East, West and CPEC

Published December 16, 2019

ISLAMABAD claims to be on the same page with Beijing as the China-Pakistan Economic Corridor (CPEC) enters its second phase. It dismisses the perception that the ongoing arrangement with the International Monetary Fund (IMF) is being used by the West to pressure Pakistan into backtracking from sealed deals with the superpower of the East under a grand bilateral partnership framework.

Early last week, a media report hinted at simmering discontent in China over Pakistan’s demands for transparency in CPEC contracts and a quiet campaign to malign Beijing.

Read: Projects being carried out under CPEC free of corruption: envoy

It was reported that China’s displeasure with Pakistan has mounted to a level where it has threatened to scrap all contracts and leave the country if the government fails at course correction. The report has not been contested by either side, ie China or Pakistan, to date.

Executives of overseas companies declined to comment on the issue. On the other hand, local business leaders blamed a “lethargic and inexperienced” economic team for the bitterness surrounding CPEC. “Prime Minister Imran Khan is looking forward to the second phase of CPEC to kickstart the growth through Chinese support for the social sector, industry and agriculture. The intent is there but the problem is in translating it to an actionable strategy,” commented a Karachi-based businessman who spends a better part of his week in Islamabad these days.

CPEC watchers in Pakistan have persistently been highlighting the challenges of policy balancing in the post-IMF deal period because of tensions between the United States and China, spilling over into a trade war.

The United States and other Western nations did not hide their discomfort with CPEC. Around $50 billion contracts were announced under CPEC during the previous government. Out of this, projects worth $28bn have matured.

‘The West may frown to its heart’s content on our deep ties with China, but it is clear that these ties are not up for bargain’

Ignoring economic compulsions, the West detests Pakistan drifting closer to China. The sentiments were shared at multiple forums in their engagements with the government and other stakeholders in the country.

The issue came to the fore when Pakistan was negotiating a bailout package with the IMF. The lenders raised concerns on the possibility of money loaned directed to settle credit liabilities of China under CPEC. They stopped short of making IMF support conditional on scaling down Chinese involvement in Pakistan’s economy.

In July, the IMF’s executive board approved a 39-month Extended Fund Facility for Pakistan for an amount of around $6 billion. There was already some discussion over the transparency of CPEC in the country and the real dividends it would bring to the economy. The position was also taken by some leaders of the PTI government. However, it is hard to say if the objections were primarily politically motivated or the country’s economic interest was at the heart of the opposition.

It did not, however, take the PTI government long time to grasp the value of massive Chinese investment in power and infrastructure projects. It realised the support that China has already garnered in business circles on the strength of completed projects worth $28bn. Besides, political dimensions of ties with China in the wake of a provocative stance taken by India explains why the PTI leadership reacted the way it did to comments by Alice Wells, the principal deputy assistant secretary of state for South and Central Asia at the US Department of State.

In a speech last month, the top US diplomat for South Asia warned that the multibillion-dollar CPEC project would push Pakistan deeper into an already stifling debt burden, foster corruption and repatriate jobs and profits to China.

Read: 'Pakistan's relations with China will never fray': Asad Umar responds to US concerns over CPEC

However, Planning Minister Asad Umar defended not just ties with China but also CPEC, and rejected the notion that the megaproject has increased debt burden of the country in dramatic proportions. He stated that the loan component of the massive investment is barely $4.9bn, which is a tiny portion of the $74bn total public debt that Pakistan owes to global lenders.

Attempts were made to secure comments from leaders of the government’s economic team on the reported threat by China, but they did not wish to come on record. In private, they did accept that China is not happy with the pace of progress on CPEC under the current government, but in their opinion the convergence of interests of two nations is too strong for a major setback on the CPEC front.

“The United States and other Western nations may frown to their heart’s content on our deep ties with China, but it is clear that these ties are not up for bargain,” a senior member of the government’s economic team said. “For us, China has proven times and again to be the most dependable ally and we will not trade this relationship of trust for anything.”

Adviser to the Prime Minister for Commerce, Textile and Industry Production Abdul Razak Dawood in his brief emailed comment stated, “China has not given an ultimatum and yes the IMF and CPEC can coexist.”

Retired Lt Gen Asim Saleem Bajwa, recently appointed the head of CPEC Authority, was approached but he was not inclined to share his thoughts on the threat of rollback at this point.

Dr Liaqat Ali Shah, CPEC’s Project Director in the Planning Commission, termed the news item (mentioned earlier in this article) baseless without stating reasons for not contesting it publicly. “There are no second thoughts on CPEC in Islamabad or Beijing. We are on the same page. The negotiations are in progress with China on an incentive package for investors in special economic zones and Gwadar. We are hoping for groundbreaking at multiple locations of special economic zones over the next few weeks and months,” he asserted.

“The second phase of CPEC is focused on a business-to-business engagement under a broad umbrella against government-to-government deals that were the hallmark of the first phase of CPEC, except for the Main Line-1 (Karachi-Lahore-Peshawar) Railway Line project. The fact is that China has not ruled out the possibility of deferring the loan repayment schedule beyond 2022 if Pakistan’s fiscal issues persist,” he told Dawn by phone.

Mushahid Hussain, a politician and an active advocate of CPEC, was in China but promised to share his views. His response did not reach Dawn until the filing of this report.

Shazia Syed, CEO of Unilever and the president of the Overseas Chamber of Commerce and Industry, declined comment, stating: “It’s too early to take a position.”

Ehsan Malik, CEO of Pakistan Business Council, an advocacy platform of the big business, said the council “has been advocating an exchange of information (EOI) with not just China but all major trading partners. In the absence of EOI, under-invoicing and misdeclaration are rampant. We understand that China agreed to it earlier. The government should pursue it, notwithstanding any threats on CPEC, which we believe are exaggerated.”

President of the Federation of Pakistan Chambers of Commerce and Industry Daru Khan Achakzai was all supportive of CPEC, but he prayed for the de-politicisation of the project, which in his view benefits Punjab and Khyber Pakhtunkhwa and ignores Sindh and Balochistan. “I don’t think Pakistan can afford to annoy China in this regionally hostile environment,” he said.

He was pinning his hopes on former finance minister Asad Umar, who has recently assumed the charge of planning minister to remove bottlenecks and make CPEC more broad-based, with benefits of the megaproject equitably shared between all provinces.

Published in Dawn, The Business and Finance Weekly, December 16th, 2019

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