CPEC in the eye of storm?

Why?

In a recent article titled “Capital Suggestion”, some questions have been raised about the Chinese investments in Pakistan. Most of the arguments raised are without any sources and look groundless in view of the facts available about the CPEC investments

Gunfire, suicide bombings, diplomatic plots — it seems the China-Economic Corridor (CPEC) is under attack from all sides. While the detractors used diplomatic lures and ambassadorial snubs to get the economic corridor revoked and renounced, conspiracies are being hatched to sabotage CPEC projects.

Nationalists and politicians stirred issues like route controversy, provinces’ shares in CPEC investments, etc. Now, intellectuals and journalists are out with knives to seed suspicion and doubts about Chinese investments and CPEC projects.

First, let’s examine media role in the CPEC fire.

Pieces are being printed to raise questions about the negative impact of CPEC on Pakistan’s poor people. From environmental hazards of energy projects to the impact of loans and interest rates, all ploys are being coined in the media just to target Chinese and Pakistani interests.

While even the Pakistani investors were shifting their investments abroad, Chinese investors jumped in to help save Pakistan irrespective of risks involved with their ventures.

In a recent article titled “Capital Suggestion”, some questions have been raised about the Chinese investments in Pakistan. Most of the arguments raised are without any sources and look groundless in view of the facts available about the CPEC investments.

Since I have been monitoring CPEC since its launch and government officials keep sharing official documents about CPEC with me, I would like to add to the subject.

Let’s discuss the argument of raised about the financial cost involved in CPEC. The article suggests that the debt amount involved with an energy project shall carry an interest rate of LIBOR (London Interbank Offered Rate) plus 4.5 percent. This is totally a distorted figure.

Moreover, the claim that the Chinese loan shall bear an interest rate of 6.21 percent is also unfounded.

The matter of the fact is that the interest rate involved in the debt would be less than 3.7 percent and it would be flexible too. So the claim of 6.21 percent is groundless.

The interest rate is quite lower than the European and American countries where the charge is 20 percent more.

Moreover, the author failed to identify the fact that the insurance premium of seven percent would be a one-time charge to be paid in 15 years’ time — thereby meaning that actually it would be around 0.5 percent annually.

The alleged 27.2 percent return on equity in the Sahiwal Coal Power Project and return rate of 34.49 percent at Thar Coal Power are imaginary and have no evidence to support the claim.

As far as the comparison between Chinese investments in the US treasury and Pakistan is concerned, one may ask how one would draw a comparison between the investments in Pakistan and the American treasury? The investments in the American treasury have guarantees of all sorts and both have no parallels at all.

One needs to remember the circumstances when the Chinese leadership decided to invest in Pakistan when even the ruling elite and the local investors were shifting their businesses to safe destinations abroad.

A quick look back at the sequence of events since 2013 reflects a dismal picture which was being projected as when China was asked to invest into Pakistan, the entire world was raising questions about chances of its survival.

When Mian Nawaz Sharif took oath as the country’s third-time elected prime minister on 5 June 2013, energy-starved Pakistan was facing huge challenges on internal, external, diplomatic and economic fronts.

While terrorists were targeting security forces, politicians, professionals and human rights workers with impunity, the country was also facing an economic logjam with dwindling foreign exchange reserves, little or literal no investment and falling exports.

The energy crisis was so severe that thousands of businesses were shifted to Bangladesh, Malaysia, Dubai and other destinations in the region. Moreover, violence in Karachi led many businesses to close down and shift too.

In 2013, some 5,000 to 6,000 traders completely closed down their businesses while over 5,000 small to large units in Karachi, mostly of textiles, moved to foreign destinations. The situation was even worse at the global front as international institutions were raising questions about the fate of Pakistan.

On 25 April 2013, just before the general elections, in his article titled “Is Pakistan a failing state”, Prof Gustav Ranis discussed the prospects of Pakistan becoming a failing state.

“In the absence of fundamental change, political as well as economic, unlikely under present circumstances, there is little hope Pakistan can emerge from the category as failing state,” he wrote in his conclusion.

Even a year after the Prime Minister Nawaz Sharif took oath, the situation remained dismal. An article published in Dawn, on 25 October 2014, said if the dangerous drift continues, the state of Pakistan will have failed itself too. “So much so that it (Pakistan) may forfeit the right to call itself a viable entity. Many patriots will take umbrage with this assessment but what else will Pakistan be when its key institutions fail to stand up for it?”

A paper titled, “Pakistan: On the Way to be Failed State?” – published in January 2013 also hinted at Pakistan fast becoming a failing state.

This was the time when the Chinese leadership decided to put its foot down to rescue Pakistan, announcing multi-billion-dollars CPEC. The initiative proved to be game-changing which has worked as a magic wand for Pakistan’s transformation.

Since its launching in April 2015, CPEC has not only brought a total economic turnaround for Pakistan in practical terms, it has also helped an absolute transformation of the image of the country. Once coined as a ‘failed state’ by most of the global financial institutions, think-tanks and media outlets, Pakistan today is being tagged as the most promising Asian economy.

Fast forward to 2017 now, it is a total shift in the world perspective. From International Monetary Fund (IMF) to the World Bank and from Moody’s, all are in praise for Pakistan’s economic transformation.

In April 2016, Moody’s Investors Service gave Pakistan B3 rank, rating balances strengthening growth and progress on structural reforms against a relatively high government debt burden and political risks.

In July last year, the IMF increased forecast for Pakistan’s growth to 5pc in the fiscal year to June 2017, from a previous estimate of 4.7pc, citing China’s plans to invest in road and energy infrastructure under the CPEC.

In July 2016, Atlantic Media Company (AMC) of the United States ranked Pakistan as comparatively stronger economy in South Asian Markets and expected it will grow rapidly during days ahead.

According to Atlantic s report the Pakistan government’s investment in infrastructure and other developmental projects has caused country’s GDP to grow.

The ranking has been based on the political stability and continuity of policies in the South Asian countries that include India, Sri Lanka, Pakistan, Bangladesh, and Nepal.

In November 2016, Bloomberg said China’s billions were now luring once shy foreign investors to Pakistan. The report said after years of flat direct foreign investment, it seems China’s pledges of billions were getting overseas companies to start looking beyond Pakistan’s negative headlines on security challenges and power outages.

A January 217 report issued by PricewaterhouseCoopers (PwC), a multinational professional services network headquartered in London and considered among the ‘Big Four’ auditors, said Pakistan’s economy could become the 16th largest by 2050 based on its gross domestic product (GDP) at purchasing power parity (PPP).

China did not limit its assistance to economic terms alone. Rather, Beijing, being a time-tested strategic partner of Islamabad, has come to the rescue at the international level too. China has vetoed five successive efforts by India against Pakistan at the United Nations.

In an apparent bid to counter India’s diplomatic onslaught, China has been endeavouring to forge new regional alliances, involving Russia, Turkey, Iran and Afghanistan. China has also helped rebrand Pakistan’s image internationally and today it’s a total transformation for Pakistan which enjoys a respectable place in the comity of nations.