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CPEC: The case for full disclosure

Published May 15, 2017 02:28am


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I AM now less interested in CPEC, which is unstoppable, and more fascinated by how people think. Conventional wisdom has individuals using reason to objectively weigh the costs and benefits of an option and then choosing it if benefits exceed costs. More and more evidence on actual behaviour suggests that individuals start with their minds already made up and then pick and choose arguments to support their positions.

At this time, PML supporters are convinced CPEC is a game changer while those opposed to the party believe it is a recipe for disaster. The former claim Nawaz Sharif is an astute industrialist and China a trusted friend. The latter argue Nawaz Sharif is corrupt and is using hype to distract attention from his troubles. Supporters are not willing to consider that their party can make bad decisions; opponents are unwilling to concede that the PML could get something right. No one is basing their position on factual information, which remains irrelevant to the debate.

Such attitudes make it difficult to convince anyone that their views might be mistaken. Objectively speaking, everyone should be neutral on CPEC at this time as enough reliable information is not available to evaluate costs and benefits within reasonable bounds. The rational individual should be withholding judgement and demanding the numbers. Instead, storm troopers on both sides are frothing at the mouth, ready to dismiss all contrary arguments as treason.

Although I am convinced that few minds are likely to be changed by my opinion, I still feel a responsibility to present the case for neutrality till more data is available for credible analysis. I believe my argument will make sense even to those lacking the expertise of economists and financial analysts.

Intellectual honesty demands a stance of neutrality on CPEC till the terms and conditions are disclosed.

The starting point is the acknowledgement that $56 billion is a significant amount of money in the Pakistani context and that an infusion of this magnitude has the potential to do a lot of good. The big question is: will the potential be realised?

Instead of answering this question on faith, I suggest participation in a thought experiment. Imagine your family is facing financial hardship and everyone you have approached has turned you down. Now someone comes along offering a loan of a million dollars, an amount that can solve all your problems and change your life. Would you accept the money with your eyes closed?

I am hoping you will ask for the terms of the loan. Suppose you are told you would be expected to renounce your traditions. Or that you would have to indenture your children in case you fail to meet the repayment obligations. Would you accept the money on such terms?

These are hypothetical examples. I am not saying the Chinese are asking Pakistanis to give up their customs or indenture future generations. The extreme examples are only meant to dramatise the essential point that only a very foolish or reckless or desperate person would be willing to sign on the dotted line without knowing the terms of the deal. Is that an unreasonable conclusion?

Let us return to CPEC assuming the Chinese would not be asking for any such thing. But let us think of what the Chinese might ask for. Suppose they ask that whatever we buy with the money must be purchased from Chinese suppliers. Would you accept such a condition on a personal loan? If not, would you not worry if the nation is being asked for such an arrangement?

Consider the personal risks of accepting such a demand. The lender could sell you second-rate goods at above-market prices. Any tied arrangement would deprive you of better alternatives available in the market. At the national level, sole-sourcing would eliminate the efficiency gains resulting from procurement of supplies via competitive international bidding. Therefore, we should be reluctant to accept loans conditional on sole-sourcing.

The Chinese may not insist on sole-sourcing but ask instead for guaranteed charges and exorbitant rates of return on the investments, independent of whether the projects are profitable or not. Many people know someone unfortunate enough to get enmeshed in exploitative arrangements with loan sharks and are aware of the consequences. This kind of outcome is not to be taken lightly.

These examples are speculative and may appear outlandish, and I have no idea if CPEC involves anything of the kind. But that is exactly the point, because such examples are by no means purely a figment of the imagination. Readers are well aware that usury, the charging of exorbitant rates of return on loans, is prohibited in most religions for good reason. They know that bonded labour still exists in some industries. Some who know their history would recall that the British passed an act in 1938 to rescue the heavily indebted Punjabi peasantry from the clutches of moneylenders. And there are records of violent opposition to alleged attempts by missionaries to influence people by offering them material temptations.

The bottom line is that it is never a good practice to accept loans without full knowledge of the terms and conditions, more so when one is desperate for financial assistance. Readers would do well to read Shakespeare’s Merchant of Venice to reinforce this conclusion. And, if convinced, wouldn’t it be ethically wrong to urge the country to accept something that one would personally reject? You should not do to others what you would not do to yourself.

Intellectual honesty demands a stance of neutrality on CPEC till the terms and conditions are disclosed, without which one cannot arrive at an objective assessment of whether it could be potentially beneficial for the country. Only then could one move to the next stage of appraisal, knowing that even potentially beneficial projects of this magnitude have their success depend on many other factors.

Aside from the truly random and uncontrollable ones, these would include the implementation capacity of Pakistani governments, whose probity and track record is not one to inspire confidence. What would we need to do to hold the government’s feet to the fire and prevent another Reko Diq?

The writer is a Fellow at the Consortium for Development Policy Research in Lahore.

Published in Dawn, May 15th, 2017


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The writer has served as dean of the School of Humanities, Social Sciences and Law at the Lahore University of Management Sciences.

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

Comments (46) Closed

aga Khan May 15, 2017 03:39am

Terms and Conditions of CPEC - not forthcoming period. Possible and Realistic Indenture by Chines - For the good of Pakistan's future - Population Control - Balance the Supply and Demand ratio - Chinese have very skillfully done in their country to bring the state to the present state of 'Prosperity' - one child per couple was/is mandatory. We should be ready for that after the corridor is all ready to go and just in case we may be unable to repay the loans. May be my imagination - like yours'

ANT May 15, 2017 03:45am

Good article, but in the spirit of the article. Shouldn't the terms and conditions have been clarified and made public before signing on the dotted line. Isn't it a fait accompli now?

Max May 15, 2017 04:01am

Amazing clarity of thought...this should jolt Pakistanis and force them to wear thinking cap. Case for example could be orange line, just think the amount being asked for in return without taking into account total ridership. Also power generation, whats the rate govt is supposed to buy and sell at, and what % are Chinese are asking for on loan for setting up coal based power plants? well...think.

Rahul May 15, 2017 04:29am

Granted not enough information is available on the terms of CPEC or its outcome and impact, but the Chinese have made similar investments in countries like Ethiopia, Kenya, Sri Lanka, Myanmar etc. and their outcome is available for all to read about on the internet. Most of these countries are saddled with projects that were designed to fail on terms that trapped them in debt. Any red flags there!

Alba May 15, 2017 04:30am

" The former claim Nawaz Sharif is an astute industrialist and China a trusted friend. The latter argue Nawaz Sharif is corrupt and is using hype to distract attention from his troubles." _ The Chinese have never shied away from doing business with corrupt leaders. It is actually easier to business with corrupt leaders who cut through all the red tape. That is why there has been no disclosure on what the CPEC will cost Pakistan. Beijing only needs to deal with The Great Helmsman, Nawaz Sharif, because he can make deals without consulting anyone else. That is why there is no Pakistani foreign minister to get in the way of his decisions or to tip any secret dealings to the press. Donald Trump only wishes he had it that good.

Winner May 15, 2017 05:14am

Good start. Now question is why government is giving details in public. Is it hiding something? Is it truth will hurt many future generations?

independence May 15, 2017 06:46am

Very brilliantly put.Sir I don't have political affiliations with PML N, but you have aroused my sympathies even more about the sense of mission which is being carried out.

Sumit May 15, 2017 07:43am

True. Numbers and percentages are required to calculate the risks and profitability. Waiting.

Ranjan May 15, 2017 07:55am

Good analysis. Being your true well wishers, we would not want you to repeat the mistakes that we did in the past. Our country paid a high price because of dubious terms in Dabhol Power Project. Since then, there are better checks and balances.

We tried to find the CPEC terms and conditions. A little that we could find and analyze was really scary. As brothers, we know each others condition better. Why an outsider be allowed to exploit the other sibling?

This time, many of the readers may find these words untrue, but before you realize the dragon behind the CPEC, it would be too late.

Gupta May 15, 2017 08:30am

A very sane article.. Must read for all who think CPEC will solve all the ills.

Jamil Soomro, NEW YORK CITY May 15, 2017 08:42am

A sensible article on CPEC.The Writer means well with all the metaphors,anxiety,predictions, apprehensions and disclosures he has emphasised connected with CPEC and which he has attempted to explain but unfortunately it is too late now and futile.The File on CPEC has been closed.The fact of the matter doesn't change.Pakistani Nation has to pay $ China within 30 years whether we are satisfied with CPEC or not?

Jamal May 15, 2017 08:43am

Hypothetical analysis is a good form of making people think without facing ire.

anshul May 15, 2017 08:55am

Unfortunately loan already approved and no one knows on what terms n conditions.

hem pant May 15, 2017 09:34am

Writing only from professional angle it is considered that SWOT (Strength, Weakness,Opportunities and Threats) analysis should have been carried out before the commencement of the project. SWOT analysis is an engineering terms for Project Management and particularly for such huge project .Other important analysis required for any project before commencement is "cost benefit analysis"

ABHISHEK May 15, 2017 09:55am

What are you saying? People of Pakistan don't know terms & condition of CPEC project.CPEC is biggest project in history of Pakistan. Public don't know terms & condition. Is it possible in democracy? WOW!! Think neutrally Pakistan.

Sadanand - India May 15, 2017 10:45am

Every country has rights to develop itself and take advantages surroundings.Having said this, terms and conditions must be well understood and those should be made transparent to some extent to countrymen , so as to gain confidence. Just like any individual's loans.

Good article !!!

blue moon May 15, 2017 11:11am

If the details are not clear, then the claims about CPEC's socio-economic contributions for Pakistan are also suspicious!

mangoman May 15, 2017 11:37am

@Jamal Is there a choice? Without facts and figures, hypothetical analysis is the only recourse.

Khawar Saeed May 15, 2017 12:10pm

Masterpiece.The answer to your question,in my violable opinion is,"Intellectual neutrality and honesty."

anon May 15, 2017 12:56pm

Re. "Readers would do well to read Shakespeare’s Merchant of Venice to reinforce this conclusion. "

Except that there will be no Portia to stop Shylock from getting his pound of flesh and then some in this case: Antonio will have to pay one way or another.

Hammad ansari May 15, 2017 01:01pm

In the absence of Information, there is a great potential of 'disinformation'. The cure of disinformation is 'information'.

human being May 15, 2017 02:00pm

@Hammad ansari : So when is the information forthcoming?

kaspar May 15, 2017 02:05pm

@Jamil Soomro, NEW YORK CITY The file is never closed in international relations. Things can change any time with new realities popping up. If you want to know how China operates and 'progresses', just enlighten your mind with what is happening in Xinjiang.

Jamil Soomro, NEW YORK CITY May 15, 2017 02:56pm

@kaspar When a business deal is done and Heads of States sign then the" file is considered closed". Parties are obliged by the contract. This article is solely on Mega Project CPEC and not on Xinjiang which will be a political issue of Uyghurs.Do stay on the topic of discussion there is no need to deviate from it?

Subhan May 15, 2017 03:35pm

Let me explain. The One Belt One Roar (OBOR) initiative of China shows that the strategic objective of China is much bigger and CPEC in one of the integral part of it. We can arguably say that CPEC is the foundation of much larger objectives of China through which China aims to connect other countries as well. Now what position would China be in if it exploits the very nation from where it is initiating its ambitious connectivity project?

It is crucial for China to show the world that OBOR is indeed spreading prosperity to its partners and as Pakistan is its first, and a fundamental partner due to the importance of CPEC, it becomes even more important for China to show the world a prosperous Pakistan enjoying wealth through CPEC.

SATYANAAs May 15, 2017 03:44pm

I find it most intriguing that on every CPEC related article the number of comments by Indians is greater than comments by Pakistani readers. Tells you something doesn't it? CPEC certainly has someone hot under the collar!

M. Emad May 15, 2017 04:38pm

Harsh realities of $57bn CPEC are hidden and not transparent.


I am really amazed of Indian interest in Pakistan affairs. In all CPEC related news , you see bunch of Indians lurking all days spreading negativity and bad mouthing. This is a clear disinformation campaign launched by other side of the border with or without clear involvement of their government. The similar disinformation campaign was launched during 60's Ayub era to poison the minds of bengalis against Pakistanis. But sad as it is Pakistanis are as gullible naive as before.

Sania May 15, 2017 06:20pm

Excellent point sir

my two cents May 15, 2017 07:33pm

Author is making an excellent point. Pakistan is limiting her ability of future performance. Right now, China is excessively funding projects and most of the money are going to be earned back by Chinese 'state owned companies' through construction projects or through equipment and material they supply. Money is give from one hand and taken away from other. What did Pakistan gain? Structures that have economic life of 10, 20, or 30 years, but in return, Pakistan will never be able to pay back money they borrowed on credit card. China is also demanding 1000s of acres of prime land near ports. What would happen, if Pakistan fails to make payments, China is going to turn land into Chinese assets and given China controls Pakistan, Pakistan would not be in position of saying no to them. When you're hungry, you eat slowly and reasonable amount from plate, but if you eat too fast and overeat, you get stomach cramps later. Pakistan must prepare herself for stomach cramps in future.

B r chawla May 15, 2017 08:17pm

A very good article.

m.m amin (old ravian ) May 15, 2017 09:43pm

Mr .Gul is right . People proceed from conclusions to "reasoning"and not from factual assumptions to inferences .Such approach ,compounded by distrust of govt.,lead to more and more irresponsible criticism . Facts are lost and fiction takes over the discourse .

Shahid May 15, 2017 10:21pm

Support of one political party or opposition should not be the emotional basis for analysis of such an important matter b/c it has potential of immensely negatively affecting future of Pakistan and Pakistanis. What may look 'free' or too good can prove dangerous, in particular when it deals with apparent 'financial' partnership between grossly unequal partners. This is particularly true when details are completely unknown and have not been made public for proper debate and critical evaluation.

Ayesha k sadozai May 15, 2017 10:26pm

A rational and sensible article . I think the whole CPEC agreement/s must be presented, openly, for debate before the Pakistani nation and that a national consensus must be developed whether we want to sign up or not.

Vijay B. May 15, 2017 10:54pm

Well balanced and thought priviking article

riaz ahmed May 15, 2017 11:15pm

If TORs are missing or not exhaustive then sketching such a bad picture with assumptions and hypothesis is despicable specially for such a mega scheme encapsulating some 100 plus countries. Fomenting such a bad picture on assumptions is against national interests. We must step forward as a nation taking risks to move forward instead of sticking at a point and making unnecessary arguments.

Vijay B. May 15, 2017 11:52pm

In all my many decades of experience as a management consultant, I have yet to see a more lop-sided deal being received so eagerly and gleefully by the party against which it is rigged. Sad indeed, that the people and the powers to be in Pakistan cannot see through this ruse to discern what this deal really entails.

peter May 16, 2017 12:34am

China has built many ghost towns inside China. Buildings and infrastructure have been created but no one to live. Chinese banking system is under stress due to unnecessary investments. The corridors that China has planned may have strategic purpose for China. But, why will other countries invest in projects to kill their own industry and serve military purpose of China. Things done with a crooked intent never succeeds in the long run. The fundamental rot behind its new found global development agenda. Like US, Japan, and India even Germany' attitude is luke warm. One of them rightly said, on the newly constructed China - Europe line 5 trains come loaded to Europe from China for every 1 going back to China. China has always resorted to hideous, shady means to grow beyond its capacity. Clearly the intent behind the OBOR cannot be all benevolent and nice. There must be something nasty going on in the minds of the Chinese.

DEV May 16, 2017 01:32am

I am thinking why the government of Pakistan keeping its own people in dark about its dealings with the Chinese. It surely is not because of security, anyone any guesses as to what could be the other reasons?

Riaz Ahmad May 16, 2017 05:19am

@Max Those who keep voting for those who rob them with out mercy and deliver nothing, even a bolt of lightening is not enough to jolt stunted minds.

Vijay B. May 16, 2017 06:07am

@hem pant True Cost : Benefit analysis can only be done by first getting the optimum numbers based on a discounted cash flow rate of return.

SIngh May 16, 2017 06:57am

@Subhan I hope you have read in Dawn today the details. It is amazing all the conditions the writers writes under which he will not make the deal are included. Subhan your basic assumption is wrong. Whether it is the USA or China their goal is not to spread the wealth but to sell their goods. The old Silk road had the same purpose and OBOR has the same like it or not. Don't be disillusioned that China is doing to spread the wealth and Pakistan is the first country.

Sanjiv May 16, 2017 07:14am

The rate of interest being charged by China is the key. They have surplus cash with which they will control the economies of the countries they give loans to.

Praveen May 16, 2017 07:32am

Business with China??? Which country is successful? I mean who don't have trade deficit!!! Reason for OBOR: Slowdown in exports from china. To save the Chinese industry , open new trade routes. No country does Charity!!! People thinking about win win situation? Very tough with China to win for most of the countries. But CPEC has certainly saved Pakistan for time being as per the argument by author, imagine the state of Pakistan without CPEC.

Dinesh Sampat May 16, 2017 08:06am

Chinese folks are very shrewd businessmen and when it comes to financing large capital projects, their behavior borders on being very SLICK! Here is a simple advice for the Pakistani brothers and sisters......follow the rule Ronald Regan by verify, and in case of their Chinese friends, Pakistan and others who have been mesmerized by the OBOR project.....they would be well advised to verify not just once, not even twice, but rather three times! Good luck!

KP May 17, 2017 02:44am

The beauty of the CEPEC is that it was signed without disclosing the terms & obligations beforehand. Now it is submitted as fait-accomplice! U are committing not only the present generation, but generations to come, no! This goes against all the norms of a sound financial decision.