The great game changer?

10 Apr 2018

China’s One Belt and One Road Initiative (OBOR) is a colossal trans-national initiative, of which the China-Pakistan Economic Corridor (CPEC) is just one component. China, as a country, has significant economic disparity, geographically speaking. Eastern China is far more developed than the western side. The goal of the CPEC project as envisioned by Chinese authorities is to develop this impoverished part of the country, including Xinjiang, which has a Muslim-majority population. Another important aspect of CPEC is its significance for China from a security point of view. Beijing wants to have a separate route to the Middle East in order to secure its oil supplies. It plans to do this by opening up a trade route which can be used in addition to the Strait of Malacca. In Pakistan, CPEC is being called a ‘game changer’. Through this project, Pakistan will receive $60 billion, the largest foreign investment in its history, from China. The full picture, however, is not as positive as it seems.

To fully understand this, let us begin by looking at the current volume of trade between Pakistan and China. In 2006, Pakistan’s exports to China totalled $500 million, while the imports from China during the same year totalled $2.7 billion. Now, in the year 2017, exports have reached $1.6 billion while imports have amounted to $10.6 billion. The 2006 trade volume of $3.3 billion has now risen to $12.2 billion in just a year. In Pakistan-China trade, imports have increased much more than exports. This has increased pressure on Pakistan’s foreign exchange and has also increased its trade deficit. There is a real need for Pakistani products to have easy access to the Chinese market to achieve balance in imports and exports.

Looking into the details of CPEC, the project has three phases. The first phase, which will last from 2017 to 2020, includes the Gwadar Port, highway construction, and energy projects. The second phase, which will last from 2020 to 2025, involves initiatives for the development of the industrial zones and agriculture sectors, so that employment opportunities can be enhanced. The third phase, which will last from 2025 to 2030, will aim to connect South Asia to Central Asia. China will spend $60 billion in total on the CPEC project. Among the basic features of CPEC, some notable elements include improving road connectivity and access, energy projects, development projects, poverty reduction, agricultural sector improvement, and economic development. Other initiatives under CPEC include investments in various projects including electricity generation, specific economic targets, social sector projects, information technology, and railways.

If $14.2 billion were spent on hydropower projects instead of six coal-powered plants, not only would cheaper electricity be produced, but Pakistan’s foreign reserves would be helped as well

One of the major aspects of CPEC is the energy program. This includes six coal power projects, which will generate 8220 megawatts (MW) and will cost $14.2 billion. Similarly, there are three projects involving hydropower, which will generate 2690 MW, costing $5.6 billion. CPEC has four wind power projects, which will generate 400 MW, which will cost $800million. There is one project for solar power, which will generate 1000 MW at a cost of $1.3 billion. There is also a liquefied natural gas (LNG) project, which will generate 1320 MW and will cost $1.6 billion. Similarly, there are two projects related to transmission lines, costing $3 billion. Thus, there will be an overall investment of $26.5 billion in the power sector. On top of all that, China has provided a bilateral assistance of $7 billion to aid in nuclear power projects.

This proposed energy program for Pakistan needs to be rethought. If the $14.2 billion were spent on hydropower projects instead of six coal-powered plants, not only would cheaper electricity be produced, but Pakistan’s foreign reserves would be helped as well. Coal-powered plants will greatly damage the atmosphere in the long-run, which is both a major climate concern and weakness of the CPEC program.

By making the creation of the western route part of the first phase instead of eastern routes, only Pakistan’s western side will benefit, at least during CPEC’s initial phase. Another weakness in CPEC that needs to be acknowledged is that it has not paid enough attention to Pakistan’s agricultural sector, the most vital element for which is water. There is no exclusive project in CPEC aimed at alleviating the water crisis, which is bound to hit Pakistan in the near future. No funds have been allocated to address this problem in the first phase.

Chinese companies have a monopoly over CPEC-related projects being undertaken in Pakistan. The government is not allowing Pakistan’s local companies to compete openly for the projects. Wherever CPEC is operational, local companies should be given the full opportunity to compete. This will not only benefit Pakistan’s economy, but will also help lower development costs through fair competition. Restricting local companies from participating from CPEC projects goes against their basic rights.

Most importantly, the entire CPEC project is dependent on Gwadar, where just three percent of the work has been completed so far. This is a matter of great concern and requires immediate attention.

CPEC is a historic initiative that will provide Pakistan with much needed support and development from one of its closest neighbours. This partnership will continue to grow and strengthen over the years through trade and mutual benefit. But, if the weaknesses in the project are not given the appropriate attention, huge holes and weaknesses will be left, that with time, will mar this great agreement and pose the danger of undoing some of the good it has aimed to achieve.

Published in Daily Times, April 10th 2018.

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