Jul 05, 2017

Pakistan: CPEC and the Burden of Inoperable Debt

Photo Courtesy of Foreign Policy


The implementation of the China-Pakistan Economic Corridor (CPEC), a mega project involving transportation and energy infrastructure which will connect Pakistan to Xianjiang, part of the Chinese “One Belt, One Road” initiative, is ongoing. While governments from both countries affirm that the project will bring social and economic benefits for people in Pakistan, it is unclear which specific projects are part of the plan and what will be the costs to the Pakistani citizens. In this context, CPEC is more likely to lead to an “unserviceable debt” with China, apart from fostering conflict and increasing the marginalisation of ethnic and indigenous minorities in areas such as Balochistan and Gilgit-Baltistan.


The article below was published by Foreign Policy:


In recent months, the Chinese-Pakistan Economic Corridor (CPEC) has left Pakistanis emboldened, Indians angry, and U.S. analysts worried. Ostensibly, CPEC will connect Pakistan to China’s western Xinjiang province through the development of vast new transportation and energy infrastructure. The project is part of China’s much-hyped Belt and Road Initiative, a grand, increasingly vague geopolitical plan bridging Eurasia that China’s powerful President Xi Jinping has promoted heavily.

Pakistani and Chinese officials boast that CPEC will help address Pakistan’s electricity generation problem, bolster its road and rail networks, and shore up the economy through the construction of special economic zones. But these benefits are highly unlikely to materialize. The project is more inclined to leave Pakistan burdened with unserviceable debt while further exposing the fissures in its internal security.

Pakistan and China often speak of their “all-weather friendship,” but the truth is that the relationship has always been a cynical one. China cultivated Pakistan as a client through the provision of military assistance; diplomatic and political cover in the U.N. Security Council; and generous loan aid in an effort to counter both American influence and the system of anti-Communist Western treaty alliances. China also sought to embolden Pakistan to harangue India, but not to the point of war because that would expose the hard limits of Chinese support. Despite Pakistan’s boasts of iron-clad Chinese support, when Pakistan went to war with India in 1965, 1971, and 1999, China did little or nothing to bail out its client in distress.

During the 1971 war, when India intervened in Pakistan’s civil war in its Bengali-dominated eastern wing, President Richard Nixon requested China move troops along its eastern border with India to intimidate India and stave off Pakistan’s defeat. However, China declined to undertake even this modest effort to preclude India from vivisecting Pakistan. East Pakistan became independent Bangladesh in 1971. In a nod to Pakistan, China refused to recognize Bangladesh until August 1975, even after Pakistan did so in February 1974.

There’s little reason to think China has made a sudden conversion to altruism when it comes to CPEC. The project originated in 2013, when the Chinese premier, Li Keqiang, and Pakistan’s then-president, Asif Ali Zardari, agreed to build an economic corridor between the two countries.  The project inched closer to fruition in 2014, when Pakistan’s President Mamnoon Hussain and Prime Minister Nawaz Sharif traveled to China on different occasions to further discussions. In November 2014, the Chinese government announced that it would finance $46 billion in energy and infrastructure projects in Pakistan as part of CPEC. In September 2016, China announced a new loan deal for CPEC valued at $51.6 billion. In November 2016, part of CPEC became “operational” when products were moved by truck from China and loaded onto ships at Pakistan’s port Gwador along the Makran coast for markets in West Asia and Africa.  After this major development, China declared that it would increase its investment again to $62 billion in April.

Pakistan’s civilian and military leadership alike have told the public that CPEC will solve Pakistan’s chronic electricity shortages, improve an aging road and rail infrastructure, provide a fillip to Pakistan’s economy, knit an increasingly pariah state to a new Chinese-led geopolitical order, and diminish the role of the much-reviled United States in the region. CPEC has the bonus of irritating the Indians because it strengthens Pakistan’s hold on territory in Jammu and Kashmir that it snatched in the 1947-48 war as well as portions of that territory that Pakistan subsequently ceded to China in 1963 as a part of the Sino-Pakistan boundary agreement. India claims these lands, currently held by Pakistan and China, and deems their occupation illegal.

Despite the bold claims made by China and Pakistan, there are many reasons to be dubious about the purported promises of CPEC. There’s already violence all along the corridor. The north-most part of CPEC is the Karakoram Highway (KKH), which gashes through the Karakoram Mountain Range to connect Kashgar in Xinjiang with Pakistan’s troubled province of Gilgit-Baltistan. Xinjiang is in the throes of a slow-burning insurgency by the Muslim Uighur minority against the Communist state. Gilgit-Baltistan, a Shiite-majority polity under the thumb of a Sunni-dominated Pakistan, is part of the above-noted contested territory of Jammu-Kashmir. Here, geology and weather further limit CPEC. The Karakoram Highway, a narrow road weaving through perilous mountains, can’t bear heavy traffic. Expanding the KKH will not be easy. Residents of Gilgit-Baltistan worry about the environmental costs in relation to the few benefits they will enjoy. There have been episodic protests, which the Pakistani government has ruthlessly put down. Meanwhile, Gwador is experiencing a prolonged drought, frustrating the project while the four extant desalination plants remain idle.

In the south, CPEC is anchored to the port at Gwador in Pakistan’s insurgency-riven Balochistan province. The local Baloch people deeply resent the plan because it will fundamentally change the demography of the area. Before the expansion of Gwadar, the population of the area was 70,000. If the project comes to full fruition the population would be closer to 2 million — most of whom would be non-Baloch. Many poor Baloch have already been displaced from the area. Since construction has begun, there have been numerous attacks against Chinese personnel, among other workers.

There’s also the stubborn problem of economic competitiveness. For CPEC to be more competitive than the North-South Corridor that is rooted to the Iranian port of Chabahar, Gwador needs to offer a safer and shorter route from the Arabian Sea to Central Asia. For that to happen, Gwador needs to be connected by road to the Afghan Ring Road in Afghanistan’s Kandahar province, which is under sustained attacks by the Afghan Taliban. Alternatively, a new route could connect Gwador with the border crossing at Torkham (near Peshawar) by traveling up Balochistan, with its own active ethnic insurgency, through or adjacent to Pakistan’s Federally Administered Tribal Areas, which is the epicenter of Islamist terrorism and insurgency throughout Pakistan. It takes great faith — or idiocy, or greed, or all of the above — to believe that this is possible.

All of these issues raise salient questions about the real utility of this unfolding fiasco. If CPEC is not an economically viable route for actual commerce, what purpose does it serve? Analyst Andrew Small, among others, has argued that CPEC is, in reality, a redundant supply route for China should it face an embargo during a military conflict. It’s also possible that if the port at Gwador is not economically sustainable the real goal is the creation of a Chinese naval outpost. Many in India, Pakistan’s historic rival, have also come to this conclusion. They may well be correct, according to recent Chinese reports indicating that China may “expand its marine corps and may station new marine brigades in Gwadar.”

While the benefits to transit may be illusory, it is possible that Pakistan could benefit from purportedly low-hanging fruit, including the much-lauded economic zones and power plants. Pakistan does struggle with power shortages. But its problem is not a lack of supply, rather the complex issue of “circular debt” referring to the accumulating unpaid bills of the power sector; the theft of power through illegal connections, meter tampering, and other means; and an inadequate transmission system. Meanwhile, Pakistanis have learned that the current Chinese development model will do little for their economy. China prefers to use its own companies and employees rather than hire locally.

Pakistani citizens also have no way to know what CPEC will cost them. Neither government has been clear about what projects are part of the plan. Costing has been completely opaque. China sets the price, contracts the work out to Chinese companies, and saddles Pakistan with the loans. Given the ongoing security threats on Chinese nationals in Pakistan, Islamabad is raising a CPEC Protection Force, the costs of which will be passed on to Pakistani citizens. The State Bank of Pakistan has repeatedly called for more transparency, to no avail. Astonishingly, according to the Pakistani daily The Dawn, “Despite the frantic activity, Islamabad had yet to determine the expected cost and benefit, expressed in monetary terms, of the mega project.” And that’s before factoring in other costs such as the cultural and religious tensions between Chinese and Pakistanis, although there’s been a public relations push by both governments to downplay them.

Recently, The Dawn claimed to have accessed the alleged CPEC “master plan,” drawn up by the China Development Bank and the National Development Reform Commission of the People’s Republic of China. It suggests that CPEC is really about agriculture, an issue that had not previously been discussed in the extensive media coverage of the plan. As part of the overall project, thousands of acres of productive agricultural land will be leased to the Chinese for “demonstration projects” for newly developed seed varieties and irrigation technology. Chinese companies will be the primary beneficiaries of these initiatives.

Pakistanis should be worried about the way CPEC is shaping up. If it is even partially executed, Pakistan would be indebted to China as never before. And unlike Pakistan’s other traditional allies, such as the United States, China will probably use its leverage to obtain greater compliance from its problematic client. China is particularly concerned about the Islamist militant groups active among China’s Uighur Muslim population in Xinjiang. Uigher militant groups have long shared ties with groups in Afghanistan and Pakistan, some of which have been patronized by the Pakistani state, such as the Afghan Taliban. China has used religious and political oppression, along with crude violence, to eviscerate the Islamist revival among Xinjiang’s Uighers and has counted on Pakistan to give China political cover while doing so. In taking on Chinese debt, Pakistan may also risk severely worsening its already critical relations with India, which has been watching the CPEC drama unfold with growing alarm. In the north, CPEC continues to make permanent the Pakistani and Chinese grip on territory India claims. In the south, Chinese naval vessels may dock in the deep port of Gwador, threatening New Delhi in the Arabian Sea. In normal times, this would be a serious concern for the United States — but Washington is so distracted by the chaos of the Trump administration that the issue has gone largely under the radar.

But the news may not be all bad.  For China to get maximal returns on its extensive investments in Pakistan as well as Afghanistan it needs stability in both countries. In recent years, China has stepped up its role in trying to negotiate peace in Afghanistan by helping to mediate between Pakistan and Afghanistan. As Pakistan’s economy becomes ever more interwoven with China’s, China may be in a position to dampen Pakistan’s worrying affinity for terrorist groups and nuclear proliferation — particularly the latter, because China enabled Pakistan’s nuclear program to begin with. If China took on the responsibility of managing Pakistan, Washington might be happy to wash its hands of the problem and let the civilians in Islamabad and the uniformed men in Rawalpindi stab someone else in the back for a change.