CPEC Myths and Realities

In Pakistan a lot is being said and talked about China Pakistan Economic Corridor (CPEC). While some analysts term it a mega initiative by Pakistan’s ‘time tested friend’, cynics label it ‘another East India Company in Making”. Another group says, “British Raj undertook many mega developmental project in Indian subcontinent but most of these were aimed at taking the raw materials from one of its bountiful colony to the home town and sell its finished products to one of the huge markets enjoying substantial purchasing power, as against this CPEC is aimed at ushering prosperity in the rural areas of Pakistan”.

China has one of the largest population and industrial base. The country is deficient in indigenous production of energy products. To keep the factories running it has to import huge quantities of crude oil and finished products. Bulk of these products comes from Middle East and North Africa (MENA). Carrying these through ships takes long time and the cost is also high. Presence of navies of various super powers, particularly the US Navy, poses serious security risks for the ship carrying oil to China. Therefore, another route has to be constructed that is short, efficient and cost effective. Taking goods from Gwadar to Kashgar though Pakistan does not pose serious problems because most of the road and rail network is already in place, which can be further improvised at a faster pace and with lesser expenditures.

China, the fast growing economic power has embarked upon ‘One Road, One Belt’ program, which consists of economic belt and maritime road. A closer look at the illustration hardly shows any road or railway track passing through Pakistan. This implies that Pakistan is not the sole beneficiary of this grand plan but will reap the benefits to the extent it is able to use the corridor. At the best it will collect transit fee and the roads may make any contribution in boosting Pakistan’s GDP. The experts having futuristic vision say that adding to power generation and developing robust infrastructure can help in containing electricity outages and post-harvest losses, which means additional contribution to country’s GDP. However, reaping benefits will totally depend on conceiving right policies and their implementation in letter and spirit. The overwhelming perception is that the Government of Pakistan has not come up with any ‘home grown plan’ to fully exploit the true potential of CPEC.  

It is being said that CPEC envisages investment ranging from US$46 billion to US$72 billion. However, only scanty details are available about the projects and component of equity and debt. The overwhelming perception is that bulk of the money will come as debt and Pakistan may face serious debt serving constraints. Drawing substantial and sustainable income from infrastructure projects is a long drawn process. Sri Lanka already faces such a problem. Therefore, local policy planners have to take swift remedial steps to avoid a similar situation. It may be true that CPEC may yield enormous benefits for Pakistan, but it is more important to take into account any potential fallout and come up with ‘Disaster Recovery Plan’.

One of the basic lessons taught in management sciences is having a recovery plan in case the original plan fails. This is unavoidable because Pakistan faces internal and external treats. Even after seventy years of independence Pakistan is surviving on aid, grants, and loans and on the crutches of multilateral donors, particularly International Monetary Fund (IMF).

The primary obstacle to the CPEC’s full implementation is security. To address Chinese concerns and ensure the safety of these projects, Pakistan has created a dedicated CPEC force, but even a force of that size may not prove substantial. Many of the constituent projects are being constructed in the areas having sanctuaries of terrorist and anti-state groups. Attacks on the work force or Chinese engineers could delay or derail the CPEC.

A decades-long insurgency simmers in Baluchistan, where a number of important CPEC projects are underway. The CPEC also faces domestic political opposition in Pakistan, with infighting between provinces and the central government over the allocation of investments. The lack of transparency surrounding the negotiated deals has heightened concerns and skepticism that only a select few, if any in Pakistan, will benefit from the investments. In case Pakistan is unable to provide sufficient security or address the concerns of domestic opponents, projects will have trouble getting off the ground and will fail to prompt follow-on investments or deliver commercial success.

On the external front, CPEC face threats from the United States, India and Afghanistan. Indian Prime Minister has already lodged protest with China. Washington is likely to join hands with India, having concerns about the CPEC, as it represents the leading edge of China’s expanding access to, and likely influence within Eurasia. Any direct intervention by the US or India could be costly, unwinnable and almost certainly counterproductive to other US goals in Pakistan and the region.

This article was originally published in Pakistan & Gulf Economist