China-Pakistan Economic Corridor: Drawbacks For Pakistan

China-Pakistan Economic Corridor: Drawbacks For Pakistan

Question : The China Pakistan Economic Corridor has been lauded as a game changer for both nations. However, pragmatically speaking, there are several pitfalls for Pakistan as well. Discuss

• The China Pakistan Economic Corridor gave way to 51 agreements and USD 46 billion creating considerable benefits for Pakistan

• However, only USD 6 billion of the investment is for improvement of facilities in and around Gwadar, and another USD 5 billion has been set aside for metro for Lahore and railway track from Karachi to Peshawar

• Reports of the corridor being a network of rail, road and pipelines is a myth

• Around USD 33.8 billion is for renewable energy projects to tackle Pakistan’s energy crisis; but Chinese power companies have pulled out of such commitments before on grounds of non-feasibility For example in January 2015, Chinese investors pulled out of a 6600 MW power project in Baluchistan’s Gadani

• Work stopped on 5 Chinese power projects in Punjab that generated 6600 MW

• Though Pakistan’s installed capacity is 22,800 MW to meet current demand of 19,000 MW, it produces only 12,000 MW

• Circular debt standing at USD 5 billion confronts Pakistan’s energy sector

• Gwadar is also less crucial to China as it is expensive to pump or carry oil or gas over the Karakoram range to Xinjiang

• There is a problem of resources as well. 4 of 6 thermal power projects for which agreements have been signed are predicated in imported coal as against imported furnace oil from which 60% of Pakistan’s power is generated

• Moreover, solar power projects in Pakistan are not as cheap as thermal power; sun will therefore set on these projects fast as well

• Money will be taken from old investors to pay off new ones; CPEC will remain a pipe dream

• The impact of CPEC on Pakistan’s exports is also a big question. CPEC will generate 2 way trade so imports will rise as well; Envisioned projects will incur liabilities in foreign exchange for:

- Capital and fuel imports
- Debt Servicing
- Profit repatriation and wages

• Earnings will be in rupees and unless offset by increasing exports, it will be a drag for the BOP position of Pakistan

• Availability of local financing is another drawback. Government will borrow available credit from the banking system due to failure to reform public finances

Facts and Stats

• CPEC runs from Gwadar Port in Pakistan to Xinjiang in China for a distance of over 3,000 km

• Overall construction cost of the CPEC is estimated at USD 46 billion

• This corridor is an extension of the 21st century Silk Road Initiative of China

• The corridor is expected to be operational in 3 years