CPEC- A Debt-Trap For Pakistan  

Jai Kumar Verma  

It is in the interest of Pakistan to study the pros and cons of the CPEC. China has been conveniently using its neighbouring countries to expand its influence

Communist China, which has hegemonic designs against neighbouring countries, is exploiting Pakistan’s abhorrence towards India. Pakistan, which was carved out from India on the basis of a failed two-nation theory, wants to take revenge from its eastern neighbour, as it alleges that it was dissected because of India.

China, which views India as a potential rival, assists Pakistan militarily, financially and diplomatically. Pakistani authorities projected the China-Pakistan Economic Corridor (CPEC) as an extremely advantageous project which will end all its economic tribulations and the country will move rapidly towards the path of economic prosperity.

Islamabad, which claims that “China is Pakistan’s irreplaceable all-weather friend”, has not evaluated the pros and cons of the CPEC and the contents of the project were not even disclosed to the public. On the other hand, the China Development Bank and the National Development and Reform Commission, after analysing it thoroughly, in a detailed report said that the CPEC is an important part of the One Belt and One Road (OBOR) initiative.

Nevertheless, as things are unfolding, it is becoming clear that China, through CPEC, would snatch several assets of Pakistan and will reduce it to a Chinese colony. China has surplus industrial capacity, unemployed technical personnel and foreign exchange, which will be utilised in CPEC. China is not giving any free money and is charging high interest rates to develop infrastructural projects in smaller countries. When these countries fail to repay the loan, it grabs those projects.

Recently, Sri Lanka was forced to lease out its Hambantota sea port for 99 years to China as it was unable to repay loan. Maldives too signed a free-trade deal with China which will be detrimental for the country in the long-run.

Analysts contradict the myth propagated by Islamabad, saying that as the cost of labour is increasing in China, several Chinese companies may like to relocate to Pakistan and once Chinese companies operate from Pakistan, manufacturing units of other countries may put their factories in the country. No foreign companies, including Chinese companies, would reposition in Pakistan because of terrorism, poor infrastructure and non-technical manpower.

Besides, China has built massive infrastructure in other countries but business was not conducted and the countries are facing difficulty in payment of loans.

China, which has a massive population of 1.37 billion, does not have sufficient arable land and is one of the largest importer of agricultural products. Chinese companies would capture thousand of acres of Pakistani land under the garb of mechanisation, using modern electronic gadgets to solve agricultural problems pertaining to fertilisers, seeds, livestock and supply chain.

In CPEC, a large chunk of the road and railway line would be built on Pakistan’s resources as China wants to connect its land-locked restive Province of Xinjiang from Gwadar port. Pakistan will have to repay $90 billion by 2030, which is a task easier said than done. China would also disseminate its ideology and culture in Pakistan.

In CPEC, out of the $55 billion, $35 billion will be spent on the power sector. China will be charging 17 per cent to 20 per cent guaranteed return; hence, it will recover its loan early. China will also charge Rs 8.50 per kilowatt an hour, while the reasonable rate is rupees five only. In this way, on the one hand, public will have to pay more, on the other, since there is too much of theft, the Government will not able to repay the debt.

In 2017, Pakistan had an outstanding debt of $72 billion, without the inclusion of CPEC loan. Pakistan also took loan from the International Monetary Fund (IMF) at an interest rate of 8.75 per cent after mortgaging fixed assets like motor ways, airports, radio and television stations.

There will be no global tenders and all contracts would be given to Chinese companies, which might charge more and may also use sub-standard material as there will be no competition.

All Chinese companies have obtained tax concessions. Hence, neither will Islamabad earn money from taxes nor will the Pakistanis get employment as they do not have sufficient skilled manpower. Companies in China mostly employ Chinese workers. Beijing would dump cheap goods in Pakistan and would destroy local industries. Pakistani industries will also fail to compete because of augmented electricity rates and excessive taxation.

Pakistan’s economic growth is 3.1 per cent only, which is less for a developing country. Islamabad will fail to pay interest as well as principal amount. China is aware of it and will certainly capture several assets of Pakistan. The gap between imports and exports is increasing and the trade deficit is around $24 billion which is more than 200 per cent of Pakistan’s exports. Foreign remittances, which are an important source of foreign exchange, have also dwindled because of sharp decline in oil prices.

The Pakistan Army has raised two security divisions only to safeguard the Chinese as maintenance and security of the CPEC is the responsibility of Pakistan and it would be an additional burden.

China would be constructing coal-based power plants under the CPEC which would be harmful for both environment and health.

Pakistan has hostile relations with all its neighbours, including India, Afghanistan and Shia Iran. It has cordial relations only with China. CPEC will be difficult without friendly relations with neighbouring countries. Corruption would be a major hurdle in the success of CPEC. There is rampant corruption in all Pakistani institutions and there will be misappropriation of funds at every step.

China is careful about its investments and will be quite tough in realising its money back. Islamabad signed the CPEC considering that it will be beneficial for the country but it signed an unfair deal for which the country will have to suffer.

Beijing wants to occupy Pakistan’s immovable assets, including Gwadar port, and hence, it will not allow CPEC to be a profit-making venture for Pakistan. The reports are emanating that in view of resistance from the public, and assessments and analysis of economists, the euphoria about CPEC is evaporating. Therefore, now China is finding it difficult to deal with the civilian Government and it wants to deal about CPEC with the Army which is much more dependent on Chinese assistance. In November 2017, China had not released funds for three major road projects and informed Islamabad that Beijing was devising new rules and regulations.

Few months back, Pakistan turned down the Chinese proposal to construct $14 billion Diamer Bhasha dam as Chinese put stringent stipulations which included the ownership of the project. It is an indicator that Islamabad is not realising the hidden intentions of China that it wants to have permanent foothold in the country.

In October 2016, a Pakistani senator stated that China is another East India Company and in CPEC national interests are not protected. The lawmakers raised doubt about the fixing of high tariff rates for electricity and also criticised that large number of CPEC projects were funded locally and not by foreign investments. They mentioned that the CPEC will be a “national calamity”. China would convert Pakistan to a dependent country which would look towards China for its day to day its survival.

Pakistan is isolated because of sponsoring terrorism and China is taking advantage of this. China blocked the United States proposal in the United Nations to designate Jaish-e-Mohammed (JeM) Chief Maulana Masood Azhar as a global terrorist. China also helped Pakistan in the recently conducted meeting of Financial Action Task Force (FATF).

Nevertheless, Pakistan must realise that China has laid a death trap for it and the country must wriggle out before it is too late.

(Jai Kumar Verma is member of United Services Institute of India, and the Institute for Defence Studies and Analyses)

Courtesy: Pioneer: Tuesday, 27 February 2018