CPEC runs deep into the risk of turning Pakistan as China’s probable ‘vassal state’ in future
-Abhishek Pratap Singh
Over the years, China and Pakistan have cultivated their bilateral relationship on the principle of ‘all weather friendship’. Both the countries have reiterated in their official diplomatic exchanges and statements about the nature of bilateral relations being “higher than mountains, deeper than the ocean, stronger than steel and sweeter than honey”. (PM Gilani, 2010) It is undoubtedly true because China has historically come to Pakistan’s rescue with economic, political and military assistance. On nuclear cooperation between both, scholars put China being a ‘strategic proliferator’ to Pakistan. (Henrik S. Hiim, 2018)
Friendship with China is a cornerstone of Pakistan’s foreign policy, says PM Imran Khan
However, the larger ‘strategic foundations’ of this cooperation were built on two very specifics objectives. Firstly, a ‘mutual disillusionment’ with India that had facilitated the convergence of interests from both sides. And secondly, Beijing is mindful of Pakistan’s key role in China’s quest for strategic economic global power.
The recent case of turning this bilateral relationship to ‘new heights’ was with the launch of China Pakistan Economic Corridor (CPEC) in May 2013, against the backdrop of complex and changing regional and international situations. Beginning with the signing of 8 agreements amounting to 18 billion USD during the visit of Pakistan PM to China in 2013. It reached a total of 51 agreements between both having worth of $46 billion during the visit of President Xi Jinping to Pakistan in 2015, mostly covering the development of CPEC corridor. The values of agreement exceed any foreign direct investment in Pakistan and are relatively more than the total it received from US post 9/11. Divided into three phases: short-term by 2017, midterm by 2025 and long-term by 2030, the corridor is integrated with China’s Belt and Road Initiative (BRI) and is aimed to build the infrastructural network of highways, railways and energy pipelines running from Gwadar in Balochistan and ending in Kashgar, China.
Map outlining the China Pakistan Economic Corridor masterplan
Given the nature and value of investment being incurred under the CPEC, it is necessary to understand its geo-strategic and economic implications for the region and Pakistan as well. To quote Andrew Small (2015), “Chinese investments are not purely for reasons of commerce or strategic economic geography” and might run into deep into Pakistan. While Pakistani leaders have maintained that CPEC is the “game changer” for the country’s ailing economy, it has also drawn its own set of domestic criticism given its opaque planning, profit outflow and federal friction causing for new sources of internal conflict.
It goes back to 2006 when Pakistan China ‘Free Trade Agreement’ was signed. While China utilised 57 per cent of the tariff concessions, the reductions for Pakistan were around five per cent. In 2009 Pakistan became a top importer of Chinese goods, and their bilateral trade reached 13.7 billion USD with the trade deficit with China whopping up to USD 12 billion. (The Diplomat, 2015)
On the Verge of Bailout
Pakistan’s Government meeting with International Monetary Fund (IMF) officials with a potential bailout looking increasingly likely, according to a member of the country’s Economic Advisory Council. An IMF visiting delegation has sat down with Pakistani officials in Islamabad, according to the Finance Ministry. While the talks are part of routine Article IV discussions, Pakistan’s need for external funding and its widening current-account and fiscal deficits will likely loom over the meeting.“Pakistan’s economy has never been in such bad shape,” Ashfaque Hasan Khan, an economic adviser to the Government and the dean at the business school of Islamabad’s National University of Sciences and Technology, said. Khan said the lack of drastic changes or spending cuts in a revised budget presented this month suggested: “perhaps the Government has decided to go to the IMF.”
The report published by leading Pakistan national daily The Dawn outlined, “The CPEC envisages a deep and broad-based penetration of most sectors of Pakistan’s economy as well as its society by Chinese enterprises and culture”. Much recently the draft CPEC master plan, as conceived by China’s National Development and Reform Commission (NDRC) and Ministry of Planning in Pakistan, underline the enormous scale of latter’s ‘planned economic takeover’ covering all key aspects of country’s growth. It includes roads and railways, coal and power plants, tourism industry, developing free trade zones and SEZs, agro products and food processing, fertiliser industry, land transfer and garment sector to coastal development plans. The blueprint reveals that CPEC will lead to more extensive control by China on multiple aspects of the Pakistani economy. The draft suggests around 6,500 acres of ‘land leasing’ to China for agricultural demonstration projects. It lists 17 projects; including a fertiliser plant with an annual 800,000-tonne output and grain processing plants with 1 million tonne capacity have also been planned. (India Today, July 2018) The ‘comparative advantage’ with Pakistan based on domestic facilitatory export tariff framework allows scope for China to shift some of its manufacturing industries. From land acquisition to leasing for Chinese enterprises and the building of industrial bases in key economic areas, the blueprint suggests for likely transformation of Pakistan economy as an ‘economic protectorate’ of China.
In case of Gwadar port development project, China has already secured a 23-year ‘tax-free deal’ for the easy operation of its companies. Comparatively, Gwadar port is ten times the Karachi port and holds the cargo capacity of about 350 million tonnes is largely managed by Chinese agencies. Similarly, the planned ‘free trade zone’ will allow a direct link for Chinese to export to West Asia and Africa, also becoming its second overseas naval base after Djibouti.
Pakistan Starts to Go Back on CPEC
Pakistan has cut the size of China’s “Silk Road” by $2 billion due to rising debt constraints, Railways Minister Sheikh Rasheed said. “Pakistan is a poor country that cannot afford the huge burden of the loans,” Rasheed said, adding, “therefore, we have reduced the loan from China under CPEC for rail projects from $8.2 billion to $6.2 billion.” The project was hit over cost leading the Pakistan Government to rethink the 1,872 km road infrastructure deal. China has been a big investor in Pakistan with investments of over $60 billion in CPEC. However, recent reports have suggested the deal has led to large-scale debts for the Pakistan Government, already reeling under huge current account deficit.
The problem is also aggravated by the ‘financial risks’ attached to the financing of projects under CPEC. Mostly based on financing subject to loans and not grants, reports are suggesting CPEC turning into ‘debt financing’ and leading to probable ‘balance of payment crisis’ for Pakistan in future. Many countries like Sri-Lanka, Maldives, Nigeria, and Cambodia have sold their stakes in China financed projects to escape their debts. At times acting to address this challenge, China had responded like when they cancelled $90 million of Cambodia’s debt, only to secure major new contracts. Given the ‘high financial stakes’ involved in CPEC, there are voices of discontent against favourable terms to Chinese companies. Some estimates range from Pakistan having to pay $3 to $3.5 billion annually back to China for the next 30 years for Chinese loans. Economist Zaidi feels that it is likely to turn Pakistan into a ‘vassal state’ deep in China’s economic orbit.
Indeed, all this is not going without the knowledge of policymakers in Beijing. The internal assessment by Renmin University’s Chongyang Institute for Financial Studies (CIFS), warned of numerous risks, from political infighting in Pakistan to terrorism. (India Today, July 2018) However, the report concluded with China’s more ‘extended control’ on its way to secure success with CPEC. For example, in Balochistan, CPEC is exacerbating existing grievances amongst the population, and there are reports of effective efforts to suppress dissent. The province is less likely to draw any ‘direct benefits’ from Gwadar port, a key CPEC project, instigating local disillusionment with the project. The larger application and provisioning of CPEC suggested it to be a ‘Chinese project for Chinese interests’ with limited benefits and utility for Pakistan but attached with very high financial and national costs.
In the given context, it is necessary that any effort to revive Pakistan’s economy must be based on domestic efforts with external assistance rather than competing for dependence and thorough debate in its Parliament and Provincial Legislatures in consultation with involved local agencies and with all possible stakeholders including civil society, business community and environmental groups. With the new government assuming office in Pakistan, it must work upon to mitigate these risks and must resolve for a more fair, open and transparent CPEC model consulting all stakeholders and giving due consideration to territorial sovereignty of other states. An economically prosperous and stable Pakistan is in the good interest of both India and the South Asian region as well.
(The writer is PhD from East Asian Studies, JNU and teaches at the University of Delhi)
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