back to top
    OpinionsCPEC is a classical googly can turn either way-I

    CPEC is a classical googly can turn either way-I


    CPEC is a classical googly can turn either way-I

    By Dr Shabir Choudhry


    One Pakistani sums up the CPEC with the following comment: ‘CPEC appears to be a risky game changer – a classical googly and one need to wait to see which way it turns after bouncing.

    The above comment makes a lot of sense for those who have studied the CPEC and have logically analysed it. My article is also for people with common sense; and not for those who observe things with prism of religion and who are emotionally charged.

    Before you accuse me of opposing CPEC, I want to assert that no sensible citizen of Jammu and Kashmir is against Pakistan's right to development because it is imperative for the progress and comfort of the society. However, we want Pakistan to treat others with compassion and care; and must abandon its policy of exploitation and plunder, especially in Gilgit Baltistan and Pakistan Administered Kashmir.

    Before moving forward, it is pertinent to quote what some Pakistanis say about the CPEC. Senator Tahir Mashhadi, Chairman of the Senate Standing Committee on Planning and Development, while discussing issues related to the CPEC said:

    “Another East Company is in the offing; interests are not being protected. We are proud of the friendship between Pakistan and China, but the interests of the state should come first.” 1

    Some Pakistani leaders and political commentators think the CPEC is damaging the fragile federation of Pakistan because some provinces feel more benefits are being shifted to ; and some provinces are being ignored. Some even fear that CPEC can become another East India Company which came as a trading company and eventually took over the entire undivided India. Senator Tahir Mashhadi feels this unfair treatment over benefits of CPEC can lead to serious threat to Pakistan. He said:

    “We do not want the CPEC at the cost of the federation.” 2

    Apart from that Jamat-I-Islami Emir Senator Sirajul Haq, while talking about the CPEC and deprivation of certain areas commented, ‘that like certain other parts of the country, Fata and AJK were also being neglected in the CPEC. “There is nothing for both areas in the CPEC,” he said and suggested that a 35km road (should be) built to link Muzaffarabad to the CPEC so that the people of AJK could also reap its benefits'. 3

    and relations among different nations revolve around common interests. This is why experts say there are no permanent friends or foes. Common interests bring people and countries closer to each other even when they live thousands of miles away.

    China has initiated mega projects under One Belt One Road (OBOR), which will connect many countries between China and Europe by roads and rail networks. The OBOR project, once completed will connect more than sixty-five countries, which is approximately a third of the world's total economy and more than half of the world population. The CPEC will complement other projects of OBOR. It will strengthen financial integration, trust, connectivity, cooperation and people to people contacts. It is interesting to note that out of sixty five plus countries, which will benefit from OBOR fifty seven are Muslim.

    Costs of the CPEC

    It needs to be understood that when the CPEC was initiated its cost was 45.6 billion US dollars; now it is projected to be 51.5 billion. Experts claim when CPEC is eventually completed the total cost could well be above 70 billion dollars. Both China and Pakistan have signed 51 MOUs. The CPEC won't complete in 2018 as generally understood; however the Government of Pakistan is strenuously working to complete some projects before the next general elections to win the elections by showing its economic recovery and development plans.


    When working out the costs of the CPEC people conveniently forget other costs like rupee depreciation against dollar, costs like security which has to be foolproof for the completion of the project and its smooth running, acute water shortage in Gwadar and environmental damage etc. This cost could also be in billions; but those who in charge of the CPEC do not care as loans will be paid back by Pakistani people.


    People of Pakistan need to understand that China is not investing 51.6 billion US dollars because they love Pakistan and Islam. They clearly have their own agenda. Michael Kugelman, a senior associate at the Washington DC based Woodrow Wilson Centre said:


    “China is not building the corridor as an act of charity for Pakistan. It will happily fund and build any structure that plays into this goal – whether we're talking about roads or ports”.


    For early completion of some projects to reap political benefits the government selfishly agreed to pay high interest rates for ‘early harvest' projects. In return the Chinese agreed to provide 28 billion dollars under early harvest projects; out of which 19 billion is in the form of foreign direct investment with ‘debt service terms are 7pc to 8pc with many of them pegged to six-month Libor and include Sinosure, which is the fee for reinsurance of all loans that Chinese banks require all foreign borrowers to have'.4


    It must be noted that interest on loan from World Bank and International Monetary Fund is generally around 0.5% and Pakistan, at times, have to borrow more money to pay instalments on the original loan. So question arises how Pakistan will manage to pay instalments of commercial loan with 7% interest; especially when the economic production is down, exports are down and money from Pakistani and Kashmiri Diaspora is also declining considerably?


    It must be pointed out here that India is also building a mega project called Delhi Mumbai Industrial Corridor with help of Japan. The project includes building of infrastructure, smart cities and towns; and Japanese government is providing 43 billion dollars, which is 45% amount of the project. Unlike Pakistan, India doesn't sing laurels for Japan that their friendship is higher than Himalayas and sweeter than honey; and still India got this loan from Japan at the interest rate of 0.25%. Pakistan with friendship sweeter than honey will be paying 7% interest to China with some hidden costs as well, as explained below.


    With many of the projects under early harvest programme there is ‘a debt-to-equity ratio of around 80:20, or in some cases 75:25. And in most cases, return on equity (ROE) is guaranteed at either 17pc or 20pc'.


    Khurram Hussain in his article in Dawn writes: ‘If $19bn is coming in as investment on commercial terms, and 80pc of that is debt with the remaining as equity, what is the size of the outflow as debt service and return on equity that we can discern? The debt service outflows will be about $1bn and the return on equity will be $646 million if it is kept at 17pc. Add to that $1.9bn as repayment of principal. That means an annual net outflow of $3.546bn per year once commercial operations begin'. 5


    In order to properly understand how much is $3.546 billion dollars, one need to compare it with ‘last fiscal year's figures, when interest payments on external debt were $2.1bn, and income (for foreigners) from investments in Pakistan was $3.2bn'. What that means is Pakistan's total interest outflow on government borrowing alone was $1.1billion US dollars in fiscal year 2016. 6


    As pointed above, apart from CPEC related loans, the government has other loan commitments which must also be honoured; and both loans will surely place heavy burden on foreign exchange reserves. If CPEC projects are not completed and run professionally then what Pakistan can have is herd of white elephants, which could prove to be disastrous to the economy and country's standing. One must not forget how PIA and Steel Mill have been run in Pakistan. (to be continued……)

    Writer is a political analyst, TV anchor and author of many books and booklets. Also he is Chairman South Asia Watch and Director Institute of Kashmir Affairs.

    The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

    Share post:


    More like this

    UNION BUDGET 2024: Implications for Indian Agriculture

    Dr. Parveen Kumar The Union Budget 2024 presented in the...

    Dr.Vishwas Brings legends alive

    Vinod Chandra shekhar  Dixit Recently inDungarpur (Rajasthan) on the occasion of...

    Kamala Harris Is A Desi At Heart

    ‘I think of that young baby, still in her...

    West Bengal’s Potato decision escalates tensions with north-eastern states

      By Arun Kumar Shrivastav West Bengal Chief Minister Mamata Banerjee's...