- 2018-10-29
Changes in Pakistan under the "China-Pakistan Economic Corridor"
A passionate slogan was hung in the lobby of the Pearl Continental Hotel in Lahore: "Long live the Pakistan-China friendship." This is to promote a meeting to promote the China-Pakistan Economic Corridor (China-Pakistan Economic Corridor) plan. The banner also read: "Our friendship is higher than Mount Everest, deeper than the deepest sea in the world, and sweeter than honey."
This kind of high, deep and sweet friendship is also very valuable. The "China-Pakistan Economic Corridor" project will connect western China and the Arabian Sea through Pakistan, and is the cornerstone of the ambitious "Belt and Road" plan. The "Belt and Road" initiative involves 65 countries and aims to build a modern "Silk Road", connecting the world's second largest economy with Central Asia, Europe and Africa.
"One Belt One Road" is a project that Chinese President Xi Jinping attaches special importance to. When he recently met with heads of state to discuss relevant developments, he described this infrastructure-driven project as the "Project of the Century." On the surface, Pakistan will be one of the biggest beneficiaries of Xi Jinping’s ambitions. Probably no country will benefit so much. The current GDP growth rate of Pakistan is close to 5%, but it is not enough to absorb the two to three million people entering the job market every year.
“For a long time, Pakistan has not been part of the world,” said Pakistan’s Minister of Commerce Khurram Dastgir Khan. “We are in a dark bubble, and now we are just emerging. Some people worry that China will sell us cheap goods because we cannot compete. (But) China is the only choice."
This concern actually acknowledges Pakistan’s economic difficulties, whether it is compared with neighboring India or countries such as Bangladesh, which now has a huge manufacturing base.
Beijing will invest more than 55 billion U.S. dollars in Pakistan to build power plants, roads and railways, so that Pakistan, which seeks to escape years of political turmoil, can achieve much-needed infrastructure upgrades. According to estimates by the Pakistan Business Council, these projects may account for 20% of the country’s GDP in the next five years and may increase economic growth by about 3 percentage points.
However, Pakistan’s policymakers also hope that China-Pakistan relations — Beijing’s provision of more than US$1 billion in loans in April to help Pakistan avoid a currency crisis — will eliminate the possibility that China may use its power in Pakistan. Invest to plunder resources, profits and political influence from this smaller and poorer neighboring country.
Nearly two-thirds of Pakistan’s trade deficit of more than US$20 billion came from trade with China; from 2012 to 2015, China’s exports to Pakistan increased by 77%, from US$9.3 billion to US$16.5 billion. This situation has caused some people to question China's approach.
A business leader in Karachi said: "This project has a scary side." Karachi is Pakistan's largest city and commercial center. No one wants to speak ill of the "China-Pakistan Economic Corridor" publicly, worrying that this will alienate the Chinese and Pakistani governments from each other, and both sides have invested huge political capital to make the plan a reality. He added: "We are a big country next to us, and for them, we are just the size of a province."
China's priorities
The original Chinese proposal for the "China-Pakistan Economic Corridor" agreement recently disclosed by Pakistan's "Dawn" has intensified concerns. The terms of the agreement prioritize the industrial ambitions of the Xinjiang Production and Construction Corps, a paramilitary organization that is vital to China’s oil and security policies and dominates the agricultural economy in the border province of Xinjiang.
The head of a large Pakistani investment company compared the Xinjiang Production and Construction Corps with the trading company that paved the way for British colonial rule in India. He said: “If we don’t want the history of the East India Company to repeat itself, we must Be careful. If we mess up, then that history will repeat itself."
China hopes to complete four main tasks through the China-Pakistan Economic Corridor: expansion of Gwadar Port, which is financed, constructed and owned by China, on the southern coast of Pakistan; construction of a wholesale power plant; construction of road and railway networks; establishment of enterprises can enjoy tax incentives and Special economic zones for other business incentives.
In terms of infrastructure, Beijing is doing things for Pakistan that Islamabad is unable to do, especially in the power sector. Pakistan’s peak power demand is 6 billion watts higher than its power generation capacity, which is roughly equivalent to the power generation of 12 medium-sized coal-fired power plants. Many parts of Pakistan suffer from power outages for several hours a day.
To make up for this power gap, China is expected to invest more than 35 billion U.S. dollars-about two-thirds of the total budget of the China-Pakistan Economic Corridor-to build or assist in the construction of 21 power plants. These power plants will mainly rely on coal for power generation. After completion, they will have a total installed capacity of 16 billion watts, more than enough to make up for the power gap. Construction projects related to the China-Pakistan Economic Corridor have boosted Pakistan's heavy industry.
Arif Habib, one of Pakistan’s largest conglomerates, said that considering the prospects of the China-Pakistan Economic Corridor, the group is doubling its cement production capacity. "China will expand this (economic) pie," said Ahsan Iqbal, Pakistan's Minister of Planning and Development. "This project will create new (domestic) demand."
"China cannot fail the China-Pakistan Economic Corridor"
Another attraction to Pakistan is that China can provide security. In a country that has been plagued by terrorist attacks for many years, Beijing wants to ensure that its investments are protected. Not long ago, at least 10 local contractors working near Gwadar Port were killed by unidentified gunmen.
It is not yet clear in what form this security assistance will be provided. China is selling defense equipment worth billions of dollars to Pakistan and has delivered two warships to the Pakistan Navy to help protect Gwadar Port. But the ministers denied reports that Chinese troops are also stationed in Pakistan.
"The China-Pakistan Economic Corridor has security considerations," said Mushtaq Khan, chief economist of Bank Alfalah and former chief economic adviser of the Central Bank of Pakistan. Yes. China cannot fail the China-Pakistan Economic Corridor."
Although China will bring many benefits-including capital, expertise and human resources, many people have expressed concern about the terms of the agreement and whether they will weaken Pakistan's industry and even sovereignty. Local and international bankers said that the procurement and bidding procedures surrounding the China-Pakistan Economic Corridor are extremely beneficial to China. Chinese companies win Chinese contracts to build Pakistan’s infrastructure and provide financing. These agreements are usually guaranteed by Islamabad. "The risk is that if things go on like this, China will be able to give orders, and we will pay the price in the future," said Syed Murad Ali Shah, the chief minister of Sindh, where Karachi is located. The outcome will depend on us."
The text of the plan disclosed by the “Dawn” and written by the Chinese side and transferred to Pakistan in December 2015 only aggravated the above-mentioned concerns. The plan mentions leasing thousands of acres of farmland to Chinese companies to develop seed and irrigation technology. Cities from Peshawar to Karachi will install a full set of monitoring and surveillance systems, and conduct 24-hour video surveillance of roads. In addition, a nationwide project will be built. The optical fiber cable network expands Internet access.
The key to this plan is the Xinjiang Production and Construction Corps. According to the plan, this Han Chinese-led economic and paramilitary organization will be responsible for investing in Pakistan as a springboard for economic development around Kashgar. Kashgar is located in the hinterland of the 11 million Turkic-speaking Uighur Muslims.
Islamabad’s ministers said that the document contained proposals originally drafted by Beijing, but they would not disclose how different the draft agreement currently under negotiation is from the document. Critics say that Pakistan is likely to repeat the same mistakes it made in the 2006 Free Trade Agreement with China, which contains provisions that are detrimental to Islamabad. Opposition politicians criticized the government for making too many concessions to China.
In neighbouring India, the voice of criticism is even stronger. India is very worried about China's ambitions in Pakistan and refuses to participate in the recent "Belt and Road" summit convened by Xi Jinping in Beijing. The Indian right-wing magazine Swarajya stated that leaked documents indicate that China plans to “reduce Pakistan into a vassal state”. India is worried about China's entry into parts of Kashmir, and it is also worried about China's possible deployment of naval forces in Gwadar Port. India regards the Kashmir region as its own territory.
In order to appease neighboring countries, Pakistani Prime Minister Nawaz Sharif said at the “One Belt One Road” summit: “Let me be clear, the China-Pakistan Economic Corridor is an economic project open to all countries in the region. There are no geographical boundaries. It should not be politicized."
Given the scale of the plan and China's soft power, these disputes are unlikely to subside. According to the Overseas Investors Chamber of Commerce and Industry in Pakistan, the “China-Pakistan Economic Corridor” power project will provide investors with an average return on equity of about 20%. Pakistan’s ministers acknowledged that the rate of return may seem high, but they point out that they guarantee that the electricity price paid to generators is lower than the current level and that others are unwilling to finance these plans.
"We want to invest in electricity, but no one will come," said Iqbal, Pakistan's Minister of Planning and Development. "The Chinese have discovered an opportunity."