Is China going to colonise Pakistan through CPEC?

Go not the way of the fear-monger

“While dealing with China there are certainly fears of implicit neo colonialism but I think if we make a better deal with China with equal gains for us, then it can certainly be a win-win situation for both countries.”

The (unofficial) long term CPEC plan published in Dawn has stirred up a hornet’s nest in the Social Media and among intelligentsia of Pakistan. Federal Minister for Planning and Development, Mr Ehsan Iqbal, even dubbed it “Dawn Leaks 2”. Mr Shahbaz Sharif, in one of his speeches this week, claimed that “Unlike USA, China does not want any military bases, it only wants development and investment”. Foreign media, esp. from the eastern border is reporting this Long term plan as if China is going to colonise Pakistan economically. Even many in Pakistan are raising doubts and fears about the actual plan of CPEC other than just being a trade route. So this raises an important question; is China really going to colonise Pakistan through CPEC and what are its actual intentions?

To answer these questions, we first need to understand the CPEC and at a larger scale, OBOR objectives and why China wants to invest in Pakistan. CPEC is a crucial part of OBOR (One belt one road initiative) which is an attempt to connect Russia, Central Asia, South Asia, Eastern Africa and Far East Asia with one maritime and multiple land routes to increase trade and investment with these countries; making Chinese companies being the main locus of investment. China wants to develop CPEC because of three reasons. First, China needs to satisfy its increasing appetite for energy to fuel its ever increasing growth. The oil, or other energy imports from MENA region (Middle East and North Africa) prove to be very expensive to import though the sea route. Also, the South China Sea, the main transportation route for fulfilling its energy needs is a much contested area and in case of a war, it can be blocked easily by enemies’ maritime vessels. It wants a safe route through which it can easily import its energy products. Second, it wants to develop its volatile Western region which has only 4 % of population but a vast area of 1,650,000 square kilometre and wants to make it another production hub for land exports to Central Asia, Eastern Europe and Russia. Third, it wants to build Gawadar as a military base in case of any war to block the energy supplies from Middle East passing by from the Strait of Hormuz near Gawadar, as that is the only way to ship the oil supplies out of the gulf region.

China wants to invest in Pakistan because an economically stable Pakistan could also mean to ensure its own security as well. Secondly by investing in Pakistan, it wants to link it with its Xinjiang economic zone for exporting its products to Central Asia, Russia and Eastern European region. Thirdly it sees Pakistan as a potential market with growth opportunities for both Chinese companies and Pakistan. Now here comes the debate of making Pakistan its economic colony. Colonialism is basically to establish political control in a country through military force to exploit its natural resources such as oil, gas, iron, copper etc. and transfer the raw products from that country to the master country for producing finished products at cheap rates and then exporting them to the whole world including the colonised country. Neo colonialism is about doing the same without establishing an explicit political control of that country and by using covert or overt means to tilt the country’s political leadership in your favour.

While dealing with China there are certainly fears of implicit neo colonialism but I think if we make a better deal with China with equal gains for us, then it can certainly be a win-win situation for both countries. For that we need to focus on those aspects which can make FDI by China more fruitful, help us to create new local businesses and expand existing ones, and ultimately lead us towards manufacturing improved finished products instead of just exporting raw products to China.

The first aspect to consider in FDI by China is to create backward linkages which means to convince the investor country or multinationals to source all the raw materials for making their end product locally as this creates a huge demand within the local industry, helps flourish many SME’s and gives the economy a big impetus. This was the secret how India, China and other Asian Tigers were able to capitalise on foreign direct investments. The single biggest mistake we have done in the past is allowing foreign multinationals to source their raw products from abroad. Even McDonald’s in Pakistan still sources their drinking cup and meat from abroad which is a big irony. If Chinese companies are investing in any sector, we should ask them to source the raw materials locally.

Second aspect is to include the term of technology transfer by Chinese companies to Pakistan in the respective fields. Chinese companies are now technologically advanced and the transfer of technologies by them can create a technological revolution in Pakistan in the long run. The long term plan says that Chinese companies will invest heavily in agriculture. There’s nothing bad in it if they will transfer us advanced agricultural technologies after a certain period of time. And other than that, help us in developing local hybrid varieties of seeds which improve yield per hectare of all our important crops. The yield for rice in China was 6709kg/hectare and in Pakistan it was 2479kg/hectare in 2016. In stark contrast, the rice yield per hectare for Indian Punjab was 6000kg/hectare.

Third aspect is to create university and research linkages by opening campuses of important Chinese universities in Pakistan. Some of the Chinese universities are ranked best in Asia and if they open their campuses in Pakistan it will help us a lot in transitioning to a knowledge based economy.

Fourth aspect is to make a term with Chinese companies to make finished products in Pakistan as well and export a certain percentage of products from Pakistan instead of importing raw materials to Xinjiang province. The long term plan shows great interest in textiles but only up to the production of yarn and coarse clothes which should certainly raise the Pakistani government eyebrow’s even if it is an unofficial version.

Fifthly, the long term plan should include investments for the tech sector in the form of venture capital. Alibaba group of Jack Ma, who recently signed MOU’s with the Pakistani government is a big investor in Indian start-ups particularly in the e-commerce sector. Alibaba group has invested to date more than $ USD 700 Million in Indian start-ups. Pakistani start-ups can only grow if they will receive big capital from venture capital firms. So, instead of Chinese tech companies setting up a shop in Pakistan, the Pakistani government should encourage Chinese investors to invest in Pakistani start-ups as venture capitalists.

Sixthly, as the proposed long term plan suggests to give a visa free entry for Chinese into Pakistani territory, similar concession should be given to Pakistanis or at least to Pakistani businessmen. Along with that, they should also be offered tax free havens and incentives to setup businesses in China. Pakistani entrepreneurs, on the other hand, should also understand that China, a market of more than 1 billion people, represents a big opportunity for them. These times represent exciting opportunities for business as India and China, world’s two largest and emerging markets, lie in close proximity to us. Pakistan’s biggest companies can earn even 10 – 20 times more revenue in China compared to Pakistan. So instead of fearing from Chinese investments they should consider it a big opportunity and should try to create a win-win situation for all.

Seventhly, as more Chinese investment will arrive, Pakistan’s GDP growth rate and per capita income will increase and it will become a lucrative destination for foreign investments. So, Pakistan should try to create a level playing field for international investors in the long run by giving them equal concessions to create a comparatively balanced environment in FDI and diversify the risk in FDI portfolio.

The plan also hints about another interesting thing which is to create tourism opportunities esp. in the coastal region. If properly executed, it will not only open a flood of foreign visitors to Pakistan but it will also help in building a positive and soft image of Pakistan. Tourism along with FDI, is a big opportunity for foreign exchange inflow. The tourism and travel industry is one of the world’s largest industries with an economic contribution of around USD $ 7.6 Trillion. We hope one day Gawadar might be able to surpass Dubai as a tourist hub.

Pakistanis who are fearing neo colonialism should understand that if the World’s particularly USA’s companies started manufacturing their products in China while doing all the value added work at home, it does not meant that they colonised China. Instead China only benefited from it. Similarly, by Chinese investment we will not get colonised if we will play our cards wisely. The Chinese civilisation is different from West. They believe in a creating a win-win situation for both partners and so should we.