Wednesday, 20 June 2018
CPEC and new imperialism
Dr Shabir Choudhry 20 June 2018
Majority of people of Pakistan, and to some extent, people of former Princely State of Jammu and Kashmir live in a fantasy world - a world of their dreams, which does not exist; and which is far away from the harsh realities of the real world.
No matter what you tell them they will not listen until a looming disaster hits them. Even then they will not acknowledge that it is a direct result of their policies or negligence. They will divert the blame that they are victims of Indian conspiracy, American Conspiracy and Jewish conspiracy, or some other conspiracy. They are in a state of denial. For every failure or blunder they have a separate conspiracy theory.
Anyone, who tries to reason with them and tell them you are making this mistake or that mistake is, without any evidence and hesitation, accused of being an ‘agent’ and a ‘traitor’. Because of this mind - set, many thinking people prefer to remain quiet.
CPEC and Pakistan
Anyone, whoever tells them that CPEC can prove to be a disaster for Pakistan, is perceived as ‘enemy’ or ‘agent’ of India or some other country. Despite these illogical allegations and propaganda against me, I have always cautioned Pakistan and pointed out what mistakes they are making.
The CPEC, in my opinion, will prove to be a disaster for Pakistan. I even dare say that it can be an economic trap for Pakistan, which can be a serious threat to sovereignty of Pakistan.
Any mega project requires a lot of planning. A number of feasibility reports are carried out. Its funding is allocated. Possible risks are considered and appropriate strategies are put in place. Its economic, political, social, cultural and environmental impacts are considered and analysed with help of experts in those fields. Contingency plans are worked out in case things don’t go as planned.
The CPEC is not one mega project. It is an amalgamation of many mega projects; and each project requires a separate planning and feasibility. Unfortunately, the Pakistani government under pressure of China, and because of domestic political and economic compulsions overlooked many important aspects of these projects and jumped in to this quagmire, which appears to be very attractive.
No one cared to carry out any comprehensive research as to how each project will affect Pakistani economy, politics, relationship with provinces, its export, its culture, environment, balance of payments; Pakistan’s ability to manage such mega projects and ability to pay pack loans with interest.
Since the CPEC is international in nature with ramifications for the region, the Arabian Sea and the Indian Ocean, a detailed policy and strategy must have been worked out to deal with implications of this.
One Pakistani commentator said with the urgency both sides have concluded everything, and signed the treaties indicate that welfare of people and Pakistan was not their top priority. Beijing has its own covert and overt plans, some of which, Islamabad, at present, may not like to comprehend, as they are mesmerised with the flow of dollars and economic and political gains. In any case, they perhaps thought, by time covert plans or negative impact of the CPEC becomes evident they won’t be there; and future leaders can pick up the pieces.
This is not to suggest that there are no benefits for Pakistan at all. Of course, Pakistan will get billions of worth of infrastructure, energy projects, railway lines, dams etc, but will all that help to boost the Pakistan economy?
A question is worth asking, will that help to equip Pakistani labour with the skills necessary to operate and manage these projects, knowing well what they have done with projects like Steel Mill? Furthermore, will that empower downtrodden people and women? Above all, has Pakistan the capacity to pay back these loans with high interests?
Above all, will these projects protect and enhance security and sovereignty of Pakistan; or they will endanger them? Some economic and strategic experts believe that these projects will prove to be disastrous to the Pakistani economy and can endanger security and sovereignty of Pakistan.
The CPEC has around 21 projects, more could be added to the list as they go along; and some of them are specifically designed to cater to produce electricity that factories don’t close down because of lack of energy and industrialists move away from Pakistan as many did before 2013. It is estimated that around 17,000MW of electricity will be added to Pakistan’s national grid before 2030, when the CPEC should be completed and starts producing, as planned.
It is claimed that so far, the CPEC has provided employment to around 60,000 people. It is not revealed if these jobs are temporary or permanent. If for example, the Metro project of Rawalpindi provided employment to 1000 people when it was being constructed. One can boast that the Metro provided 1000 jobs. The question is, after the completion of the project how many people are still employed, now that it requires maintenance and running of the Metro.
Same will be the situation with all the infrastructure projects, for example, roads, tunnels, bridges, railway lines, dams, etc, once they are completed there will be no need for that kind of labour anymore. Pakistan would need highly skilled for management, and appropriate maintenance of these projects. It is debateable if Pakistan has people with transferable skills and top class managerial and administrative skills to run these mega projects; or they will be asking the Chinese to do that.
We can take this claim on its face value that China - Pakistan friendship is ‘deeper than sea and sweeter than honey’. Chinese government and their businessmen are very shrewd and harsh when it comes to financial matters and protecting their national interests. Sadly, I cannot say the same for the Pakistani rulers and their businessmen, who have poor record of good governance and patriotism. They also lack experience and know - how in many areas.
The Chinese have brutal experience to attain their set targets, and make other businessmen and countries, especially Third World countries their economic and financial ‘slaves’ by providing them large loans and by providing them with economic, political and military help. With time, these countries and businessmen find themselves fully trapped in the Chinese financial and military aid web; and become dependent on support of Beijing in nearly all walks of life.
It is unfortunate that the Pakistani rulers don’t mind accepting role of a dependent state. They also have a great experience of living as a junior partner and playing a subservient role; even acting as a ‘proxy’ of the powerful and influential countries.
Generally, imperialist powers do not pronounce that they are coming to enslave your country and exploit your resources. They camouflage their intentions. East India Company did not announce that they were there to colonise India. They went there with intention of trade and seek some concessions from the Mughal Emperor. With time, they identified vulnerabilities of the Mughal Empire and saw an opportunity to control parts of India.
New policy of imperialists is not to invade countries, but to make them dependent and exploit their vulnerabilities. They gradually take control of important areas of economy in the host country. Over the years, the Chinese have excelled in this field, and their influence and power has increased immensely. With time the local businessmen find themselves unable to compete with the Chinese good; and start closing down, or start selling the Chinese goods.
Experience of the Pakistani rulers and the establishment, on the other hand, is in plundering resources of their own country and depositing or investing abroad. Ironically, they invest their money abroad; and spend huge resources to hold international conferences to convince the world to invest in Pakistan.
CPEC is not a gift from China
The Chinese rulers have a great vision and huge plans to assert Beijing’s power and influence across the globe, especially in Asia and Africa. Their mega plan, Belt and Road Initiative (BRI) will connect more than 60 countries and estimated cost of that is $900 billion dollars. The cost could go much higher than that, as costs do increase with time. If all goes well, China will control or influence trade and finance of many countries. More than 60% of the world population and 35% of the global trade could be influenced by the BRI.
The CPEC has to be seen in this broader context. Pakistan, in its entire life, has not managed a mega project of this magnitude, and which has many dimensions, and which requires highly specialised skills in various fields. No doubt, it is also important to China as well. However, for China it is just another project, which started with 46 billion US dollars, and now has reached 62 billion dollars.
The CPEC is an important link in the BRI; and will reduce around 10,000 miles shipping by sea. The Pakistani port of Gwadar will help to transport goods to many countries, including countries of Africa and Europe.
Many Pakistanis and their supporters in Jammu and Kashmir erroneously think that the CPEC is like a gift from China to help Pakistan to get out of economic mess. It is far from truth. The CPEC is planned in such a way that it will help China to fulfil its Asian dream of becoming a great economic, political and military power.
Pakistan, because of their occupation of Gilgit Baltistan, has become a neighbour of China. Gilgit Baltistan is a gateway to Pakistan, and the Chinese can use Pakistan’s geographical position to advance their agenda. In other words, for China, Pakistan is a stepping stone to move forward.
Dr Jia Yu, a Professor at the Institute of New Structural Economics (INSE), at Peking University said, ‘CPEC is not a gift’; and that ‘Pakistan should not take CPEC for granted… Both public and private sectors must take ownership of the opportunities.’ 1
The CPEC projects will improve opportunities for investors. They can invest in various projects and benefit from this mega project. The CPEC will help to connect towns, cities, ports and countries, and that will provide great opportunity to ambitious business people, provided Pakistan can persuade them that Islamabad will provide security and conducive environment for the growth of trade and business.
If the confidence of local, and especially foreign investors restored, the it is more than likely that they can invest in the following sectors: power, construction, financial services, and communication. There could also be other sectors which can attract potential investors, important thing is to provide appropriate conditions and win their confidence.
Pakistan has to provide security and assurance to the business community that they and their investment will be safe in Pakistan. For this purpose, Pakistan has to abandon their past work ethics and provide high standard of service to potential investors. Maybe they need to visit China and other countries; and sponsor economic and cultural ties that people to people ties are strengthened and private sector can take ownership of these projects, as suggested by Dr Jia Yu.
Many people expected that the foreign investors will rush to Pakistan to invest in various projects. That has not happened, and there are a number of reasons for this. Pakistan seriously needs to build a new image of the country. The existing image cannot, and will not promote confidence of the foreign investors because of the prevailing system of Pakistan and what is happening there.
Some Pakistani experts are cautious of too much reliance on the Chinese loans, and their strategic and economic ambitions and how that might affect Pakistan’s future. They somehow, believe that investors from other countries could be persuaded to invest in the CPEC related projects; and that can ‘mitigate risk’ of the Chinese influence and control. They are of the opinion that partnership of non - Chinese investors can reduce China’s ‘overwhelming economic and political leverage and mitigate security concerns in sensitive projects’. 2
There are some hard and bitter realities which are discouraging foreign businessmen to invest in Pakistan, especially in the CPEC related projects. Apart from the security and political reasons, potential investors are apprehensive about legal and bureaucratic hurdles; and above all lack of transparency and economic viability of some projects.
It must be noted that Japan has pooled around 200 billion US dollars for the region’s infrastructure related projects. However, unlike many CPEC projects, where transparency and economic sustainability is not an issue, the Japanese strongly emphasis on transparency and economic viability of all the projects.
Apart from many Pakistani and some international experts, the IMF is also apprehensive about the CPEC related projects; and seriously doubts Pakistan’s ability to pay back the CPEC loans on top of other financial commitments. It is widely believed that Pakistan will, once again, knock at the door of IMF for a bailout package. It is believed that with the new IMF package may come with some restrictions on the CPEC projects.
The State Bank of Pakistan reported in November 2017, that Pakistan had net Foreign Direct Investment of $207 million. Lion’s share of this FDI came from China, which is $206 million. 3
It is clear that businessmen of other countries are still reluctant to come forward, and risk their money and their lives. Even the Chinese investors are not very enthusiastic; and they have strong reasons for this. It is because of that the learned Professor said, don’t take CPEC as a ‘gift’; and urged Pakistan to take initiative that Private sector can step in to take ‘ownership of the opportunities’.
The Professor visualise establishment of China towns in Pakistan and settlement of the Chinese people in Pakistan if appropriate assurances and facilities are given to those who have already invested here. In her view, this will encourage other Chinese to come to Pakistan and invest.
Wishful Pakistani thinking is that China is benevolent and caring country which loves Pakistan and people of Pakistan. They think unlike America; they can trust China which aims to help Pakistan militarily and economically; and in case of crises and a war with India or American China will rush to their rescue.
The longer the Pakistani elite lives with this illusion, the deeper they will get in to crises. No one burn his hands to save another person; and no country risks its future to safeguard another country, especially when the elite of that country is least concerned about future of that country. The Chinese have not descended from the Heaven to make Pakistan strong and robust to face challenges of the 21st Century without any pain and hard work.
China certainly has enormous economic reserves which they want to utilise to make China great; and in doing so, they will need vulnerable economies which will consume the Chinese goods and help China to expand.
China will spend 62 billion dollars and get 90 billion dollars back before 2030; and the CPEC will strengthen the Chinese hold in Pakistan. It will help China to transport its goods to various markets in the world. In case of crises in South China Sea, the CPEC will provide alternative route. Not only that, long lease of Gwadar port for 90 years is also a serious cause of concern to many.
The Gwadar town or village will become a modern city like Dubai if all goes well. Currently the town has serious drinkable watershortage, but with the Chinese money and workforce all problems could be resolved. Announcement of one Chinese company to build modern housing societies for ‘some 500,000 Chinese workers in Gwadar by 2022’, is a serious cause of concern to the thinking people. 4
Who are these Chinese workers – 500,000 of the, and what are they going to do in Gwadar? Won’t that create many social, cultural, political and security problems? Do these ‘workers’ have a military background or they will be doing some other work, but what work, especially when Gwadar is transformed as planned?
Think it this way. Once the Gwadar is ready, the plan is to make it like Dubai or Sharam El Sheikh of South Asia where tourists can come and enjoy themselves. What impact will all this have on conservative, volatile and intolerant society of Pakistan? According to the plan, as announced last year, and published in Dawn, people from China and Middle East will be issued visas on arrival; but people of Pakistan will have to apply for visas as they do now.
It must be pointed out that Sri Lanka also borrowed a large amount of money to build infrastructure, which proved to be economically untenable. Failure to pay debts resulted in china taking over Hambantota port; and Sri Lanka has not only lost parts of its sovereignty, but also a large part of their revenue goes in debt repayment.
Pakistan’s neighbours, foes and some friends are concerned about rumours that China was constructing a naval base in Gwadar. After the US raid against Osama bin Laden in Abbottabad, the ‘Pakistan Defence Minister Ahmad Mukhtar publicly announced that China would build a naval base in Gwadar (which Beijing promptly denied)’. 5
One view is that Ahmed Mukhtar said this in anger and to frighten other countries that China is there to help and protect Pakistan; and that will dissuade India and America to take any military action against Pakistan. Pakistan and China, for obvious reasons, deny these rumours and insist that the CPEC and Gwadar are business projects.
Some analysts suggest that China may have one naval base in Gwadar, and the second one in a small coastal village of Jiwani, about 60 Kilometres away from Gwadar. This was reported in Washington Times, and confirmed by other sources. If this is true, then this many bring a disaster to Pakistan rather than economic revolution. 6
Pakistani economy and the CPEC
The CPEC related projects with a lot of publicity and some criticism have completed first five years. Although first phase of the CPEC projects should all be completed by 2020, but by and large, many projects have been completed, which include some energy projects as well.
In the next phase, there will be more emphasis on Special Economic Zones. This is a complicated matter which requires agreement and support of the provinces. Locations of these SEZs in absolutely crucial. There could be considerable controversy among the Provinces over locations of these SEZs because of potential benefits.
Before a location is finalised for Special Economic Zone, the concerned authorities have to take a number of factors in to consideration. For example, security of the SEZ, other risks, access to roads and energy, transparency, corruption and rule of law etc. Also, the authorities must ensure that these Special Economic Zones are for all the investors from other countries; and they all have equal opportunities and fair treatment.
The CPEC was designed to be completed in three phases. The first stage should complete by 2020. The first phase of the CPEC is supposed to remove all major hindrances to Pakistan’s social and economic development, which means increased economic growth, and more confidence in economic system of Pakistan. Of course, with that should come improvement in exports, reduction in imports, stable currency; and better international economic rating.
The CPEC has brought money and provided more energy to Pakistan’s National grid. I am interested to evaluate how extra flow of money; more energy and better infrastructure has helped economy of Pakistan.
One Pakistani economist and analyst, Mr Salem Farrukh, in his article titled ‘The IMF’ wrote on 15 June 2018:
‘Pakistan’s economy is in the intensive care unit as we continue to focus on Imran Khan’s yatra and Reham Khan’s apparitions. Our current account deficit is projected to be $17 billion. Add that to around $8 billion in debt repayments and the financing gap (in plain English: the dollars that we need to borrow) stands at a tall $25 billion. 7
If the economy is in ‘intensive care’, and people who matter are busy playing politics and fooling their own people, how will that equip the country with skills and enable them to meet the challenges they face. When a patient is in the intensive care, unreserved expert care and treatment is required; otherwise the patient could collapse.
The learned writer asks who will provide these 25 billion dollars? Of course, in order to save the CPEC and support Belt and Road Initiative, China can provide more funds. But important question is for how long they will continue to provide funds?
The IMF will be more than happy to extend helping hand to Pakistan, but that won’t come without some restrictions. The IMF has provided a 50-billion-dollar rescue package to Argentine on 7 June 2018. Once IMF steps in, they control a number of key economic policies, as pointed out by Alan Reynolds, an expert with a think tank called the ‘Independent Institute’:
“over the past two decades, the IMF has promised cheap loans to foreign governments in order to bribe them into pursuing suicidal economic policies designed by IMF technocrats, rather than by their own elected representatives”. 8
What this suggests is that IMF rescue package is no guarantee that the country will be out of economic problems, and will be on a road to recovery. There a number of vulnerable countries where the IMF did not resolve the economic problems; and countries were burdened with extra loans and domestic problems. In other words, there are not many success stories attributed to the IMF bailout packages.
The IMF also functions like a business enterprise. They have to make profits to pay their staff and give out loans. They have to attract clients to borrow money from them. Losing clients is equal to losing business, which will result in losing staff and perks. For this purpose, they have to attract clients and sell economic packages to client countries – a loan on low interest rate generally attracts clients.
Pakistan is South Asia’s second largest economy, which has sixth largest population, sixth largest army, and is equipped with nuclear weapons. However, in economic terms, the country is not doing so well. Since the 1980s, Pakistan has received 12 IMF bailouts. The last bailout ended in September 2016.
Saleem Farrukh thinks, a new economic package from the IMF will result in:
‘currency devaluation; increases in the electricity tariff; increases in gas tariffs, and increasing the tax burden’.
Will devaluation help Pakistani economy? Will increment in electricity, gas and tax make people of Pakistan happy; or that will create social and economic unrest? It must be pointed out that Pakistan’s gas and electricity tariff is already highest in the region. Any increase will make people extremely unhappy and resentful.
Mohammad Ahmed Shamsi, Chairman Traders Association said China has 90% share of Pakistan’s toys market; and this monopoly like situation has resulted in closing down of local industry. ‘Toys worth Rs500-600 million arrive in Karachi alone every year from China’, he said. 9
Apart from that, Chinese products dominate various sectors in Pakistan. In artificial jewellery, India and Hong Kong are strong. However, countries like Vietnam, Indonesia, Malaysia and Thailand are competing with the Chinese in children’s readymade garments. In this sector, China perhaps has up to 30% market share. It is believed that after the completion of the CPEC Chinese share of the market will increase immensely.
Another worrying aspect is availability of Chinese confectionery items in abundance, items like chocolates and toffees etc; fear is that some of these imports are non-halal products.
Data provided by Pakistan Bureau of Statistics (PBS) reveal that ‘exports from Pakistan stood only $1.365bn in 2016-17 as against imports of $7.850bn in 2016-17 from China’. One can see the balance of trade is strongly in favour of China; and the latest figures confirm this bitter fact. Goods from China ‘rose to $9.322 billion in July-April 2017-18 while exports from Pakistan remained dismal at $1.444bn’. 10
The latest economic data also reveal that Pakistani exports have declined; and there has been a sharp rise in imports. Furthermore, Pakistani reserves have fell sharply and Pakistan had to seek more financial help from China and Saudi Arabia.
Furthermore, there is a serious problem with balance of payments. It is claimed that due to fall of Pakistani currency and other factors, Pakistan is far behind schedule in its international debt obligations. The State Bank of Pakistan statement says:
The market – based adjustments is reflective of the country’s external balance of payments position which is under pressure due to a large trade deficit’. 11
Asia Times, in its publication of 18 June 2018 says
‘The government needs to improve its debt management and extend its maturity structure. And it’s time to make sure that the projects being invested in start giving returns.” 12
The learned writer agrees with other economic experts that Pakistan has to knock door of the IMF. I predicted this last year, in May 2017, that the Muslim League N government will not go to the IMF because of political reasons; and they will let the caretaker government to take the initiative and negotiate with the IMF.
It must be pointed out that Pakistan achieved 5.79% growth rate, which is highest in 13 years. Some sectors also have shown progress. However, critics say it was partly due to low oil prices; and the completion of IMF bailout programme of 6.6 US billion dollars that ended in September 2016.
Scale of the problem can be seen from this fact that Pakistan’s foreign debt liabilities have increased to 92 billion US dollars; and that is 76% increase since 2013. This debt liability is likely to increase because of a sharp fall of the Rupee against dollar. Pakistan has to pay $8.5 billion in the foreign debt repayments before the end June 2018.
A Pakistani economist, Yousaf Nazar, and author and author of ‘The Gathering Storm: Pakistan’, said:
“We have rising debt servicing and faltering growth – the short-term solution is the IMF, it’s probably a matter of months.” 13
All this confirms that despite influx of dollars and building of most of the infrastructure and energy projects associated with the first phase of the CPEC, the Pakistani economy is still in a mess. Hitherto there is no evidence of any outside interference to halt the progress of the CPEC projects. In other words, no one can accuse that because of some outside interference the government could not stabilise economy, and make progress in certain fields.
However, the situation can change and groups who are against the CPEC can organise themselves and target the CPEC routes either in Turkistan, Gilgit Baltistan or in some parts of KPK or Balochistan. It must be pointed out that in areas of KPK, FATA, Balochistan and to some extent in Azad Kashmir and Gilgit Baltistan, anger and resentment against Pakistan army and secret agencies has radically increased over the years, mainly because of heavy-handed approach and massive human rights violations.
The Pakistani elite need to fear this frightening scenario, when there will be a growing Political instability in Pakistan, coupled with angry groups resorting to violence in order to derail the progress of the CPEC, because some Baloch nationalist groups believe the CPEC is designed to crush their movement and plunder the resources of Balochistan. I hope my apprehensions are wrong; but anything can happen in that charged and volatile region.
In the next five months about $3 billion will need to be paid to creditors including the IMF, World Bank, Paris Club and China and the nation may try to reschedule some of those, said Vaqar Ahmed, the deputy executive director of the Sustainable Development Policy Institute in Islamabad.
He further says, our society, culture and economy still has not come out of psychological, social and cultural influence of the British; and because of the CPEC, we are now faced with another economic, social and cultural challenge.
It looks Pakistan is slowly, but surely going under the influence of the Chinese domination. A time will come when most valuable sectors of the Pakistani economy will be under direct or indirect control of China. Similarly, due to control over IT sector, internet and electronic media, Chinese culture will greatly influence the existing Pakistani culture and Islamic values.
The government and all those who are benefitting from the CPEC can sing laurels that it is a game changer for Pakistan, in view of the above, it is a game changer, but not in favour of Pakistan.
How can the CPEC bring economic stability and empower ordinary people when the local industry is fast closing down; and people are becoming unemployed. How can the CPEC is a game changer in favour of Pakistan when Pakistani exports are declining, and there is a sharp increase in imports. Foreign debts are increasing, and Pakistan is having difficulty in paying instalments of the existing loans which does not include the CPEC loans.
In order to strengthen economy, the Pakistani government must protect interests of the local industries. The foreign companies, especially the Chinese have tendency to bring in labour from China; and only hire local labour for menial work. So, the government has to ensure that investors must provide employment to the local people.
If political and economic instability prevails; and angry groups resorts to violence, then China will not remain a spectator. It is believed they have their commandoes, intelligence agencies operating inside Pakistan, they will do what is necessary to protect the Chinese interests. Already China and Pakistan are sharing intelligence information; and it is also possible that Pakistan may seek the Chinese assistance to control the deteriorating situation.
If the above scenario emerges, will other regional and international players remain quiet? In view of economic collapse of Pakistan, what will China do? Can Pakistan be forced to denuclearise in exchange of economic help and territorial integrity?
4. Will Pakistan’s Belt and Toad Dream turn into a nightmare? By David Brewster. https://www.maritime-executive.com/editorials/will-pakistan-s-belt-and-road-dream-turn-into-a-nightmare#gs.f7cV4b8
7. The IMF, Saleem Farrukh, https://www.thenews.com.pk/print/329821-the-imf