Getting the CPEC (China-Pakistan Economic Corridor) Authority law passed high handedly in the National Assembly in February 2021 has made Pakistan governments’ position more embarrassing as lack of progress on the mega project has come under increased scrutiny in the eyes of media and public. The subtle signs of unease between the two countries over future direction and subsequent funding of CPEC projects had already started surfacing earlier especially after the outbreak of Covid-19 pandemic.
While, Pak President and Foreign Minister visited China at the height of pandemic in March 2020, the scheduled visit of Chinese President Xi Xinping’s to Pakistan was deferred several times citing the same reason. The annual meeting of Joint Coordination Committee (JCC), which is the most awaited event for various stakeholders of CPEC projects got postponed throughout 2020. Similarly, the meetings of sectoral Joint Working Groups (JWG) were delayed for months, before being conducted for the namesake in later part of the year. Outcome of these meetings reveals significant scaling down of Pakistan’s expectations regarding inclusion of more projects under CPEC phase II. While the country has for long portrayed $6.8 billion Main Line-I project to be the main artery of the Pak railways and tried to convince China for financing the project, the Chinese side has tried to avoid any commitment for funding. Even when the meeting was held, the Pak side was unable to secure any favourable consideration including the concessionary loan at an interest rate of one per cent. Hesitant in agreeing to Pakistan’s demand, China instead offered a mix of commercial and concessional loans to fund the rail project backed by suitable guarantees by Pakistan.
Although it is the largest among the lot, ML-1 is not the only project facing significant delays. According to Pak CPEC Authority, so far, 17 projects worth $13 billion have been completed while another 21 projects having an estimated cost of $12 billion are under implementation. Construction of Gwadar Port, Eastbay Expressway, Thakot-Raikot section of KKH is facing delays due to lack of coordination among responsible agencies from both countries. Despite high decibel publicity by Pakistan, we have not seen any significant number of Chinese investors showing interest in setting up units in the Special Economic Zones being established as part of industrial cooperation under CPEC. Now, Pakistan is trying to lure these investors by promising one window facilitation for these zones.
Similarly, all is not functioning well within Pakistani authorities when it comes to supporting CPEC projects in Gwadar. During a meeting of the Cabinet Committee on CPEC (CCoCPEC) in January 2021, a warning had to be issued to Chairman Federal Board of Revenue (FBR) Javed Ghani for delaying required tax exemptions for Gwadar Free Zone. The delay in framing up of Gwadar Free Zone policy, custom procedures and rules & regulation has been an impediment for the investors willing to establish businesses in Gwadar. It was pointed out that although 42 licences had been issued to potential investors, business activities could not start due to absence of Free Zone policy. Other problems included: (i) non-availability of power; (ii) evacuation of land for Free Zone phase-Il from Pakistan Coast Guards & Pakistan Navy; (iii) exemption of Gwadar port from provincial taxes as per Concession Agreement; (iv) delay in construction of breakwater & capital dredging of berthing area. Trying to come to terms after the recent setbacks, Pakistan is now pinning hopes on the Chinese President visiting the country in 2021 and providing some financial impetus to the stalled projects.
Against this backdrop, the hype created by Pakistan government through projecting China Pakistan Economic Corridor (CPEC) as a panacea for all problems is rapidly losing steam. The project not only lacks clear direction to steer through but continues to struggle due to absence of coordination among various executing agencies. The realization is gradually dawning upon various government agencies that Pakistan’s economy has failed to achieve any real benefit from the CPEC.
Struggling local businesses
The local business class also fails to connect with Pak government’s claims of significant economic gains from the grand project. The emerging feeling among Pak businesses is of exclusion and neglect by their own country. Struggling local businessmen lament that Chinese investors are cornering key domestic industries, state assets and businesses to the detriment of Pakistani players and interests. Interestingly, non-CPEC Chinese private investment in Pakistan is increasingly driven by cheap labor and securing access to raw materials that are shipped back to manufacturing facilities in China. China is also building factories in Pakistan to export finished goods directly to European markets which deprives the Pakistani exporters their share of opportunity to trade with these countries.
More jobs- a hollow promise
Concerns of local businesses have parallels in the working class population as well. Creation of jobs for the local youth is an important yardstick for assessing the benefit of any foreign investment in a developing country. However, CPEC has been a visible failure on this count. While Nawaz Sharif’s government had painted a rosy picture about Chinese investment translating into more job opportunities for Pakistani youth, till now trends have indicated otherwise. As evident in completed CPEC power projects, China has preferred its own workers and engineers for skilled jobs. It has not hesitated in setting up special colonies for Chinese workers along the project sites and this trend is likely to continue. Things are expected to turn worse for people working in older Pakistani establishments as well. As per reports, Chinese investors are keen to buy into various loss-making state-owned enterprises (SOEs) that the government is willing to sell. With SOE-related losses reaching 1.5 trillion rupee ($9.4 billion) recently, the government is left with little choice in the matter. The list includes prominent names like Pakistan Airlines (PIA) and Pakistan Steel Mills (PSM).
The uncanny Chinese footprints
Pakistani business owners and workers are wary of Chinese style of functioning which rarely involves partnerships or joint ventures with local businesses. Chinese investors’ preferto establish fully-controlled businesses which would mean further erosion in local businesses and jobs. According to official records, more than 2,000 Chinese business entities have already registered in Pakistan, half of them in the capital Islamabad. However according to independent corporate analysts, the number could be much more with some Chinese active in Pakistan’s informal sector as well.
Concerns of colonization- Another East India Company
An analysis of industrial inroads made by China in Pakistan points towards greater designs of neo colonization. One major target of Chinese policy has been the textile industry, which is the backbone of domestic economy and livelihood support of majority of workers in Pakistan. Though not initially indicated, Chinese private interests are investing heavily in textile production, a sector that contributes 8.5% of gross domestic product (GDP) and employs 45% of the total industrial labor force. In Punjab, the Shanghai Challenge textile company recently acquired a 25% stake in Masood Textile Mills Faisalabad, a hub of Pakistani clothing and textile manufacturers. Challenge Apparel, a subsidy of Shanghai Challenge Textile Company, operates a Faisalabad-based plant supplying garments to Adidas and Puma for US and European markets.
While Islamabad is working in removing official hurdles for attracting more Chinese investment in CPEC phase-II, China is clearly shifting its focus beyond the mega project. With long gestation periods and uncertainty of financial returns, China now seems keener to enjoy the low hanging fruits at the cost of future Pakistani generations.
