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OBOR and CPEC

Published Aug 24, 2016 01:23am

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ANALYSING everything in its correct perspective is a great gift; the loss of perspective is akin to losing one’s way in a forest. Keeping perspective helps one walk on the straight and narrow path. Ordinary citizens normally give undeserved credit to their governments for their actions and decisions, assuming that they are the outcomes of careful considerations.

The word ‘minister’ (or wazir) conjures up the image of famed wazir, appointed to the courts of kings; the unmatched wisdom of their advice prevailing with their leaders. So what the huddle of wazirs, also known as the cabinet, decides is beyond any reproach. Governments sometimes have perspective and sometimes do not. But they have the enviable choice of presenting their case to their constituents with or without perspective. The toiling masses do not have the time to investigate further. Those with lives of ease do not care beyond massaging their baser selves. The intellectuals react depending on which side of the powers-that-be they are responding to.

China, no doubt, has remained a friend to Pakistan. It is their geopolitical compulsion as well as ours — there is no more to it. Countries’ relations are subject to change depending on the state of international affairs. During state visits, leaders describe their mutual relations in hyperbole but this is just to sound warm and sweet. The China-Pakistan Economic Corridor (CPEC) is one such example of a narrative fed to the people without any perspective.


China’s friendship is based on geopolitical compulsions.


Putting it into perspective, CPEC is part of China’s grand vision, known as the One Belt, One Road (OBOR) initiative. This vision extends from the Baltics in Europe to Southeast Asia and from China to Africa. Trace it on the map and the road traverses all the countries in between. It is not a physical road like the Silk Road, that historic trade route from China to Europe. That old Silk Road was not like Sher Shah Suri’s road from Peshawar to Kolkata, but caravans meandering on different routes from one caravanserai to another, carrying both goods and ideas. China has accumulated $3.2 trillion in foreign exchange. It can be used both for investment and to buy influence around the world.

This is what OBOR is about.

As an official policy, OBOR is overseen by China’s powerful National Development and Reform Commission and the ministries of foreign affairs and commerce, as sanctioned by the State Council, the nation’s chief administrative body. OBOR has become the ‘in’ thing to be associated with in China’s global economic strategy. As the word ‘road’ itself implies, projects (especially those involving construction of physical infrastructure) that facilitate commerce between China and the wider global community reflect the basic spirit of OBOR. The principal difference is that China’s belt-road is not based on aid or even FDI, but on loan financing. This underscores the importance, for creditors and debtors alike, to carefully factor in risks with OBOR projects.

The recipients of OBOR initiatives in Africa are Kenya, Tanzania and Zimbabwe. Eastern Europe presents the farthest geographic stretch of OBOR, and of China’s reach in historically more advanced capitalist economies. In Poland, a railway project was inaugurated in 2013. Hungary has become the first EU member-state to initiate a Chinese high-speed rail project under OBOR. Russia and China are collaborating on the massive Power of Siberia gas pipeline project. In Southeast Asia, one of the most recent OBOR rail projects to be launched is the high-speed railroad (costing $6 billion) connecting the Laotian capital of Vientiane to China. A rail project has also been completed in Indonesia.

Unsurprisingly, China has won the feasibility study for two other railway projects — Mumbai to New Delhi and New Delhi to Chennai.

Pakistan’s resource-starved government ogled at the offer of CPEC. It gloated over it as the one unmatched gift to Pakistan. Politics always overrule economics. The ruling party was, therefore, in a great hurry to negotiate these projects under secrecy, much to the chagrin of KP and Balochistan, as spending will now affect outcomes in the 2018 national elections. Despite the mad rush for project initiation and completion, it is widely understood that economic analyses for various projects have yet to be conducted. Lending under CPEC is short-term — it will have serious consequences for the current account when it is time to repay them in the not-too-distant future.

CPEC, a part of OBOR, offers great strategic advantage to China as it gains physical access to the Indian Ocean and closer proximity to Middle Eastern oil resources. Other OBOR projects around the world do not offer such advantages to China. This is a shrewd global strategic move. China’s global rivals will, of course, factor this in their countermoves.

The writer is a former federal secretary and minister.

raufkkhattak@gmail.com

Published in Dawn, August 24th, 2016

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The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.


Comments (33) Closed



Aapka Dost Indian Aug 24, 2016 02:11am

Good analysis. This is all about China' benefit.

Shah Aug 24, 2016 02:26am

By far, the most realistic and accurate analysis of CPEC in any print media. Chinese are not doing this as philanthropy. The Pakistani nation will have have to come up with hard cash in the not so distant future. May you live in interesting times !

Zak Aug 24, 2016 04:02am

Lending under CPEC is short-term — it will have serious consequences for the current account when it is time to repay them in the not-too-distant future.

This is where you went wrong, Pakistan does not have to repay a thing, the project will repay for itself and earn multiple times the invested amount in no time.

vrpatil Aug 24, 2016 04:13am

Ultimately it's general public who is going to repay it in the long term,neither security providers nor policy makers.Time will tell the main purpose of CPEC implementation and its hidden agendas.

Salman UAE Aug 24, 2016 05:06am

The big question - will Pakistan be compensated adequately? Remember the cost for providing NATO supplies through Pakistan territory. CPEC should supposedly provide revenues in the similar range if not higher considering that a lot more volume of goods will be going through. Overall a good deal for Pakistan.

AHA Aug 24, 2016 06:47am

Do anyone have access to the contractual obligations of CPEC? Do we know how much interest we are supposed to pay? Who controls access to CPEC? If CPEC is seen as a gateway to help China only and all terms and conditions are unidirectional, we are doomed. Ul the most we may get few low tech polluting industries which China want to dump on someone.

Syed Aug 24, 2016 07:00am

Again an excellent article from the writer on a subject of immense importance to Pakistan. It is essential that we cast aside our josh and jazba when looking at economic projects and instead learn to critically analyze these from the perspective of what's in it for Pakistan and are we getting the most bang for our buck, because in the end it's our skin that will be flogged.

Ayub Aug 24, 2016 08:42am

Good analysis.

Hussain Aug 24, 2016 09:30am

I thought the Article will build on and give some insight on the intricacies of CPEC. Amazingly it finished with 'Think before you Leap'. Analysis means analysis.

Naveed Aug 24, 2016 09:33am

The best strategy for Pakistan would have been to improve relations with India and push trade and investment between Pakistan, India and Iran. China is just looking after her own interests with very limited advantage for Pakistan.

Zareer Aug 24, 2016 09:39am

@Zak The nation will gain significant new infrastructure from the CPEC investment. But the project will repay itself only if our industries strategically plan ahead to fully exploit the CPEC corridor and appropriate toll taxes are imposed on Chinese trade traffic. The public has so far been kept in the dark regarding the negotiated toll tax terms. The government needs to publicize cost-benefit analysis with cold hard facts/numbers not rhetoric.

such buloo Aug 24, 2016 10:40am

Very Good Analysis Mr Khattak, reality bites, KPK and Balochistan were not taken on board when agreeing for this project and it is a LOAN but the government kept saying it is an investment. Now how do we expect the minority ethnicity in the country to love Pakistan when they are treated like 2nd class citizens, when they are not heard and not catered for and not cared for.

lafanga Aug 24, 2016 11:33am

We will pay if we can pay , otherwise we will not pay, what can China do ? impose sanctions on its iron brother, hell no .

Realist Aug 24, 2016 12:32pm

Being neighbour to fastest growing economies, China and India; Pakistan can gain immensely, if it plays its cards based on cost-benefit analysis.

R.S. Menon. Aug 24, 2016 12:46pm

The interest rate China charges is very high. Further the interest amount is to be repaid in dollars which means further pressure on Pak when Pak Rupee value comes down. The electricity produced in power projects associated with CPEC would cost high with the result that the end product would also be higher in cost. There are hidden conditions which, apparently, is to ignore KPK and Baluchistan.

R.S. Menon, Bangalore

akram Aug 24, 2016 01:39pm

excellent grounding of the issues. Sometimes we forget that this is not free money, it's a loan that we will need to pay back. However in the long run we need to make sure things are done properly with proper economic analyses and studies, otherwise mistakes made to meet the election schedule will end up costing us even more in the long run.

akram Aug 24, 2016 01:41pm

@Aapka Dost Indian its about mutual benefit my friend. it doesn't always have to benefit one party.

RJM Aug 24, 2016 01:48pm

CPEC is China specific and benefits China financially, commercially and strategically. It is a corridor for China being built with Pakistan's money and the Chinese are going to profit from the high rate of interest that they are charging Pakistan with for the project. The tolls would also be kept bear minimum for the Chinese considering that they are all weather friend. Pakistan would also have to bear expenses towards maintanence and also security since there is no surety that the Chinese truck won't be looted like the NATO trucks. The author has not fallen for the rhetoric, and provides a sane advice to Pakistan to carefully walk the narrow path and to not fall head over heels for China as nations do not have Friendships as we visualise it but interests and only interests and therefore Pakistan must not fall for the CPEC rhetoric and give primacy to its interests and interests shouldn't be just limited to security interests something which the establishment refuses to look beyond.

Zareer Aug 24, 2016 01:53pm

@lafanga We will pay if we can pay , otherwise we will not pay, what can China do ? impose sanctions on its iron brother, hell no .

I agree. If we default on the loan, at worst, our hand may be forced to set up exclusive naval bases for Chinese warships and submarines and perhaps an airbase. In that case they may even write off the loan! There is a precedence for such arrangements in countries that couldn't afford to pay back high interest rate loans taken for infrastructure projects from China. But such steps will have complex international repercussions and would undermine our sovereignty. What we need is strategic planning in consultation with all key stakeholders to ensure that the CPEC corridor will lead to sustainable economic prosperity via creation of new industrial hubs led by local entrepreneurs and creation of jobs (both skilled and unskilled). This planning should be based purely on Pakistan's national interests and independent of how the Chinese plan to use the CPEC.

Kumar Aug 24, 2016 02:32pm

There is no doubt that CPEC will improve connectivity, also generate power if power projects completed. But Pakistan has to capitalize the road connectivity and power by opening more industries which earn dollars through exports, since the Govt has to pay Chinese in dollars. Also Pakistan Govt should have planned to get maximum income from Chinese goods movement through CPEC. In what form did China give CPEC loan to Pakistan, is it in dollars and buying everything from Pakistan market like Cement, Steel,... OR Chinese companies getting their own labor and material and charging Pakistan in dollars then it would be a setback to the dollar reserves of Pakistan.

point of view Aug 24, 2016 02:58pm

From CPEC, there may be economic benefits to Pakistan but the greatest advantage of CPEC is to Chinese who could continue energy supply from the gulf countries at the time of any conflicts in Indian Ocean and also to move its ground forces and logistics upto Arabian Ocean.

Samir Rahman (India) Aug 24, 2016 03:25pm

Chinese have only one God, its money

Abraham Haque Aug 24, 2016 06:01pm

@Zak any hard data to back it up

anon Aug 24, 2016 08:00pm

A very insightful and incisive article and some wise comments from a few readers (Syed, Zareer,...). At last someone had the gumption and the nous to call a spade a spade!

Friend Aug 24, 2016 09:28pm

China has excess cash which is not earning. Hence it loans out money to Pakistan under CPEC to make road and other infra by its own companies. Pakistan pays the Chinese companies for the road and later on pays back the money along with interest back to China. China uses the road to its goods into Pakistan and earns again. Pakistan must understand the Chinese motive.

Truth Aug 24, 2016 10:05pm

Excellent article.. When time comes to pay the bills, Pakistan will realise that it was all gas, no substance

Aapka Dost Indian Aug 24, 2016 11:33pm

@akram - Hope it is beneficial for both parties. At this time what is printed in the media does not give such confidence particularly if interest charges are 17% in USD as reported here in the past.

gp65 Aug 26, 2016 12:09am

@Zak "This is where you went wrong, Pakistan does not have to repay a thing, the project will repay for itself and earn multiple times the invested amount in no time."

Do you have data to support your opinion or do you use facts and opinions interchangeably?

gp65 Aug 26, 2016 12:13am

@lafanga "We will pay if we can pay , otherwise we will not pay, what can China do ? impose sanctions on its iron brother, hell no"

If you default on your sovereign guaranteed payments to China , your credit rating will slip even further than what it already is and all future loans will become either highly expensive to get or impossible altogether.

Alba Aug 26, 2016 06:16am

A gas pipeline from Siberia to Harbin, China makes a great deal of sense. It is -40 C degrees in Siberia but many Russians are working there in the gas fields where alcohol is forbidden because of potential industrial accidents. The Russians have been building a new rail system farther north than any railway in the world connecting the GasProm fields to the Trans Siberian Railway into China.

Virkaul Aug 26, 2016 12:58pm

@Zak How? Please explain. Will it through transit fee per lorry or road tax or what?

Virkaul Aug 26, 2016 12:58pm

@akram Please explain how?

Virkaul Aug 26, 2016 12:59pm

@lafanga What? What kind of question is that?