Challenges posed by the Pak-China corridor

[Ray]

Recently, the Chinese President Xi Jinping and the Pakistani premier Nawaz Sharif signed a massive MoU of approximately $46 billion to construct the China-Pakistan Economic Corridor (CPEC). Spanning approximately 3,000km, the CPEC is part of the mega Silk Road project initiated by China to firm up its connectivity to Europe, Central Asia and Africa through road and port networks. The MoUs include agreements on other joint ventures, including financing for the energy, infrastructure, trade and technology sectors.

These projects provide Pakistan with a promising opportunity to overcome its chronic economic challenges, primarily in the energy, trade and technology sectors. However, there are fundamental long-term structural consequences of this agreement, which may possibly have negative impacts on the Pakistani economy.

First, due to the needless secrecy and confidentiality displayed by the ruling party, there is a lack of transparency surrounding the entire venture, as pointed out by economists Dr Kaiser Bengali and Dr Ashfaque Hasan Khan. There are several doubts about the breakdown of investment in the aforementioned areas and the precise nature of the loans. Under the World Bank type tied loans, for example, bids for projects are invited from a group of companies from the creditor nations, enabling them to be awarded to the most cost-efficient companies. From the details that are sluggishly emerging about the deal with the Chinese, there appears to be no public bidding or announcement of these projects, rendering ambiguity to the entire process. In order to ensure transparency and accountability, essential details regarding the projects must be shared with parliament and with the public.

Consequently, it is suspected that a major proportion of these loans will be funnelled back to China, benefiting only Chinese construction firms and experts. Not only is this unscrupulous, it may translate intodisastrous economic consequences for Pakistan, since the methods commissioned may not be as cost-efficient or the most economically viable, as otherwise ensured under public bidding. The Planning Commission and/or the finance ministry could play a pivotal role by identifying the economic feasibility of these projects, and an ancillary role in the implementation in order to ensure maximal economic efficiency.

A second concern that needs to be addressed by the government is related to the long-term economic costs and benefits of the Chinese investments, such as those related to the energy sector. While it may be true that the injection in the energy sector could possibly enable Pakistan to overcome its energy crises in the short- and medium-term, the long-run issues plaguing the energy sector will continue to persist. The main issues aggravating the energy sector are related to its low productive capacity, inefficient distribution network with high line losses and anaemic governance. Long-term benefits can only be realised if Pakistan manages to undertake significant structural reforms in this sector. Chinese investment in the energy sector partially fills an exponential vacuum created by the fragile governance structure, but also indicates the government’s indifference towards the critical economic reforms proposed to successive regimes. Therefore, in the short-to-medium-term, the investment might benefit our energy-sapped industries, translating into moderately-above-potential output growth of between four to six per cent, but presents minor, real long-term gains unless imperative economic reforms are undertaken. Worse still, it might further intensify the existing problems in the energy sector due to our dependency on foreign capital to fill the vacuum.

Third, there are crucial issues related to our economic capacity, and our ability to absorb the massive investment. In order to translate any short-term gains into long-term economic success, Pakistan should aim to increase its absorption capacity — say, in the labour markets — by investing in both vocational training programmes, and by revitalising the education sector. This will assist Pakistan in generating semi-skilled labour in the short run to accommodate the Chinese investment, and skilled labour in the long run to generate persistent economic prosperity in future decades. It would be prudent for the government to exploit the surplus in its public expenditure resulting from the Chinese investment, and support the development of rural areas, and invest in oft-ignored areas related to health policy and women empowerment. Continuous reliance on outsourced technical and administrative expertise will not benefit Pakistan in the long run.

Although the CPEC is currently plagued with uncertainties, there is immeasurable scope for progress. The government is advised to consult and involve all stakeholders, and utilise this opportunity to initiate long-delayed economic reforms, and build a firm governance and accountability structure, which will pave way for both short- and long-term economic growth. Otherwise, Pakistan will be permanently reined through external assistance.

Published in The Express Tribune, May 8th, 2015.
http://tribune.com.pk/story/882686/challenges-posed-by-the-pak-china-corridor/

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Nijam Sethi said in his Aapas Ki Baat TV program that Pakistan has provided sovereign guarantee to China guaranteeing 18.5% annual return on its investments. He also said in the same program that the actual rate of return that China will earn will be around 30% per annum because of kick backs. In other words, China will be investing about 60 – 65% of the $46 billion, say $30 billion, but the books will show Chinese investments at $46 billion. The period for which China will earn this guaranteed income is also not clear. Some reports say 40 years and others say 50 years. China will recoup all its investments in 3-4 years. This rate of return in unprecedented as infrastructure projects hardly earn 10% annual rate of return. Even if China does not use these roads and also that no one uses these roads, China will still get its guaranteed returns. Fortunately, most of the projects are for power generation and just about a third is for building Gwadar port and the roads. Pakistan will be paying back $9 billion every year to China as guaranteed return on investment. Pakistan should have inserted a clause forcing China to use these roads and Gwadar port. It should have asked China to guarantee it a minimum income of say $4 – 5 billion a year for use of Gwadar port and also a minimum toll charge for use of the roads that China should pay Pakistan. If there is such a clause in the agreement signed, Pakistan need not have any concern. If there is no such clause, Pakistan will have serious problem. World Bank loans carry 5-7% interest per annum and Pakistan itself raised $2 billion by sale of 5 year bonds at 8.5% interest per annum. If Pakistan has guaranteed 18.5% minimum return per annum for a long period, it will face serious problems in just 3-5 years time.

In the short term, it appears a win win. However, in the long run, it appears that there are some serious issues to ponder over.

Since apparently there will be no global tenders, the construction will go to the Chinese and so the money, as I had said earlier will be funneled back to China. This is more so because the Chinese have the expertise as also the financial clout to undercut any Pakistani bidder, if indeed tenders are to be floated.

While the labour maybe Pakistani along with the Chinese, the Chinese work ethos is very demanding since they work on time bound timeframe for their projects. This may not suit the laid back attitude of the Pakistani labour as it did not suit the African labour, leading to serious political issues that may have negative fallout.

 

[Ray]

Those Troubled Peaks
Greater Chinese presence in Gilgit-Baltistan lends it geo-strategic significance

Ambassadors of Philippines and Norway, and wives of Malaysian and Indonesian ambassadors, lost their lives in a Pakistan Army helicopter crash in Gilgit- Baltistan yesterday. Before this, Gilgit Baltistan was in the news last month when Chinese President Xi Jinping announced the construction of China-Pakistan Economic Corridor (CPEC) from China’s Xinjiang province to Gwadar port in Balochistan. A major portion of CPEC passes through Gilgit-Baltistan. As CPEC is the showpiece of Chinese President Xi Jinping’s highly ambitious ‘One belt, one road’ initiative, Gilgit-Baltistan has assumed great geo-strategic importance.

But what is Gilgit-Baltistan? While it is under Pakistani control, Gilgit-Balstistan’s constitutional and legal status remains ambiguous. Gilgit-Baltistan does not find a mention in Pakistan’s constitution. It is neither a part of what Pakistan calls Azad Kashmir nor is it a province of Pakistan. In fact, Pakistan Supreme Court pronounced in 1994 that these areas “are part of Jammu & Kashmir state but are not part of ‘Azad Kashmir’”. Figure this out!

This huge territory, more than six times the size of so-called Azad Kashmir and part of the erstwhile princely state of Jammu and Kashmir, was known as the Northern Frontier during the British rule. It came under Pakistan’s control after November 4, 1947 when the British Commander of Gilgit Scouts, Major William Alexander Brown declared accession to Pakistan.

Major Brown, who was awarded the MBE by the British and the Star of Pakistan by Rawalpindi, was an employee of the Maharaja of Kashmir. In his book The Gilgit Rebellion, Major Brown says that “as a liberal member of the world’s paragon of democracy, I considered that the whole of Kashmir, including Gilgit Province, unquestionably go to Pakistan in view of the fact that the population was predominantly Muslim. Partisan, traitor, revolutionary, I may have been, but that evening my sentiments dictated that if the Maharaja acceded to India, then I would forego all the allegiance to him”.

The 24-year old Major might have seen himself as the paragon of democracy but the territory he brought under Pakistan’s control hasn’t seen any democracy since. In April 1949, the region was dissociated from Pakistan-occupied Azad Kashmir, named ‘The Northern Areas of Pakistan’ and put under the direct control of a joint secretary in the Federal Ministry of Kashmir Affairs and Northern Areas Affairs.

The next major blow to the Shia-dominated region came from Prime Minister ZA Bhutto in 1974 when he abrogated the State Subject Rule, the law that protected the local demographic composition. Wittingly or otherwise, Pakistan encouraged Sunnis from other parts of the country to acquire land and settle in Gilgit-Baltistan. It destroyed the social fabric of the region and triggered sectarian feuds that continue till today.

Worse was to follow under General Zia-ul Haq when he unleashed anti-Shia forces in the region. Shia-Sunni and Shia-Nurbakshi riots, staged allegedly with state connivance, caused extreme socio-political polarisation in Skardu in the early 1980s. The final blow came in May 1988 when tribal Lashkars, after receiving a nod from the establishment, abducted local women and massacred thousands of Shias in Gilgit.

In 2009, Pakistan government promulgated the Gilgit-Baltistan (Empowerment and Self-Governance) Order. Designed to create the impression of liberal self rule, this executive order is another in the series of paradoxes that characterise Pakistan’s policy towards Gilgit-Baltistan. Devoid of any constitutional authority, it provides for a 33-member Gilgit-Baltistan Legislative Assembly, and a local administration headed by a Chief Minister. The real powers, however, continue to be vested in the Gilgit-Baltistan Council which is headed by the Pakistani Prime Minister and has a majority of members nominated by him. Even then, as in the case of the Interim Constitution of PoK, all office bearers in Gilgit-Baltistan have to sign an oath of allegiance to Pakistan. Incidentally, India had protested the 2009 executive order, calling it “yet another cosmetic exercise intended to camouflage Pakistan’s illegal occupation” of parts of Jammu and Kashmir.

But even elections to this toothless assembly have not been held on time. The assembly’s term got over in November last year and the region has since been handed over to a caretaker government. Elections are scheduled in June, and PML-N is making a strong push for power this time. Emasculated politically and troubled ethnically, Gilgit-Baltistan has also suffered the consequences of increasing Islamist militancy in Pakistan. Many Taliban who escaped from Swat and adjoining areas found shelter among Sunni extremists in Gilgit. More than 300 suspected Islamist terrorists were expelled from Gilgit in October 2008. Shia passengers have been pulled out of buses and killed by Sunni terror groups while even foreign mountaineers have not been spared.

Independent voices from Gilgit-Baltistan have been suppressed by Pakistan and the region is often forgotten, not only globally but also in India, while discussing Kashmir. Though the Indian parliament had passed a unanimous resolution in 1994 expressing “regret and concern at the pitiable conditions and violations of human rights and denial of democratic freedoms of the people in those areas of the Indian State of Jammu and Kashmir, which are under the illegal occupation of Pakistan”, Indian civil society can do more to provide a voice to the people suffering in Gilgit-Baltistan.

But all this pales in comparison to the geostrategic importance of this region, particularly vis-à-vis China. The contested Siachen glacier lies there. Gilgit-Baltistan is the only land connection Pakistan has with China, and it adjoins the 225-km long Wakhan Corridor of Afghanistan. Notwithstanding the exaggerated reports of Chinese military presence in Gilgit-Baltistan, there are at least 35 ongoing Chinese projects in PoK. Meanwhile, the Karakoram Highway which had been unusable for the last five years following a landslide, has been repaired by Chinese engineers and is likely to be reopened in November. The construction of the CPEC will mean increased Chinese involvement and presence in the geo-strategically important region.

As Prime Minister Modi visits China this week, dealing with the recent strengthening of the China-Pakistan linkage will be on his agenda. It will help to remember that Gilgit-Baltistan remains the weakest join in the Pakistan-China link.

http://indianexpress.com/article/opinion/columns/those-troubled-peaks/99/

The China-Pakistan Economic Corridor (CPEC) from China’s Xinjiang province to Gwadar port in Balochistan maybe appear a win win for China, it is beset with issues that will require China to apply itself full time to ensure that it works out.

Apart from the terrain that is very unstable and prone to landslides, avalanches, the route follows areas which are most troubled, be it Balochistan or Balwaristan i.e. Gilgit Baltistan. Insurgency is rife in Balochistan while rumblings in Balwaristan is not far from occuring.

Even with China there will be insurgency to battle in Uighur lands.

 

[LordOfTheUnderworlds]

Does India have laws for Economic Sanctions like the western countries ? If not, maybe there should be.

I agree it is inhuman to use economic sanctions to starve people of weaker nations like the war mongering sections of west often does. But maybe we can use such sanctions in targeted manner to apply pressure where India's security and sovereignty is directly threatened.

Like here some random countries are blatantly exploiting occupied, strategically located legally Indian territory. We can have laws that we can selectively use against companies, individuals involved in such cases, or even indirectly involved, as per our choice. Right now India may not be great power, but for next 2-3 decades India probably would remain most important growth engine of world and most major powers and large companies (including Chinese) will have direct or indirect interests in Indian market. That should give us some leverage.