Recently, the US diplomat Alice Wells speaking at the Wilson Center at Washington D.C., criticised the Belt and Road Initiative (BRI) and questioned the economic feasibility of China Pakistan Economic Corridor (CPEC).¹ She reiterated that the US-Pakistan Business Development Partnership was different from CPEC and argued that the lack of transparency in the CPEC projects could lead to the corruption that could eventually enhance the debt crisis in Pakistan.

The statement has sparked uproar in Pakistan and China. Further it has also questioned the feasibility of the BRI. On 25 November 2019, the Chinese Spokesperson, Geng Shuang retorted that “… her remarks are nothing new. They are mere repetitions of old slanders against China, the CPEC and the BRI like those chanted by some in the US.”²

The CPEC was conceived in 1990. It connects Gwadar, in the south-western province of Baluchistan, to China’s Xinjiang region via a 2,700 kilometre route through the mountainous terrain of Gilgit-Baltistan in north Pakistan. The agreement on the Gwadar port was signed on 22 March 2002 in a ceremony referred to as the “Pak-China Friendship Journey from the Karakoram to Gwadar”. Gwadar port is important for China as it is strategically located between South Asia, Central Asia and West Asia at the mouth of the Persian Gulf and its proximity to the Persian Gulf is very important. On 13 November 2016, at the inauguration ceremony of the Gwadar Port, Nawaz Sharif referred to the occasion as the "dawn of a new era" and said, “the China Pakistan Economic Corridor (CPEC) is destined to transform the entire country and open up a world of possibilities for not just Pakistan but also the Central Asian states and the rest of Asia.”

The long-term plan envisioned for the CPEC is from 2017-2025. The agreement for the CPEC was signed in 2013 and the terms and conditions were finalized in 2015. The projects took off in 2016. Pakistan’s first utility-scale solar power generation plant went into commercial operation even as excavation started in the Thar Desert for a coal-fired mine and the first freight cargo travelled through the western route and arrived in Gwadar. ³ Notably, the CPEC is the link between the Silk Road Economic Belt and the Maritime Silk Road. The CPEC has four major areas of cooperation; energy, infrastructure, industrial cooperation and the Gwadar Port. To implement the CPEC cooperation a ministerial-level Joint Cooperation Committee on CPEC Long Term Planning (JCC) has been set up. There are seven joint working group under the JCC.

Challenges to China Pakistan Economic Corridor in Pakistan

The CPEC is facing several challenges within Pakistan. Soon after signing of the agreement, the Khyber Pakhtunkhwa Chief Minister Pervez Khattak cautioned his government that they will not allow the proposed CPEC to pass through the province if the western route was not made its part. ⁴ In Baluchistan, there is serious resentment against the project. In a way the CPEC can be viewed as coming together of two different political systems. China is also having trouble in accepting the way the Pakistani media and political parties are handing the CPEC.⁵ The two Chinese citizens were abducted and killed in Southwestern Pakistan.⁶ Additionally, three militants assaulted the Chinese Consulate in Karachi. ⁷

At the time of the second Belt and Road Forum, China and Pakistan signed agreements on CPEC. It included upgradation of a Karachi-Peshawar railway line, launching of the second phase of the Free Trade Agreement and establishment of a dry port.⁸ However, much progress was not seen in this direction. Again on 6 November 2019, at the 9th Joint Coordination Committee of the CPEC, Pakistan made a request to China for the USD 8.5 billion for the construction of the ML-1 rail link from Peshawar to Karachi. Ever since 2013, the terms and conditions of the rail project have not yet been finalized.

Forecast of the Public Debt/GDP in 2018

The abovementioned figure shows IMF forecasts of debt to GDP ratios in 2018 for eight countries. It illustrates the increase in the debt ratio for Pakistan from 2014 to 2017 to almost 20 per cent.

A recent report by the Center for Global Development (CGD) has shown that 68 BRI countries are at risk of debt distress according to measures of debt sustainability. Pakistan is one of the eight most vulnerable countries that are under the highest risk of debt distress. On Pakistan, the report explains that the CPEC has become the flagship project of BRI. The estimated value of CPEC is USD 62 billion, out of this USD 33 billion will be invested in the energy-related project. Reportedly, China will finance 80 per cent of that amount. However, notwithstanding this ambition, at the end of 2017certain projects have already been canceled including three major road projects.

Besides the debt distress of Pakistan, China is also charging high-interest rates. In contrast to the 2-2.5 per cent “concessional rate” given to some China Exim Bank customer, the loans given to Pakistan are as high as 5 per cent. The report further states that it would lead to a public debt ratio of 70 per cent. Pakistan has already requested debt rescue from Paris Club on six occasions; its huge borrowing from China may force it to return the seventh time as well. ⁹ Remarkably, Ambassador Wells has highlighted that China offers substantial financing in the form of loans. On the contrary, China is not a member of the Paris Club and it does not have a transparent lending process either.

During the Second Belt and Road Forum, Xi Jinping speech touched upon much of the criticisms of the BRI and stressed on the ‘joint pursuit’, ‘high-quality infrastructure’ and problems such as ‘debt trap’. The CPEC is the lynchpin of the BRI as it was reinstated in the First and Second Belt a Road Forum for International Cooperation. But it remains to be seen if, China delivers on the promises it has committed.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>

References

1. A Conversation with Ambassador Alice Wells on the China-Pakistan Economic Corridor, accessed at https://www.state.gov/a-conversation-with-ambassador-alice-wells-on-the-china-pakistan-economic-corridor/
2. Foreign Ministry Spokesperson GengShuang's Regular Press Conference on 25 November 2019, accessed at
   https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/t1718746.shtml
3. 2016: The year of the CPEC, accessed at https://www.dawn.com/news/1305582
4. CPEC won’t pass through KP sans western route, says Khattak, accessed at https://www.dawn.com/news/1288791
5. China’s Trouble With Pakistan’s Turbulent Democracy, accessed at https://thediplomat.com/2017/01/chinas-trouble-with-pakistans-turbulent-democracy/
6. Chinese Couple Abdicated in Pakistan Have Been Killed, Officials Say, accessed at https://www.nytimes.com/2017/06/12/world/asia/pakistan-chinese-couple-killed.html
7. Chinese Presence in Pakistan Is Targeted in Strike on Consulate in Karachi, accessed at https://www.nytimes.com/2018/11/23/world/asia/pakistan-karachi-attack-chinese-consulate.html
8. China-Pakistan sign host of deals under CPEC during PM Imran Khan's visit, accessed at https://economictimes.indiatimes.com/news/international/world-news/china-pakistan-sign-host-of-deals-under-cpec-during-pm-imran-khans-visit/articleshow/69083620.cms?from=mdr
9. Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, accessed at https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf