China and Pakistan

November 27,2016

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While going through Dr Farrukh Saleem’s last column on these pages (‘China and Angola’, Nov 20), I was reminded of the wise saying: “to name is to destroy, to suggest is to create.” The writer discussed the dynamics of the Chinese investment in Angola and how the pumping of Chinese capital in the Angolan economy over the years has benefitted a small but powerful elite – to the detriment of the Angolan people who remain condemned to poverty and lack of access to the basic necessities of life.

Two observations of the writer deserve a special mention: the characteristics of the Chinese investments in Angola and the Chinese business model. What has been stated vis-à-vis Chinese investment in a foreign country is important but what makes it even more important is what has not been said in so many words. Here the writer employs the art of suggestion to raise questions on the pattern of Chinese investment anywhere in the world. However, his veiled reference to Pakistan vis-à-vis Chinese investment is worrisome.

While no one can deny the importance of transparency, fair play and disclosure of information regarding projects and investments in line with the laws of the land, it is important to put facts in the correct perspective in relation to the Chinese investment in Pakistan.

Who knows more than Dr Farrukh Saleem, an erudite economist in his own right, that investors forever remain in search of safe, secure and peaceful investment climates – climates that offer them attractive rates of return on their investments. Investors calculate multiple variables while making strategic decisions as to where to invest their capital.

This explains why countries formulate investor-friendly policies that attract investments. They go to any limit to give a whole range of incentives such as tax holidays, provision of lands on cheaper rates and assured supply of basic inputs such as electricity, gas and other facilities. A number of global institutions like the World Economic Forum and the World Bank rate countries on the touchstone of ‘ease of doing business’. Prospective investors take the findings of these reports into account before deciding on the destinations of their investments. The more attractive the incentives offered by a country, the better the prospects of investment coming its way.

While talking of the mammoth Chinese investment of $51 billion in the form of the historic China-Pakistan Economic Corridor (CPEC), it is important to understand the context in which this investment was made in Pakistan. This will be helpful to appreciate the spirit of generosity that informed the Chinese decision to put their money here.

For the last many years, Pakistan has been confronted with the twin scourges of terrorism and energy shortage. Terrorism has taken a very heavy toll on our economy. According to a recently released report of the State Bank of Pakistan, the country has suffered losses of $118 billion over the last 15 years. The peculiar law and order situation not only led to a drying up of foreign investment but also caused capital flight from the country.

The economic losses become all the more exponential when seen in the context of the adverse impact of the persistent energy crisis on the economy. According to the Economic Survey of Pakistan, Pakistan’s economy has suffered an erosion of two to three percent in GDP per annum as a result of the energy crisis alone.

The above context explains why the country has been caught in low GDP growth trap, with the previous financial year registering a record high of 4.7 percent in years.

So Pakistan needed a big stimulus to lift its economy out of the dire straits it has been caught up in. This is where China chipped in with the largest ever overseas investment. Beijing had the option of choosing better and more conducive destinations than the energy- and terrorist-hit economy of Pakistan but still decided to invest its capital here, which speaks volumes about the bond of friendship between our two peoples.

It is important to mention that when two sovereign nations enter into financial arrangements at the government-to-government (G-to-G) level their business deals are exempt from the local procurement laws of each country. Hence the argument employed by the writer that the “Chinese prefer single-company bids and resent all forms of competition-based public procurement” does not hold water in case of foreign investment.

However, despite there being no legal need to go for tendering, the Punjab government was able to convince the Chinese government to agree to tendering in case of Lahore Orange Line Metro Train Project (OLMT).

In Feb 2014 in Beijing, the Chinese premier decided to fund the Orange Line project. An Inter-Governmental Framework Agreement was signed on May 22, 2014 providing that the Orange Line would be fully designed, constructed and supervised by Chinese enterprises. PPRA Rules get overruled under the G-to-G agreement. But the Chinese government was requested to allow the Punjab government to select Chinese enterprises through competitive bidding restricted to China.

The Chinese government informed that for projects using Preferential Buyer’s Credit, the China Chamber of Commerce and Import and Export of Machinery and Electronic Products (CCCME) shall provide a shortlist of enterprises (no more than three) for tender. After the bidding, China Railway-NORINCO JV emerged as the lowest bidder with a bid price of $2.139 billion, which was further brought down to $1.47 billion (without contingencies) through negotiation as the final cost of the OLMT. Thus the government secured a saving of $600 million.

The Orange Line is the first project in which tendering process was followed, despite it being a G-to-G project. The handing of the civil works of the entire project to the Punjab government by China is another precedent; the subletting resulted in an additional saving of Rs6 billion. The same also goes for the Multan-Sukkur Motorway project. Tenders were issued for it despite it being part of the CPEC.

The point being emphasised is that even in case of projects that come under the jurisdiction of the inter-governmental framework, our great Chinese friends agreed to opt for tendering though they were not legally bound to do so. This is something we acknowledge and thank them for.

The earlier we implement the CPEC projects as per their timelines, the better it will be for our polity and economy given the transformative impact of the project on the entire spectrum of our socio-economic life. And it goes without saying that the dividends to accrue from the game-changing project will be spent on social sector development such as education, health and clean-drinking water etc.

Thus people are the direct beneficiary of the largest development package announced by President Xi Jinping during his historic visit to Pakistan.

The writer is former lord mayor of Lahore.


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