salons. But not anymore. In the decade leading up to the announcement of the China-Pakistan Economic Corridor (CPEC), the Chinese presence in Pakistan began to expand. Companies like Huawei and Zong, to name a couple, dropped anchor and have now become household names. Today, around 700 small and large Chinese companies are working across the country. Recently, 40 per cent strategic shares of the Pakistan Stock Exchange were sold to a Chinese consortium as well. And who can forget the handover of Gwadar port?
The golden rule is that no state-owned enterprise can be acquired by anyone unless it goes through a process of privatisation. So the Karachi Electric Supply Company (KESC), was sold through privatisation to Abraaj, who have now sold their shares to Shanghai Electric.
The CPEC is a different beast altogether. Worth nearly $50 billion, it is overflowing with projects that will, it is believed, correct Pakistan’s course once and for all. The question is, at what cost? It was recently reported that on CPEC investments of $50 billion, Pakistan will have to repay $90 billion – ie. about $3 billion a year in the 30-year repayment period. Add to this the fact that nobody is certain about the terms of the deals struck with the Chinese, nor how this debt will be repaid. One thing is for certain though: the CPEC is not a gracious gift from our all-weather friend. Will all the investment lead back into yet another debt trap? What if Pakistan is unable to add this debt burden on to the one it already carries on its back? What will we be able to give as collateral?
There have also been recent reports that the Special Economic Zones being made under the CPEC will only be open to Chinese investors. This was later refuted by the powers-that-be, but as is often the case in Pakistan, we won’t really know till we know.
At the same time, Chinese influence in Pakistan’s foreign policy continues to grow. It is an open secret that Beijing has been pushing Islamabad to bring the Afghan Taliban to the table. It has also pushed Pakistan to begin a process of rebuilding ties with Russia – one of China’s closest allies.
The CPEC is not a free meal, and Chinese interests in Pakistan are a means to an end for them. This needs to be understood, and the state needs to open up on the terms of engagement between Islamabad and Beijing. Otherwise, a few years down the line, we might find ourselves selling Pakistan by the pound.
http://newslinemagazine.com/magazine/new-east-india-company/
The New East India Company?
Invasions are expensive. Take the American invasions of Iraq and Afghanistan, for example. Combined, the…
By Aasim Zafar Khan | Cover Story | Published 4 days ago
Invasions are expensive. Take the American invasions of Iraq and Afghanistan, for example. Combined, the two misadventures have cost the United States a total of $2.4 trillion to date. And in both campaigns, the US has eventually withdrawn, without having achieved any of their desired aims. Iraq didn’t have any weapons of mass destruction (WMD). But today, thanks to the invasion and the ensuing jihad, they now have the Islamic State.
Afghanistan is not any better. The Taliban movement is stronger than ever, there is no democracy outside Kabul, and numerous terror groups such as Al Qaeda, the Islamic Movement of Uzbekistan, and the Lashkar-e-Jhangvi, to name a few, continue to operate in the country’s eastern and northern regions.
Fort St George on the Coromandel Coast. Belonging to the East India Company of England
The most powerful type of invasion is economic. Most wars are usually fought for this reason. Iraq was never about WMDs and Saddam Hussein. It was about oil. And while there are key economic reasons for the invasion of a particular country, what if you take the invasion out of the equation and leave the economics behind? Take the East India Trading Company (EITC). Formed for the exploitation of trade in East and Southeast Asia in 1600, it gradually became involved in politics, and later started acting as an agent of British imperialism in United India from the early 18th century to the mid-19th. However, due to the presence of other European trading companies, the EITC required military power as well. Little by little, the EITC established its military supremacy over the other Europeans in the area, and this culminated in the seizure of Bengal in 1757.
A general view of Pakistan’s Gwadar deep-sea port
Eight years later, the Mughal Emperor at the time granted the EITC the right to harvest the revenues of Bengal, Bihar and Orissa. And the precedent was set.
In Pakistan today, the Chinese are everywhere. In marketplaces and movie theatres, in schools and at hospitals. Not that this is something new, because the Chinese have always been around. But by and large, in the past they were mostly involved in running restaurants and/or salons. But not anymore. In the decade leading up to the announcement of the China-Pakistan Economic Corridor (CPEC), the Chinese presence in Pakistan began to expand. Companies like Huawei and Zong, to name a couple, dropped anchor and have now become household names. Today, around 700 small and large Chinese companies are working across the country. Recently, 40 per cent strategic shares of the Pakistan Stock Exchange were sold to a Chinese consortium as well. And who can forget the handover of Gwadar port?
The golden rule is that no state-owned enterprise can be acquired by anyone unless it goes through a process of privatisation. So the Karachi Electric Supply Company (KESC), was sold through privatisation to Abraaj, who have now sold their shares to Shanghai Electric.
The CPEC is a different beast altogether. Worth nearly $50 billion, it is overflowing with projects that will, it is believed, correct Pakistan’s course once and for all. The question is, at what cost? It was recently reported that on CPEC investments of $50 billion, Pakistan will have to repay $90 billion – ie. about $3 billion a year in the 30-year repayment period. Add to this the fact that nobody is certain about the terms of the deals struck with the Chinese, nor how this debt will be repaid. One thing is for certain though: the CPEC is not a gracious gift from our all-weather friend. Will all the investment lead back into yet another debt trap? What if Pakistan is unable to add this debt burden on to the one it already carries on its back? What will we be able to give as collateral?
There have also been recent reports that the Special Economic Zones being made under the CPEC will only be open to Chinese investors. This was later refuted by the powers-that-be, but as is often the case in Pakistan, we won’t really know till we know.
At the same time, Chinese influence in Pakistan’s foreign policy continues to grow. It is an open secret that Beijing has been pushing Islamabad to bring the Afghan Taliban to the table. It has also pushed Pakistan to begin a process of rebuilding ties with Russia – one of China’s closest allies.
The CPEC is not a free meal, and Chinese interests in Pakistan are a means to an end for them. This needs to be understood, and the state needs to open up on the terms of engagement between Islamabad and Beijing. Otherwise, a few years down the line, we might find ourselves selling Pakistan by the pound.
http://newslinemagazine.com/magazine/new-east-india-company/
Even if China creates another 1962 India has nukes. That keeps Pakistan in place
NakedLunch
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Been away for weeks and what is the first thing I see when i get back? Another anti-CPEC story. LOL!
Hamza913
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Yeah, that's pretty much what prevents Hindustan from invading Pakistan, and China from invading Hindustan.
PAKISTANFOREVER
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Has China taken over Pakistan?
S Akbar Zaidi June 18, 2017 4 Comments
What we know and what we don’t about CPEC. A comprehensive account that tries to make sense of the Corridor
Chinese are here to do business.
It would be no exaggeration to state, that there has been more written on the China Pakistan Economic Corridor (CPEC) in the Pakistani press over the last two years when the project was initiated, than perhaps any other economic or financial relationship which has affected Pakistan. In this short span of time, more words have been written on what is being called a ‘game changer’, a ‘fate changer’, a project which will transform Pakistan permanently making it part of the developed world, than on the IMF (on which Pakistan has had a huge dependence for 30 years), the World Bank or foreign aid to Pakistan over many decades.
Moreover, the nature of the narrative and the discourse around CPEC, compares very differently with any other financial and economic relationship in the past. Although the US has been Pakistan’s largest donor over 70 years, there has been much criticism of the type of this financial, economic, and subsequently diplomatic relationship, where the US has been seen to be the dominating partner, always asking Pakistan to ‘do more’ for all the monies poured into the country.
Similarly, even though the IMF continues to save Pakistan at critical junctures by providing emergency loans and assistance, no structural adjustment package comes through without much debate and criticism from different sections of society. While there have been some questions raised on the Pakistan-China partnership, the tone and content of discussion has been very different, and even sceptics and those who question some of the terms of the new relationship, concede that much, if not all, is more good, than bad.
The China-Pakistan relationship has always been a very special relationship over the last 60 years, ‘higher than the highest Himalayas, deeper than the deepest oceans’, and more recently ‘sweeter than the sweetest honey’. Just to very briefly summarise the historic nature of the China-Pakistan relationship, one can cite a number of important diplomatic and regional developments which have led to where we are today.
Pakistan was the first Muslim state and third non-communist country to recognise the Peoples’ Republic of China after the revolution. Possibly, the India-China war of 1962 may have been an instigator to developing the relationship much further, built on more substantially by Zulfikar Ali Bhutto, first as Ayub Khan’s Foreign Minister in the mid-1960s, but more aggressively and openly after he became President and then Prime Minister in 1972. After the China-India war, relations between China and Pakistan took on a particularly favourable turn, even in the public (as opposed to the diplomatic) domain.
It has been reported that when Chinese Premier Zhou Enlai visited Pakistan in 1964, the welcoming crowd lifted the vehicle carrying him. Prior to Bhutto becoming Pakistan’s first elected head of government and of state, the facilitation provided by the Yahya Khan government to Nixon and to Kissinger to bring China close to the US in 1970 and 1971, was a particularly important episode, to the extent that the US (and China) both turned a blind eye to the Pakistan armies brutal genocide in the then East Pakistan during the war of liberation for Bangladesh throughout 1971.
Most commentators have made comments based on hearsay, leaks to the press, some press statements and little more. There has been very little public disclaimer about CPEC, yet everyone has already formed at least some opinion.
After his election, Bhutto appeared in public wearing Mao caps and Mao jackets making more than a sartorial statement. It is reported that, ‘at least on one occasion, the entire Bhutto cabinet was photographed decked in Mao coats [jackets]’.Bhutto was said to have ‘injected Chinese culture into Pakistani politics. He would talk at length about Mao in his public speeches’.
Between 1966 and 1980, China provided Pakistan military equipment, apparently without charging any money for it, and set up the Heavy Industries Complex in Taxila, which now is a ‘massive armament industry’, building hardware, with an aeronautical factory building the China-Pakistan JF-17 Thunder jet fighter. Importantly, China also helped develop Pakistan’s nuclear facilities, both for power generation and to build Pakistan’s armed nuclear facilities, helping with the development of Pakistan’s nuclear arsenal.
On numerous occasions when Pakistan was desperately short of funds, the Chinese government has been generous in providing low interest loans. Much of this relationship has been based on Pakistan’s diplomatic support for China, and usually, an anti-India diplomatic initiative, although China is, not surprisingly, Pakistan’s main trading partner where trade is around $10 billion, 16 per cent of Pakistan’s total trade including oil imports.
Moreover, China and Pakistan signed a Free Trade Agreement in July 2007, with some expectations that China-Pakistan trade will reach $20 billion by 2020. It is worth pointing out that by 2015, China had utilised 60 per cent of the Free Trade Agreement concessions, and Pakistan only five per cent. Much of the activity in the past, has often been a quiet, often under-the-radar support to Pakistan, but 2015 changed the dynamics, scale, intensity and complete direction of this old relationship.
Chinese President Xi Jinping arrived in Islamabad in April 2015 bearing gifts worth $ 46 billion, which was given the name of the China-Pakistan Economic Corridor. Over the two years, the size of the ‘gift’ has already grown to $55 billion, with more anticipated over the next few years. CPEC is only one small part (for China) of its global One Belt One Road expansionism, but means almost everything to Pakistan. But what exactly is this CPEC?
Although so much has been written on CPEC, by government officials — there are even two web-sites exclusively for CPEC — by supporters and enthusiasts of the project, and even by critics and detractors, the truth is that very little is actually known about the project. Most commentators have made comments based on hearsay, wishful thinking, leaks to the press, some press statements, and little more. There has been very little public disclaimer about CPEC, yet everyone has already formed at least some opinion.
One academic has at least been honest in saying, that ‘Intellectual honesty demands a stance of neutrality on CPEC till the terms and conditions are disclosed, without which one cannot arrive at an objective assessment of whether it could be potentially beneficial for the country. Only then could one move to the next stage of appraisal, knowing that even potentially beneficial projects of this magnitude have their success depend on many other factors’, yet, speculation and opinion abound. Only after two years of the signing of the agreement, was what is called the Long Term Plan, or Master Plan, for CPEC, developed by the China Development Bank in December 2015, acquired by one journalist, summarised in Dawn on 15 May 2017.
The key components of the Long Term Plan of CPEC are summarised as follows:
What we know (possibly)
u Thousands of acres of agricultural land will be leased out to Chinese enterprises to set up ‘demonstration projects’ in areas ranging from seed varieties to irrigation technology. Demonstration projects of more than 6,500 acres will be set up for high yield seeds and irrigation, mostly in the Punjab. This engagement will run ‘from one end of the supply chain all the way to the other’. Chinese enterprises will operate their own farms. Enterprises entering Pakistani agriculture ‘will be offered extraordinary levels of assistance from the Chinese government’. They will get ‘free capital and loans’, and will be supported by the China Development Bank. One reason given for such extensive investment in agriculture is to provide food and cash crops to China’s Xinjiang Autonomous Zone. This has been called the ‘Sino-isation of farming sector’, by Pakistan’s leading business daily.
u One fertiliser plant with a capacity of 800,000 tons will be built, as will a meat processing plant with an output of 200,000 tons annually. Vegetable and fruit processing plants will be set up, as will a grain processing plant of 1 million tons, and a cotton processing plant with an output of 100,000 tons annually. Chinese enterprises will establish factories to produce fertilisers, pesticides, vaccines and foodstuffs.
u The Chinese will invest in, and extract, Pakistan’s mineral resources, particularly gold, copper, marble and coal. They are to set up industries in textiles, household appliances and cement. In the textile sector, the emphasis is ‘yarn and coarse cloth’.
u A fiberoptics cable is to be laid between Kashgar and Gwadar to bring better connectivity through the corridor.
u China will help build an ‘electronic monitoring and control system’ and run a ‘safe cities’ project in Pakistan. This project will deploy ‘explosive detectors to cover major roads, case-prone areas and crowded places in urban areas to conduct real-time monitoring and 24-hour video recordings’. Signals gathered from this surveillance system are to be transmitted to a command centre, but who will man this, whether the Chinese or Pakistani officials, is not clear.
u Chinese nationals are to receive visa-free travel access to Pakistan, with no reciprocal arrangement for Pakistanis to visit China.
u Using Pakistani media, China will disseminate ‘Chinese culture’ in Pakistan, to ‘further enhancing mutual understanding between two peoples and traditional friendship between the two countries’.
The reaction to this news report in Dawn by the minister for planning and development, is worth citing. He accused the author of the article of presenting a ‘nightmare scenario’, and that the original plan was ‘redundant’, although no alternative plan has been made public — the existing (or old) Long Term Plan was also not made public by the ministry, but was acquired by the journalist. The minister, on Twitter, no less, is reported to have said, that the Dawn story was ‘factually incorrect’ and ‘half cooked’, having said that this is the ‘most scrutinised project in the history of Pakistan’.
While the Long Term Plan which has just been made public, gives extensive details, some of the broader aspects of CPEC announced much earlier are still worth emphasising. The minister for planning and development who is in charge of some of the CPEC projects, has stated that of the original $46 billion, $35 billion has been allocated for Independent Power Projects to generate electricity, while $11 billion was for infrastructure development, for roads, airports, railways and the Gwadar Port. A road linking Kashgar and Kunjarab in China, to Gwadar in Balochistan, is one of the main road projects of this Corridor. He has stated that, “the process for infrastructure projects is transparent. The government of Pakistan does not choose contractors; it is China which nominates a panel of credible Chinese companies which take part in the bidding process”.
One must emphasise, that the Pakistan Army, on numerous occasions, has stated that it will ‘do all’ to defend and protect CPEC, and the army will ‘actively guarantee security’ and will fight all Pakistan’s enemies who are out to ‘sabotage’ this project. A special military force of 10,000 personnel is to be raised to protect CPEC.
It is worth pointing out a number of aspects to the deal done with the Chinese, which are already in the public domain. The still incomplete Gwadar Port has been handed over to the Chinese on a forty-year agreement, with the Chinese Overseas Port Holding Company reportedly having a ‘91 per cent share in the gross revenue of terminal and marine operations and 85 per cent share in the gross revenue from operations of the [Gwadar] free zone’.
The Independent Power Projects in Pakistan, which China will be building, as per existing rules for all such projects, enjoy a life-time waiver on corporate tax payments! Moreover, numerous fiscal exemptions and tax benefits have been given to Chinese firms, and according to some sources, ‘Islamabad [is] to award contracts for all CPEC projects to Chinese contractors, who may or may not partner with local firms and may or may not procure material from local manufacturers’.
It is clear that as a result of CPEC, some sort of transformation of Pakistan, is underway. It also seems more than certain that this is a Chinese project, rather than a Pakistani one.
Not simply related to CPEC over the last two years, but certainly compounded by it, some interesting statistics help put the Pakistan-China new and developing relationship into some context. While Chinese goods after the FTA have flooded the Pakistani markets in many categories — tyres, motorcycles, electronics, household consumer goods, plastics, ceramics, to name a few — it is their investments and purchases of key sectors which have emerged in recent years. They own a large mobile telephone company, the Pakistan Stock Exchange sold 40 per cent shares to a Chinese consortium consisting of three companies, with the Shanghai Electric Company interested in buying Karachi’s electricity distributing company, K-Electric. They have also been given contracts to collect garbage from some cities in Pakistan, and providing numerous other services.
According to some estimates, there are 10,000 Pakistani students studying medicine, engineering and other subjects in China, more than there are even in the US. There are reported to be 10,000 Chinese people/workers in the province of the Punjab alone, and around 750 small and large Chinese companies are in business across Pakistan, with 650 Pakistani companies with Chinese directors.
And what we don’t
Perhaps the most important thing we don’t know, which many analysts and writers have asked is: What will CPEC cost, now, and later?
No one really knows, since so much information has still not been provided, yet estimates abound. They range from Pakistan having to pay $3-3.5 billion annually back to China for the next 30 years for Chinese loans after 2020, to a probable severe balance of payments crisis.
Ambiguity about what level of Pakistani partnerships in projects are permissible, as well as whether certain areas of investment are exclusively for the Chinese, have emerged. For example, numerous Special Economic Zones are to be set up, and public information suggests that these are only going to be for Chinese firms, which has caused a great deal of concern amongst Pakistani investors who feel that they are not getting a level playing field.
A game changer — for whom?
Moreover, many business interests and chambers of commerce groups have complained to the government of Pakistan that while Chinese investors are getting tax breaks and benefits, local industrialists in the same field, are not. They feel that Chinese competition is tough as it is, affecting local industry, but once the Chinese arrive with far better terms, local producers will be completely wiped out. The government and their spokespeople keep reassuring local industrialists that nothing of the sort will happen, but there is great apprehension.
Sovereign guarantees to Chinese power producers have been made, where the Pakistan government will, ‘if the power purchaser defaults on payments, … pick up the liability and pay 22 per cent of the bills of Chinese power producers upfront’.Moreover, ‘no official estimate of the cost of the tax benefits already granted to the contractors and sponsors of the CPEC-related project … are available’.And, this is, in the words of the minister responsible for CPEC, “the most transparent” project in Pakistan’s history. Even the State Bank of Pakistan has raised concerns about the financing of projects around CPEC, and seems to be in the dark about many financial arrangements.
The financial terms of much of the Chinese investments have still not been disclosed. Are these grants, loans, and if so what are the terms of the investments? The Chinese have been given preferential tariffs and terms in electricity generation, but much else is still unclear. There is also a concern amongst local investors that the Chinese will bring in their own labour force — some accounts have said that many will be convicted Chinese prisoners sent to work on Chinese projects in Pakistan. There is also concern that the CPEC roads will mainly be for Chinese goods transported from Gwadar to Kashgar, and nothing else, and Pakistan will merely get some royalty for the use of its Chinese-built infrastructure, but how much this would be is anyone’s guess.
Imperfect information and trying to make sense of CPEC
In light of what we don’t know, and the little that we sometimes do, to have any clear opinion about whether CPEC is a ‘fate changer’, either for the Chinese, or more probably potentially for Pakistan, is not possible. Yet, with what has already been achieved and accomplished and with some trends evident, one can draw some possible scenarios for what may lie ahead. However, any such suggestions could also belong to the realm of either wishful thinking or even wild fantasy, but allow for some reflection.
It is clear that as a result of CPEC, some sort of transformation of Pakistan, is underway. It also seems more than certain that this is a Chinese project, rather than a Pakistani one, and the benefits will be far in the favour of Chinese investments than Pakistani ones, and Pakistanis will be merely externalities to the large project and its investments. Clearly, Pakistan will also benefit, especially once the power production and infrastructure come on line, but most of the benefits are heavily loaded in favour of the Chinese.
Pakistan has been subservient to the Chinese in its appeasement of Chinese interests around CPEC, although, perhaps, this is nothing new in terms of Pakistan’s history and political economy. From the influence of American imperialism for most of its existence, Pakistan gave way to Saudi intrusion in domestic, cultural and social affairs, and now has prostrated itself in front of Chinese imperial designs.
CPEC is a Chinese project, for Chinese interests, and Pakistan just happens to be part of the geographical terrain. Ironic it is, then, that having fought a war against one formally communist regime to stop it gaining access to warm waters, another former communist regime is granted huge easy concessions for the same access.
This is not to deny that Pakistan too, will benefit from Chinese investments, and ‘Estimates from the Pakistan Business Council suggest the projects could account for 20 per cent of the country’s GDP over the next five years and boost growth by about 3 percentage points’.Yet, many observers caution Pakistan after how Chinese terms and investments turned sour in Sri Lanka, Tajikistan and in many parts of Africa.
In both Sri Lanka and Tajikistan, with rising costs and debts incurred by the host countries, large chunks of land were handed over to the Chinese in lieu of unpaid funds. It is estimated that Tajikistan had to cede one per cent of their country to China since they were unable to pay loans — a third of the country’s debt was owed to China — acquired at a time of great fanfare, another ‘game changer’.There are even fears that Pakistan will become just another province of China, or will be reduced to being a ‘vassal state’.
Pakistan’s obsession with China and CPEC, also bodes ill for any sort of rapprochement between India and Pakistan unless, of course, only if the Chinese initiate such moves and if it fits into their grander designs in the region. With China taking over Pakistan, providing it with immeasurable amounts of investments, any arguments of increasing trade and economic cooperation between India and Pakistan, lose all urgency. When you have China, who needs India.
Does the past have a future?
Let me conclude this talk with some quotations without much comment, for they best reflect some concerns that have been raised in the public sphere by many Pakistanis. In fact, Pakistan’s main business daily, the Business Recorder, carried, two, not one, large sections in its Analyses and Comments pages over the last few weeks, invoking a notion which has not been raised in Pakistan since independence seventy years ago.
A businessman, who is the head of a large investment company in Pakistan stated: “We have to be careful if we don’t want this [CPEC] to turn into a repeat of the East India Company”.More importantly, Senator Tahir Mashahdi who is the Chairman of the Senate Standing Committee on Planning and Development said, “Another East India Company is in the offing; national interests are not being protected. We are proud of the friendship between Pakistan and China, but the interests of the state should come first”.
Finally, let me end with a quote from someone who knew this city, Calcutta, very well. Writing in 1765, Robert Clive, looked ahead almost a century, when he said: “We have at last arrived at the critical juncture, which I have long forseen, I mean that Conjuncture which renders it necessary for us to determine, whether we can, or shall take the whole to ourselves … It is scarcely a Hyperbole to say that the whole Mogul Empire is in our hands”.
S Akbar Zaidi
http://tns.thenews.com.pk/china-taken-pakistan-cpec/#.WUa54-jyuUk
Would anyone like to guess how much this guys is being paid by our enemies to write such balderdash??????...... $100,000 or $150,000 perhaps. These are the same people who want a corrupt Pakistan and fear Pakistan becoming a developed country. They don't want to do any good themselves for our nation and are jealous of others who develop Pakistan.
Hakikat ve Hikmet
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What are proxies for??? Anyway this folk making it Helal!!!!!
Losing the trade route to the Atlantic ship routes is one of the major causes of the decline of the Osmanli. Having control over a trillion$ trade route is what makes a difference forPak!!! And, your enemies are fully aware of it!!!! I think the Pak establishment is as crafty as their cricket team!!!!!
PAKISTANFOREVER
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Guys like him are really jealous and envious. They prefer the current status quo of corruption as it benefits them. They fear a developed Pakistan as it will end their ill-gotten gains. These guys will never do anything good for Pakistan and are jealous of those that will.
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