National and International Issues

CPEC: From Idea to Pragmatic Evolution

World economy faced uncertainties and pessimism in 2017 over a series of “black swan”moments like Brexit and Donald Trump’s election in 2016 on a protectionist agenda. Mr. Trump’s recent move of pulling USA out of the Paris Climate Deal adds to this uncertainty, which in turn creates a vacuum of global leadership that presents ripe opportunities to allies and adversaries alike to reorder the world’s power structure. And the likely contender is, of course, China. The Chinese are eager to fill this evolving void that Washington is leaving behind – on everything from setting the rules of trade and environmental standards to financing the infrastructure projects that will give Beijing vast influence. Almost to the end of the year, unlike the rest of the world, China instead saw positive developments in the global economy. It firmly believes that as its dominance on the world stage grows, the outcome from its push on trade and connectivity will further strengthen the global markets despite the current challenges and opportunities they face.
China's GDP achieved a 6.9 percent growth year-on-year based on comparable prices in the first quarter of this year, according to data issued by the Chinese National Bureau of Statistics on April 17, 2017. From the perspective of the world economic pattern, this is an economic performance beyond extensive market expectations and its biggest effect will be to further consolidate China's status as the world's economic stabilizer and economic engine. For countries like Pakistan where China is already investing around $50 billion (a figure which is likely to increase over time) under CPEC (China-Pakistan Economic Corridor) the implications of this rising Chinese global dominance are likely to be more profound. Also, the much talked about (overwhelming) Chinese presence in the country could come about much quicker than anticipated. Trouble is that the Pakistani public may not be fully ready for it. Since the present Pakistan government has been rather vague about what the CPEC precisely entails – relying more on generic marketable terms like development, jobs, investment, friendship, etc. – the mistrust amongst a segment of Pakistanis on the eventual impact of this endeavor on their lives does exist. After all, China is not an NGO coming to Pakistan to distribute jobs and aid packages; nor is it a philanthropist bringing free help without demanding anything in exchange. The CPEC cause is further hurt from active propaganda by some skeptics and foreign foes (for example, India) citing that the entire CPEC initiative is designed specifically for the benefit of the Chinese – with any benefit to Pakistan being merely from a spillover effect. According to them and going by recent news items published in the western press on the real objectives of the CPEC plan, they opine China intends to cane out an elongated economic enclave within Pakistan, run mostly by the Chinese for the Chinese. Pakistan benefits mostly by leasing out or in some cases literally surrendering its natural assets, thus taking them out of the hands of the Pakistani people and handing them over to the Chinese corporations. They argue that CPEC is an invasive economic project, which will greatly diminish Pakistan’s authority over its own land and resources, and allow China an almost unrestrained access to its ports and other key assets. While it may bring significant infusion of capital into Pakistan, in the long run – if this unveiled master plan is implemented – the Chinese corporations may very well be taking a lot more capital out of the country than what they effectively brought in!


In many ways, CPEC provides the advantage of being an “early harvest” program where people of Pakistan will not have to wait too long to see its positive results. A significant chunk of people-centric projects – Orange Line, Yellow Line, power plants and road networks – will be operational before 2020 and as their outcome starts pouring in and improving lives of Pakistanis, the public belief in CPEC will strengthen giving it more impetus and longevity. CPEC, if dealt judiciously, will tend to be a big unifying force for Pakistan.

Propaganda aside, on a more realistic note, amidst lack of transparency on part of the government in CPEC’s implementation and a lot of noise being raised from provinces other than Punjab, this all important investment bonanza for Pakistan may fast become grey than purple. The absence of a professional and autonomous apex board for overseeing all CPEC activities is not helping things either. In addition, it is unfortunate as it appears that with the passage of time both the Pakistani and Chinese marketers of this project are losing the plot on successfully creating a positive perception on CPEC. In a recent sitting with the Pakistani businessmen, the Chinese ambassador to Pakistan Sun Weidong stated that China has little interest in importing goods manufactured in Pakistan. Explaining the reasons to a gathering of leaders of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in Islamabad, he opined that behind the China-Pakistan trade imbalance the main cause relates to the fact that Pakistan is either just not producing the goods that are needed in China or it simply does not have the capacity to do so. He admitted that under the current circumstances, unless there is a major policy shift in Pakistan or China, the Chinese corporations would garner the major chunk of the resultant economic activity. The thinking confirms rising concerns that Pakistani businesses may have little to gain in coming years, because it would largely benefit Chinese businesses. It may be pertinent to mention here that Pakistan's exports to China have been continuously falling from USD 2.69 billion in 2013-14 to USD 1.9 billion in 2015-16. There is a fear lurking that a time will soon come when the Chinese will start dictating terms and priorities rather than negotiating them. As an increasing number of Chinese enterprises acquire stakes in Pakistan's economy, and as the government takes out more and more loans from Chinese state-owned banks for supporting its balance-of-payments, in the process the space to negotiate and protect Pakistan interests naturally diminishes.

Furthermore, it is always important to be mindful of the reality that CPEC is not entirely a manifestation of the mutual desire of China and Pakistan to expand economic ties, but primarily of the larger global vision of China to revive the ancient Silk Route,returning China to the glory days of the Ming Dynasty when China literally dominated global trade. This vision is pursued through the OBOR (One Belt, One Road) initiative. Within the OBOR, so far, CPEC is the largest investment outlay by China, but this could change. Also, there are larger Chinese strategic interests at play here: a) Shortest, quickest and cheapest access to the Arabian Sea, b) With presence in Gwadar the ability to control, police and safeguard (where required) oil interests of China, which is the largest oil consumption economy in the world today, and last but not least, c) Help the grand development transition from East to West within China where such an effort will not only lift the under-developed western areas of China out of poverty and help resolve some long standing/traditional secessionist issues, but more importantly, also significantly add to the buying power of a big chunk of Chinese population, thereby boosting the overall Chinese endeavor to sustainably remain on the present economic growth path through shoring up its domestic consumption. These are few of the observations and opinions that critics of CPEC raise at various forums. These need to be suitably addressed to achieve the desired positive objectives from the project.

However, regardless of what the critics may have to say, there are clear winners in CPEC both for China and Pakistan. Following are of some these clear advantages to both China and Pakistan.

Advantages for China
As already mentioned above, while the CPEC is surely monumental for Pakistan, it at the same time also carries a number of advantages for China. Primarily, it constitutes an integral part of China’s broader vision to assert itself as the leading economic power through the OBOR initiative that seeks to physically connect China to its markets in Asia, Africa, Europe and beyond. The New Silk Road will link China with Europe through Central Asia and the Maritime Silk Road to ensure a safe passage of China’s shipping through the Indian Ocean and the South China Sea. CPEC will in effect connect China with virtually half of the population of the world.

Access to the Indian Ocean via Gwadar will enable China’s ships to bypass Malacca Strait and overcome its “Malacca Dilemma”.Development of Gwadar seaport and improvement of the infrastructure in the hinterland would help China sustain its permanent presence in the Gulf of Oman and the Arabian Sea.


The fact that China is opting to place its bets on Pakistan as one of the key pivots in its OBOR vision effectively means that with the right management and leadership skills Pakistan can emerge as the main corridor to not only China and Central Asia, but also the aspiring South Asian economies.

While the new silk roads are bound to intensify ongoing competition between India and China – and to a lesser extent between China and the USA – practically they will always be an asset on ground benefitting all regional stakeholders and thereby strengthening and cultivating increased Chinese influence in Central Asia in particular and the Asia continent and the world in general.

Advantages for Pakistan
Foremost, CPEC brings much needed investment in the Pakistani economy, which if harnessed prudently will be the harbinger of new opportunities for Pakistan and help it in spurring inclusive growth, in-turn creating jobs and reducing poverty. The scale of capital investment coupled with Chinese expertise of undertaking large-scale projects makes CPEC a potential game changer and cements China’s role in securing Pakistan’s stability and security.

Chinese investment under CPEC will help in not only expanding Pakistan’s GDP, but also by acting as a catalyst to its GDP growth. A consistent inflow of large-scale foreign direct investment will greatly help Pakistan to improve its perception-cum-image with other investors. It will signal that Pakistan is open for business and a safe and productive place to do business in. With CPEC becoming functional, Pakistan’s geo-strategic security interests will become directly aligned with those of China, consequently releasing much of the pressure that is currently being exerted from next-door neighbors, India and Afghanistan. Pakistan may be in a better position to engage other developed economies once its own economy is performing better.

CPEC is likely to have a natural spillover effect on further improvement in Pak-China defence and nuclear cooperation. The success of Sino-Pak partnership is also likely to ultimately attract Afghanistan into the CPEC fold and if this happens, the development can have a positive impact on relations with Afghanistan. China, Pakistan and Afghanistan, all have a shared interest in the stabilization of Afghanistan because the main threat to the realization of the OBOR vision comes from the terrorist groups.

In many ways, CPEC provides the advantage of being an “early harvest” program where people of Pakistan will not have to wait too long to see its positive results. A significant chunk of people-centric projects – Orange Line, Yellow Line, power plants and road networks – will be operational before 2020 and as their outcome starts pouring in and improving lives of Pakistanis, the public belief in CPEC will strengthen giving it more impetus and longevity. CPEC, if dealt judiciously, will tend to be a big unifying force for Pakistan.

It is a God sent opportunity for Pakistani businesses and the corporate sector to meaningfully connect to perhaps the most robust economy of the world and that too with one with whom we share borders. China today has a GDP of $ 18 trillion on a Purchasing Power Parity (PPP) basis. It has one of the largest foreign currency reserves of $3.6 trillion. It is the largest exporter of the world with $2.34 trillion annual exports and 3rd largest importer with annual imports of $1.96 trillion. It is the largest trading partner with more countries than any other economy of the world, including the USA. China today leads the initiative as being one of the main financiers of the developing world – recently creating the AIIB (Asian Infrastructure Investment Bank) – and its overseas investments today exceed $20 trillion. It has the world’s highest savings rate that gives it the strength to create its own resources for investments home and abroad. The fact that China is opting to place its bets on Pakistan as one of the key pivots in its OBOR vision effectively means that with the right management and leadership skills Pakistan can emerge as the main corridor to not only China and Central Asia, but also the aspiring South Asian economies. If we can get our house in order, the access to the rich Chinese market comprising of 1.5 billion people, immense knowledge and innovation, and the world’s largest pool of capital deployment, can provide us with the opportunity we have always been dreaming of.

CPEC, in the long-term, may also kick-start South Asian Association for Regional Cooperation (SAARC) as other South Asian economies are bound to get attracted to the benefits of connectivity to this expanding economic train. CPEC provides Pakistan with a chance to learn from the Chinese and to even involve them, where necessary, in order to resurrect the Pakistani state run enterprises. China, today, presents the best model on how to combine private sector entrepreneurial choices with state’s power and resources.

According to a Gallup survey, China’s staggering economic growth has been fuelled not only by the attempt to replace a socialist “command economy” with one built along market lines, but also by an extraordinary commitment to hard work among the people of the Middle Kingdom. Harvard theologian Michael Novak argues that certain Confucian values are similar to those analyzed by Max Weber in the Protestant Ethic and The Spirit of Capitalism (1904). In a Pakistani society, which is overtly ritualistic, introduction of Confucian values and Chinese work ethics can be extremely beneficial in driving operational efficiencies.

Challenges for Pakistan
Having listed the advantages, it will nevertheless be prudent to recognize that mentioned below are some of the simultaneously occurring main challenges that Pakistan will face against the planned investments under CPEC:

• No real expertise to handle inflows of such magnitudes totaling $50 billion.
• Lack of human resource and a professional apex structure to transparently and professionally 
• Manage CPEC’s implementation.
• Resultant future debt servicing issues.
• CPEC can adversely hit our current account deficit by ballooning imports.
• Erosion of domestic/home industry.
• Political/provincial bickering adding to disunity in Pakistan.
• Pressure on external account once profits and re-payment start flowing out, with present currency swap arrangements being inadequate.
• Diminished negotiating power, given our political and military dependence cum reliance on China and also due to lack of other investment options with us at present.

Further, one must also take into account some concerns that arose from the experiences of other countries, which have been recent recipients of investments:

Recent Chinese investments in Sri Lanka have not generated the kind of returns they originally envisaged. For example, the four-lane highway leading out of the town of Hambantota and the boondoggles built and financed by China beyond and along this highway have thus far failed to generate the kind of economic activity required to justify the payback on the debt accumulated against these projects: A 35,000-seat cricket stadium, an almost vacant $1.5 billion deep water port and a 16 miles inland airport at the cost of $209 million stands as amongst the world’s emptiest international airports.

Mattala Rajapaksa International Airport, the second largest in Sri Lanka, designed to handle a million passengers per year, currently receives only about a dozen passengers per day. Projects like Mattala are not driven by local economic needs but by remote stratagems. When Sri Lanka’s 27-year civil war ended in 2009, the president at the time, Mahinda Rajapaksa, worked on the idea of turning his poor home district into a world-class business and tourism hub to help its moribund economy. China was happy to oblige. Hambantota sits in a very strategic location, just a few miles north of the vital Indian Ocean shipping lane over which more than 80 percent of China’s imported oil travels. However, so far no travellers have come, only the bills. The Mattala airport has annual revenues of roughly $300,000 but now it must repay China $23.6 million a year for the next eight years according to Sri Lanka’s Transport and Civil Aviation Ministry. Overall, around 90 percent of the country’s revenues go in servicing debt. To relieve its debt crisis, Sri Lanka has put its ‘white elephants’ (unsustainable investments) up for sale. In late July 2017, the Sri Lankan government agreed to give China control of the deep water port – a 70 percent equity stake over 99 years – in exchange for writing off $1.1 billion of the island’s debt. And, China has promised to invest another $600 million to make the port commercially viable. However, this was not done originally. Likewise, outcomes emerging from the experiences of Indonesia, Nigeria and lately Kenya (where an inter-connecting railways has been built at a colossal cost) are not of encouraging economic dividends.

To conclude, the economic-cum-geo-political reality is that the China-Pakistan Economic Corridor (CPEC), with an enormous potential to ultimately deliver up to $62 billion of bilateral developmental projects between Pakistan and China, can be a “game changer” not only for Pakistan, but also for entire South Asia. The economic corridor will connect Pakistan’s Gwadar Port in Balochistan with Kashgar in the northwestern Chinese province of Xinjiang through several extensive networks of roads and various other infrastructure projects. This project has become a “flagship project” of China’s Silk Road Economic Belt. Launched in 2015 and intended, at least on paper, to be finished by 2030, the CPEC has of late figured regularly in Pakistan’s economic and national security discourse. Many hope the project will prove to be a win-win for both countries. China is expected to save millions of dollars every year through increased access to the Indian Ocean and the creation of a shorter route for energy imports from the Middle East. The project holds great potential to not only boost China’s domestic economy, but also enhance its geopolitical clout and improve regional stability. Pakistan is also understandably pleased. The excitement felt among political and economic circles stems to a large degree from Pakistan’s wobbly economic performance in recent years, where the country has been failing to meet its GDP targets. For the Pakistani government, the project promises an economic boost and a potential solution to the country’s currently feeble socio-economic structure. Many hope CPEC will result in: an expanded infrastructure in the country, the introduction of large-scale hydro, solar, thermal, and wind-driven projects fit to tackle the country’s severe energy crisis, and perhaps also a transnational rail system.

Moreover, this project will help Islamabad elevate its strategic partnership with China. Care needs to be taken that from the very start that Pakistan safeguards its long-term economic interests in a way that projects undertaken today do not become the cause of pain tomorrow.

The writer is an entrepreneur and economic analyst.

E-mail: [email protected]

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