Analyzing the China-Pakistan Economic Corridor

For Pakistan, the benchmarks of the CPEC will be; a) whether it creates jobs in Pakistan for the locals and b) whether it results in export surge and industrial productivity.

A project that looks at completing in 2030, CPEC aims to develop Pakistan’s infrastructure and energy requirements. The important denominator will be awarding economic advantages to the locals over migrant labor. This is the single most important factor to ensure the success of the project. It therefore makes it important to have an authority that is broader based and actively involves the political elements on consensus based decisions to make CPEC a success.

Shi Zhiqin, Resident Scholar Carnegie-Tsinghua Center for Global Policy states, “From a Chinese perspective, cooperation in the areas of security and economics are closely intertwined, and improvements on one side can improve the other. It is almost as though security and economics are two separate wheels on the same vehicle, and both need to be spinning to move things forward. China believes economic development can strengthen Pakistan’s internal stability, thus reinvigorating the latter’s economy through investment in infrastructure projects as well as the construction of oil and gas pipelines. China hopes this will create a certain level of stability within Pakistan and in turn stabilize China’s western periphery, particularly the province of Xinjiang.” (December 21, 2016)

With China investing in CPEC, Pakistan needs to look closely at not only the advantages that will accrue to her after the completion of the project but also during the project. One example is of CPEC-related power project and purchase of cables. Chinese firms prefer importing equipment from China rather than going to a local source as the Pakistani government allows tax relief on imports of power production goods. On the other hand, in the last quarter of 2017, government imposed regulatory duty on raw material used by the local Pakistani producers on top of increase in taxes placed both by federal and provincial authorities to a whopping 45% over past three years offering imported power production goods an edge over locally produced ones. On the other hand, the Chinese are buying steel locally which means a boost for steel manufacturers. In some regards, this implies that CPEC is directly positively impacting the local economy.

This raises an important question. Is there an agreement on the table between China and Pakistan that ensures a certain percentage of every project to be used by purchasing local materials and using local labor? Transparency is the key to building confidence. Unfortunately, thinking ahead and thinking smart has not been the forte of our government, however CPEC might be a different proposition all together.

One example of the failure of looking after Pakistan’s interests and striking a balance with China is the 40 year lease of Port of Gwadar. The lease also includes the right to 90% of revenue generated from Gwadar’s marine operations and 85% revenue generated by managing the connecting free zone.

Another project envisaged at the cost of US$ 260 million is the Gwadar International Airport, The question of percentage agreement for local materials, labor and subsequent hiring of local staff is raised yet again. Though a grant of $ 10 million dollars by the Chinese government aims to set up Pakistan-China Vocational and Technical Training Institute in order to offer skills to local population to gain employment, however, is there a mandatory clause that ensures employment of local people in various projects on a given percentage basis?

One questionable project is China’s decision to build 10,000 MW worth of subcritical coal-fired plants (sub-CPC) which is an out dated method of generating energy in spite of Pakistan’s reserves of more than 175 billion tonnes of coal. Renewable energy is what the world is moving towards. Costs of generating energy through this method have come down whereas the costs of producing energy via coal requires clean coal technology. It reduces CO2 emissions by capturing carbon. However, in order to do this, compressors and a network of pipelines is needed that is a highly expensive method, besides creating climatic change owing to production of carbon dioxide.

Ideally, CPEC should boost exports, not damage local markets by importing competitive goods giving tax relief thereby killing local industries. A crucial factor is that the projects’ liabilities will be in foreign exchange. Earnings locally will be in Pakistan rupees and unless the exports spike upwards, the balance of payments can drag Pakistan down.

China is looking towards parking her investments strategically where it will pay dividends. China’s BRI is going to address the aggregate demand of linking nations’ which in a nutshell is total demand for goods and services in any economy. The project is a huge outreach by China to the world, seeking international markets for export of goods and technology to boost their economy at the same time offering benefits to linking nations as well.

Until and unless Pakistan has, and in future too, bargains hard, it may not be the recipient of gains that should come her way as a result of a robust CPEC. This depends on the acumen of its political leadership which is poor on a good day.

The writer is a lawyer, academic and political analyst. She has authored a book titled ‘A Comparative Analysis of Media & Media Laws in Pakistan.’ She can be contacted at: yasmeenali62@gmail.com and tweets at @yasmeen_9