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Opinion

Dr Murad Ali
October 13, 2017

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CPEC: some ground truths

CPEC: some ground truths

In a recent op-ed in this paper (‘CPEC by Dr Farrukh Saleem, October 8), some ‘facts’ about CPEC have been presented. I respectfully differ with some of the points raised in the article. During a recent visit to Pakistan, I had conducted interviews with numerous officials in a number of policy-making institutions and think-tanks as well as with private business-owners to study CPEC in the broader context of South-South Cooperation (SSC). Here, I would like to share some preliminary findings.

The suggestion that “Pakistan’s decision-makers who approve and sign contracts under CPEC have little or no business interests in Pakistan” is a much generalised statement that questions the loyalty and honesty level of all Pakistani decision-makers engaged with CPEC-related projects. While politicians in Pakistan are mostly a punching bag, it would be unwise to categorise all of them as ‘having no business interests in Pakistan’. Also, it must be clarified that besides some key ministers, a diverse group of experts and administrative officials is involved in the CPEC decision-making mechanism.

For the identification and final approval of projects under CPEC, there is a detailed and proper procedure. China and Pakistan have set up the Joint Cooperation Committee (JCC), co-chaired by the minister of planning, development and reform from the Pakistani side and the vice-chairman of the National Development Reform Commission (NDRC) from the Chinese side. The JCC is the highest body comprising both political figures and administrative officials where all projects are discussed, reviewed and approved. Under the JCC, there are joint working groups (JWGs) with experts from both countries. There are five JWGs dealing with long-term planning, energy, transportation infrastructure, industrial cooperation/SEZs and the Gwadar Port. Hence, to question the patriotism and uprightness of all these individuals involved at different tiers of the hierarchy seems quite a sweeping statement.

“Chinese companies that are undertaking mega-projects in Pakistan bring in ship-loads of Chinese workers”. This has been a dominant perception about China not only in Pakistan but also in many other developing countries, particularly in Africa. Interview data suggests that the overall ratio of Chinese nationals working in CPEC projects will be around 20-30 percent, while 70-80 percent are Pakistanis (Incidentally, a colleague here at my institute pointed out during my presentation that it is approximately the same ratio as in Africa). Due to space limitation, it is not possible to provide details of various projects and the number of Pakistanis that have been employed but the fact is that there have been numerous job opportunities for local people.

To do some ‘ground truthing’, for example, in Mansehra where the construction of KKH Phase II (Havelian-Thakot Section) is underway, implemented by the China Road and Bridge Corporation (CRBC), about 200 local residents have been hired as truck operators and drivers for the transportation of construction material. I was also informed that it is cheaper to employ locals because the company does not have to provide lodging etc to local workers. Similarly, a senior official in the Islamabad Chamber of Commerce and Industries told me that the cost of unskilled or semi-skilled labour is Rs80,000 per month in China while it is about Rs20,000-30,000 in Pakistan – so why would China bring their own workforce? One thing is clear, though: high-skilled labour and engineers etc are mostly Chinese.

Similarly, there is the perception that minimal indigenous resources are utilised. The ‘Pakistan Economic Survey 2016-17’ has stated that construction-related material such as cement, iron and steel etc has experienced huge growth due to increased demand as a result of CPEC projects. The report explains that the production of truck and other heavy vehicles “has risen due to economic activity in the country to meet CPEC related material and freight transport needs”.

The article of October 8 also mentioned the ‘secret’ terms and conditions of developmental loans. Regarding the terms and conditions of Chinese concessional loans, both the Pakistani and Chinese officials that I interviewed stated that the overall interest rate is 2-3 percent. However, my request for any copy of an MoU or agreement etc not entertained as I was informed by some Pakistani officials that state-to-state agreements are exempt from the Right to Information Act. In this regard, one also fails to find a clearly pronounced official statement from relevant Pakistani authorities to debunk the myth that Pakistan is getting into a debt trap.

What I gained from my interviews could be validated from the 2011 White Paper on China’s Foreign Aid, released by the Information Office of the State Council of the People’s Republic of China. According to this policy document, “concessional loans are provided for large and medium-sized infrastructure projects as well as for projects generating both economic and social benefits for the recipient country and incur interest payments. The current annual interest rate of China’s concessional loans is stated to be between 2 percent and 3 percent with a repayment period of 15 to 20 years (including five to seven years of grace)”. The government of Pakistan needs to clearly state if we have obtained concessional loans on the same terms and conditions or on different ones.

About international competitive bidding and to what extent CPEC projects are following this, the prioritisation of economic, political, security and diplomatic interests has remained a constant feature in foreign aid policies of a majority of DAC and non-DAC donors. There are well-documented studies backed by strong empirical analysis that bilateral aid allocation from most Western donors has been influenced by trade interests. Since about 75 percent of CPEC financing is in the form of foreign direct investment and loans obtained by Chinese companies from Chinese banks, it seems to be up to them how they can increase their value for money and where they can find cheaper and better technology to implement projects. Also, there must be prior feasibility studies and realistic financial estimates. In the context of concessional loans, I believe it’s the prerogative of the Pakistani government to go for international competitive bidding and award projects to the best bidders. I hope the relevant authorities explain what the prevalent modus operandi is.

“The Government of Pakistan is providing tax breaks and other incentives to Chinese companies undertaking projects in CPEC – with no comparable tax breaks or incentives to Pakistani companies”. The government needs to negotiate this point well. Although Pakistan and China have signed the Free Trade Agreement (FTA) in 2006, unfortunately Pakistan has not benefited much from it. While overall bilateral trade has increased from about $85 million in 1952 to $17 billion in 2014, Pakistan’s trade deficit has increased significantly reaching to $12 billion in 2014. It is argued that, along with other factors, one of the reasons for the huge trade deficit is that exporters from other regions and countries such as Asean, Australia and New Zealand are offered more preferential treatment under the FTA compared to Pakistani businessmen and exporters.

In view of this, and for greater policy coherence for development, it can be validly argued that Pakistani investors, traders and exporters need to be provided the same set of concessions in Chinese markets as are provided to exporters from other countries that have FTAs with China.

 

The writer is a postdoctoral research fellow at the German Development Institute at Bonn, Germany.

Email: [email protected]

 

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