A new ‘East India Company’ in the making?

Unlike the official narrative of Pakistan as well as China about the umpteen benefits the China–Pakistan Economic Corridor (CPEC) is going to yield, ground realities are telling a different story, making people question its logic and the very way investment—if it is investment at all—worth billions of dollars is being made.

While most of the details about CPEC’s various projects have yet not been revealed by the Pakistan government, whatever has become public information signifies controversy and disagreements rather than an era of ‘mega-development.’ Therefore, the demand for disclosing the whole information about CPEC is on the rise in Pakistan.

A fresh impetus to this demand has been provided by the revealed details of the recently held meeting of the Senate Standing Committee on Planning and Development, wherein the lawmakers, clearly perturbed by the implications of the project, went to the extent of equating CPEC with the ‘East India Company’, which, although a trading mission to India, was also the primary vehicle that transported and entrenched British colonialism to and in India.

Although the meeting was not attended by government representatives, the head of the committee did not shy of expressing serious concerns.
“Another East India Company is in the offing; national interests are not being protected. We are proud of the friendship between Pakistan and China, but the interests of the state should come first,” Senator Tahir Mashhadi, chairman of the Senate Standing Committee on Planning and Development, said when some committee members raised the concern that the government was not protecting the rights and interests of the people.

The committee was further informed that, quite unlike the way the CPEC has been projected in Pakistan as a ‘Chinese investment’, a major portion of the CPEC depended on local finances rather than Chinese investment.

“It will be very harmful for us if we have to bear the entire burden; will this [project] be a national development or a national calamity? Whatever loans taken from China will have to be paid by the poor people of Pakistan,” Mr Mashhadi observed.

The impact this debt-financed project will have on Pakistan is not so difficult to discern. In its recently concluded review of the project, the IMF has also warned Pakistan of a ‘looming CPEC bill’ that Pakistan will have to defray in the long run and that can put the economy in a lot of trouble than set it on the course to speedy development.

“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the Fund in a short evaluation of the impact of CPEC related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen,” adding further that “Pakistan will need to manage increasing CPEC-related outflows,” once the Chinese investors begin repatriating profits. This “could add up (to the pile of loans and re-payments) to a significant level given the magnitude of the FDI.”

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run,” the Fund stated cautiously.

While the Fund’s review concluded that “reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms,” this is where precisely Pakistan government has performed poorly.

Notwithstanding the challenges of security and governance, the highly imbalances spread of CPEC projects and centralized constitutionalism mechanism are turning out to be two other outstanding hurdles in the way of fully reaping the CPEC.

For instance, while a lot has been written and spoken about the strategic importance of the Gwadar port, located in Pakistan’s poorest province Balochistan, the province itself will not be the primary beneficiary of the revenue earned from it.

The senate committee was further informed that “the people of Balochistan will only get one benefit from this project, which is the water supply”, and will not be entitled to the revenue earned from the port or the airport being built in Gwadar as, based on current constitutional mechanisms, all revenues on ports and airports will be collected by the central government not by the provincial government.

The irony is that while Balochistan, as a province, would receive investment worth only US$600 million out of $51 billion, all expenses of the Gwadar Security Task Force – similar to the recently created Special Security Division for the protection of Chinese projects and personals –would be borne by the government of Balochistan and that too “without a single employee from the province”, according to a Baloch nationalist and a former senator from Balochistan, Sanaullah Baloch.

The controversy thus surrounding CPEC is likely to off-set whatever benefits Pakistan can reap of it in the short and the long run, and as the Fund implicitly stated in its review, policies favoring Chinese companies, developing, for instance, power projects, will off-set prospects of downward development (read: in one of the solar-power projects, a Chinese group is enjoying the benefits of an extraordinary Rs17 per unit tariff, where the competitive price of solar in the world today is closer to Rs4), and in the long-run, create problems of huge re-payments.

All of this requires, as one analyst has suggested, massive institutional reforms. “Development without such reforms will lead to nothing but a ‘national calamity.’ To avoid becoming a ‘colony’ of China, Pakistan does need to give first priority to its national needs, wherein no region remains neglected and wherein Pakistan’s economy grows rather than simply saddled under loans and debts” in the name of development.