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February 12, 2017

Remembering Calvin


February 12, 2017

It was a cold November night. I was trying to light up the negligible traces of gas blooping after a two-second pause, when my Chinese classmate Calvin Yang called. Our Grade V exams were just two weeks away and Calvin suggested that collaboration would prove mutually beneficial. Calvin was a guest in my country and, above all, my friend, whom I could not refuse. A Pakistani would not give up on a friend in a time of need. I dedicated the whole week to helping him. My command over the English language allowed me to help Calvin expand his vocabulary, make appropriate use of punctuation and improve his sentence structure. This resulted in a little help from Calvin in my weak area: mathematics. When our class rankings were published, Calvin’s 1st position, as compared with my 5th position, was a reminder of my inability to focus on this subject.

Deja vu struck me last November. A surge of vehicles carrying Chinese export consignments reached from Gwadar to Kashgar, on course for the world markets. If we take a look at just a few of the economic merits of the corridor, according to a study published in Pakistan Business Review in April 2016, “CPEC is expected to reduce the travel distance by 50 percent to 85 percent for more than 33 percent of China’s current container traffic directed towards Europe, Middle East and Africa with an estimated trade of over $1 trillion with these regions.

“It is pertinent to mention that around 30 percent (70 million containers) of this trade is with European nations and around six percent with Africa. China’s Xinjiang region is responsible for 80 percent of China’s total trade with Central Asia. The sea route via Asia Pacific to Europe costs around $167 per tonnes and takes around 45 days; the Euroasian land bridge is likely to cut transport time by more than half, reduce costs to $110 per ton and travel distances from 26,000 kms to 6,379 km”.

The slash in freight cost and lead time on Chinese exports will unequivocally make China’s already market competitive products, more competitive across global markets. In the long run, Chinese products, ranging from electronics to silk, will be the most competitive products on the planet unless their competitors get access to a population of helots – effectively wiping off human resource costs off their income statements – or any other miraculous cost-cutting measure for that matter could make it possible to compete with Chinese products.

On the flip side, as per an independent think tank’s analysis, “every day China spends around $18 million on import of 6.3 million barrels of oil as shipment costs from the Middle East, accounting for 80 percent of its oil needs, routing through the Strait of Malacca covering a distance of 9,912 miles. By cutting a corridor directly from Kashgar to Gwadar, it will bring these costs significantly down to one-third of the current levels as new distance will be 3,626 miles to Central China, whereas only 2,295 miles till West China. Even if China were to use CPEC only for 50 percent of its current level of oil supplies, it will save around $6 million every day, almost $2 billion every year”.

CPEC will clearly be a multiplier for China’s GDP through enhanced exports, increased employment creation – against the backdrop of augmented exports – decreased import bills and the FDI that will flow into the Chinese economy for tapping the benefits of the corridor. It will also produce cheap labour and a myriad of other economic directions. According to the World Economic Forum’s outlook, China is expected to be the world’s largest economy by 2030.

As a Pakistani, I am glad to see our friend in the north on its way to being the largest global economy. Admittedly for Pakistan, there are opportunities in the short term for construction, logistics and allied industries to prosper. While CPEC is a transcendental opportunity for economic growth, a noteworthy imbalance seems to exist between the Himalayan friends in economic gains and the long-term economic benefits are incalculable for Pakistan. For instance, the basis of toll revenue from CPEC does not seem clear as yet. This causes concern because if the revenue is considered a mere toll tax, it will most likely end up in the repair and maintenance of the route owing to the expected flow of traffic. There is also curiosity over whether CPEC encompasses any merits for Pakistan’s export-oriented industries in terms of coopetition in international market penetration by China.

This is not to say that there is no way in which CPEC will benefit both nations equally. The criticism has been levelled to highlight the need for formal policy aimed at aligning the benefits with the needs of Pakistan from this portentous opportunity.

At the outset, in place of introducing a transit fee – that is merely a toll tax – imposing a levy that reflects the incremental profit that Chinese companies are making as a result of the CPEC route would be a fair option. The government of Pakistan should pay heed to its export-oriented industries and ensure their protection from the price disparity between Chinese and Pakistani products that will soon dawn upon in international markets. The participation of Pakistani companies in trade consignments through CPEC needs to be made an integral part of the government’s policy on the corridor. In this context, linkages between Pakistani and Chinese companies need to be developed by bilateral state involvement to maximise the establishment of joint ventures for international trade.

A ceiling could be fixed for Chinese trade volume flowing per annum through the corridor or, alternatively, a proportion can be fixed for the trade through joint ventures as a percentage of the total volume of trade. In addition, there should be a call to establish Chinese units in Pakistan. It should also be ensured that consignments are not entirely emerging from China. Pakistan should ask China to incorporate Pakistan’s workforce in Chinese companies that are benefiting from CPEC.

Reminiscing my childhood memories with Calvin, I have never thought that Calvin was selfish. Instead, it was my own fault that I was not able to focus on my objectives as efficiently as Calvin did. I can’t use my friendship to make a bilateral win-win situation. I should have developed a clear workplan for my study sessions with Calvin. While I helped him address his areas of weakness, I should have also worked on improving my percentage calculations and LCMs by seeking his assistance as part of a ‘bilateral understanding’. I could have ranked 2nd position had I carried out an efficient self-review, identified my area of weakness and mapped it with the opportunity at hand. Let’s hope the government doesn’t make the same mistake.

The writer is a chartered accountant and a graduate of Oxford Brookes University.

Email: [email protected] Twitter: Shahzad_91

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