The Colonisation of Pakistan

Can Pakistan become a semi-rich country similar to Malaysia within 2030 because of CPEC?

If you examine successful ports like Dubai and Singapore, they owned by their own states and developed with long term strategies. But if you check CPEC deals they are negotiated with careless manners and Pakistani leadership has shown immense immaturity, short-sightedness, and lack of good judgement in signing off on CPEC. As time will tell, the CPEC will soon become Atlas’s burden, a symbol for the world to see but for Pakistan to carry. China will get lot of benefits from it as they will have one sided deal as Pakistan don’t have any choice as a broken economy. Here are some points.

1. Huge Loan - The CPEC is based on a $46 Billion loan (now it $55 Billion) that Pakistan has taken from China under Sovereign Guarantee. From the original allocation the $11-billion amount for infrastructure purposes is a Chinese loan whereas the $35-billion investment for the power sector. Infrastructure investments offered by China for CPEC is to be paid back as equity (ROE) which is guaranteed at either 17% or 20%.
   
   Check this example which shows actual malpractice in CPEC Projects. With a substantial portion of the Chinese investments focused on power projects, the viability of the projects has been closely examined, based on interest rates charged by the China Development Bank and the China EXIM Bank. Official documents have revealed that with an estimated debt-equity ratio of 80%-20%, and these investments guaranteed a 17% to 20% rate of return in dollar terms on their equity (only the equity portion, and not the entire project cost). China will recover its investment in less than 26 months, and bleed Pakistan for the 25 year contract period. Not only that, such hugely expensive electricity will cripple their economy, making them a wheelchair case.
   
   If you check some historical facts, Sri Lanka is one of the Prime Example. Unable to repay its debts to China, Sri Lanka is handing over the power plant, Hambantota port and possibly the airport to Chinese control in a debt/equity swap. China would then achieve a major objective in its ‘One Belt One Road’ project, of having a strategic presence on Sri Lankan soil by professing to offer ‘economic aid’ with no strings attached. Thanks largely to such Chinese ‘aid’, Sri Lanka now spends 90 per cent of all government revenues to service debts.
   
   In fact, the example of Venezuela, a politically and financially high-risk country in which China has invested over $52 billion from 2008 up till 2014, the another biggest Chinese investment in any single country so far, may hold some of the answers. It created a win-win scenario for the Chinese government by marrying off low-wage Chinese labour to long-term infrastructure projects in exchange for secure and continuous supply of oil and commodities. All the Chinese loans to Venezuela were commodities-backed, under which Venezuela was obliged to keep supplying to China millions of barrels of oil to feed the Chinese economic boom.
   
   As well as Pakistan has nearly (in 2017) $72 Billion debt all together which is nearly 70% of their GDP which are not part of CPEC and Current Account Deficit is now raised to 120%. Even currently Pakistan has raised loans at 8.75% interest rate from I.M.F. by mortgaging Motor Ways, Air Ports, Radio & TV stations. To pay interest Pakistan is taking other loans to cover it and will reach alarming levels of Bankruptcy.
   
   Major details about this deal kept very secretive as Governor of State Bank of Pakistan Ashraf Mahmood Wathra, in December 2015, had said: I don’t know out of the $46 billion, how much is debt, how much is equity and how much is in kind.
   
   Pakistan also has a history of fudging information and false propaganda. Recently, it was announced with much fanfare that the IMF and World bank had declared Mr Ishaq Dar as the best finance minister in the world. That was promptly rubbished by the two institutions. Again, Pakistan had claimed GDP growth of 4.7%, after IMF corrections it was found to be closer to 3.1%.
   
   With CPEC if you assume that the interest will be in the range of 7 % p.a, payable in 25 to 40 years, it would and mean China will have to be paid back approximately 7 to 8 billion dollars as EMI for next 43 years from 2018 onwards. Pakistan will never've in a position to pay back even the interest, forget the principal amount.
2. One sided bids for Chinese Companies - The contracts for investments in CPEC are all one sided, no bid contracts against Chinese companies. There will be no Global Tenders and contracts are confined to Chinese companies with Pakistani sub contractors are the only ones who are getting the after meal leftovers that the Chinese would leave on their plates. There are also report that some of the projects are awarded to black listed companies in China, and substandard construction of Chinese Companies never sure the quality. Khanpur and Nandipur hydroelectricity Power Plants are prime examples.
3. Preference for Chinese Workforce - China is now having huge under-utilised capacity of industrial production and workforce. In CPEC majority of workers, goods & materials are all Chinese. China is constructing quarters for their own work force in Pakistan. No assurances could be given that Pakistani labour would be recruited to work. So the money China is investing comes back to China and with interest.
4. No Toll for Chinese - Chinese trucks are exempted from paying toll tax. As Pakistan has very less to export to China, Pakistan will get very less profit from this arrangement. Under CPEC, Pakistan has to take care of maintenance and security of the road. The expenses Govt. of Pakistan has to bear from its own pocket. Pakistan plans to train 15,000 security personnel to protect Chinese workers on the corridor. Presently, 8,000 Pakistani security officials are deployed for the protection of over 8,100 Chinese workers in Pakistan. So Govt of Pakistan has to do without a single penny worth benefit getting out of it.
5. CPEC is Plan B - In practical, China’s major manufacturing is located in her east, bordering the South China Sea. It is crazy enough to imagine Chinese would like to ship goods through an at heavy risk CPEC, when they can ship the same goods by sea for a fraction of the cost, the ports being next door and the sea lanes much better secured.
   
   The only province that can send freight down CPEC is the Xinjiang Province. The population of that province is at this moment attacking the native Han Chinese population and and want to secede from China. The Chinese PLA is fighting running battle in the province and has been doing that for many years. Therefore Xinjiang has very less manufacturing goods to ship to anywhere make CPEC very under utilized.
   
   In my view point that it is the alternate route like Plan B and it only works if Plan A fails. I think it is unlikely situation. So it strategically good for China but from view point of Pakistan i can’t see any win win situation.
6. Security Conditions for FDI - Pakistan is facing lot of internal security problems because of internal instability and terrorism, thats why Foreign Direct Investment besides China is very low.
7. Impact on Pakistan Industry - China has an established track record of arriving much like a horde of locusts and completely wiping out the local indigenous industry. The floodgates to Pakistan have been opened to the Chinese and it is just a matter of time before Cheap Chinese goods do the Walmart-effect on Pakistani industry and destroy what is left of it.
   
   Because of high taxation and high Electricity rates Industries in Pakistan cannot compete with products of other countries. For example Cotton Industries in Pakistan which has major share in its exports are shutting down because they cannot compete with competing industries in China, India and Bangladesh which are providing concessions to decrease their production cost. Another big reason is China to whom Pakistan is providing favourable terms like Free Trade and Low Tariff on products imported from China makes them cheaper is the other major reason behind falling Industries in Pakistan.
   
   Also Pakistan has much less to offer China for trade, on the flip side Pakistani markets are flooded by Cheap Chinese goods which may actually kill their traditional businesses.
8. Lack of resources to payback loans - Pakistani goods and services that they can offer to the world are not growing. This is well evident by their trade deficient where exports are much lower compared to their imports. Pakistan’s exports have fallen by 15.4% in the last three years from $ 24.58 billion in 2012-13 to 20.8 billion in 2015-16 which is compared to $44.8 billion imports causing $24 billion trade deficit which is very huge as 215% more than its exports.
   
   In recent years Foreign Remittences are fell sharply as decline of manpower because of weakened Oil Economy and ideological tussle with OPEC countries. These incomes are vital for Pakistan Economy but they are now on downside. As there is no major industrial growth, these loans are becoming major downsides for Pakistani people.
   
   Pakistan also fudging information about increase in Foreign Exchange Reserve which is actually happened because of borrowing from loans from foreign commercial banks. Total foreign exchange reserves are $22 billion that include $4.8 billion of the commercial banks as well. And out of these $4.8 billion, the government has borrowed $3.3 billion from the commercial banks, called as “forward buying from the market” to be returned to them.
   
   In Pakistan only 1% of the population is registered in the Tax System, and the Government collects just 9% countries wealth in taxes, which is lowest in the world. This is the major cause why Pakistan Government is highly depended on debt.
   
   As competing for military supremacy with with India, Pakistan is spending 7 to 8 billion dollars on its defence budget which also hurts the economy. Due to the constant pressure of Pakistan Military institutions, the elected government are not intervening on this amount. So after paying interests on loans and defence budget, there is very less amount left for development work.
9. Environmental Destruction - Through CPEC China is installing Coal Based Power Plants in Pakistan which has adverse effects on human health, do major disregard for the environment and utter destruction of ecological systems. In one side China is trying to close their own coal based power plants and they are transferring same on the Pakistani sides. Though the Hydroelectricity is cheaper but it need lot of time to build. To solve Power Generation problem as fast as possible, Pakistan don’t have any choice to accept Coal based plants which later becomes major problems for Pakistani Environment.
10. Falling Education System - Pakistan is only spending 2% of its GDP on Education and has a literacy rate of 58pc and these figures are very low for any developing nation. Because of Islamic and Political Radicalisation in education during Jia Ul Haq military rule, the routes of quality education are shattered. The education administration is slack, corrupt and rather helpless against the student community. There are no proper checks on the functioning of the educational institutions and accountability is missing at all levels. The centuries old syllabus and foreign adopted material is another reason for degradation of whole system. Pakistani text books and syllabus still contain the old boring lessons that were adopted by text book boards a few decade back. Not acquirement of knowledge but easy questions papers and fake degrees are the aim of education for most Pakistani people. Enrolment at primary level is very low in Pakistan and most of the students, after passing primary classes, are dropped and adopt different low-grade jobs like electrician, plumber, motor mechanic etc. Currently in Pakistan there are more than 25 million of children between the ages of 5 to 16 who are not in schools and around 70% of children out-of-school have never been to a school.
    
    Without proper skilled workforce you don’t have the capacity to run and execute similar kind of project. Nandipur Hydro Power Plant is one of the prime example where after lot of operational failures Pakistan handed over the operations to Chinese Company.
11. Internal Instability - Pakistan has facing lot oppositions with its provinces like Baluchistan, Sindh, and KPK. Baluchistan has history of number of uprisings for its Freedom Movement as it is lacking major share in development and infrastructure. Sindh is the major economic powerhouse in Pakistan but it is getting less amount of resources from Federal Government which is dominated by Punjab Province. KPK and Gilgit Baltistan are also facing lack of infrastructure problems. The dominated nature of Punjab province kept all its provinces its envy and they never actually united as a nation which would make them powerful. Failure of Kalabag Dam is a prime example of lack of unity in Pakistan’s Provinces. The same thing is happening with CPEC, where every state is fighting for getting maximum benefit.
12. Military Tussle with it’s neighbours - Pakistan is spending more than 3% of GDP on it’s military. Pakistan’s military ambitions are mainly India centric and to match the defence capabilities it has spend more on its Military than its development works. It also has difference with Afghanistan as it supports extremest elements who are destabilising Afghanistan. And as a Sunni background and close relations with Saudi Arabia, Iran is also keeping distance from Pakistan on key relations. Only China has maintained good friendship but Power is always come with prosperous relations with neighbours. Without participation of neighbouring countries CPEC will never be successful as expected.
13. Corruption - This is the number one reason of Pakistan’s Economic Backwardness. From Military Establishments to small bodies in Government everywhere corruption is massively involved in every development activities. The Pakistani Generals and their politician underlings who will squirrel away every dollar they could steal and invest it wisely in Dubai, UK, USA and Panama. They should not surprise anyone it is a kind of selloff like politicians did in Venezuela and Sri Lanka.
14. No other choice to protect from India. - Pakistan is having following the Security State Policy and believe India as their number one existential threat. As India is becomes Economic Powerhouse, India is also increasing military capabilities. And in the military might, there is no comparison between India and Pakistan. Defence spendings in India is $50 Billions in comparison to Pakistan’s $8 Billion Military budget. To balance it Pakistan always take help from other powerful nations. Like they took help from United States till 2008 till they started tilting towards India. They have no choice other than to involve China though it will not benefit them in long term.

China cares only about itself no matter who it hurts. It's the same with CPEC. China will take back its loan amount one way or another. It is very much possible that Pakistan will end up giving control of the Gwadar Port to China. Their military's sovereignty is at risk. China has already put up its naval ship and military in Pakistan to safeguard its investment. Pakistan signed CPEC with good intentions but failed to get a fair deal.

Success of CPEC is also lies in hands of Chinese people because Pakistan sold your prospects to them. So if Chinese people think they push Pakistan in loss making business like Sri Lanka to gain full control, there is nothing Pakistan can do to stop them. China also made similar offer CPEC like loan offer to India, but India’s Politicians turned down their offer by taking wise decision instead of trusting Chinese speculative intensions. With smarter decision India got similar investment on 1% interest from Japan which shows their diplomatic correctness.

Pakistan cannot do anything as Chinese state owned army is in Pakistan, that means Pakistan is already submitted to China. It is in favour of India as Chinese Regime is neutralising Pakistan. Actions like arrest of Masood Azar and Chinese Navel presence in Gwadar are indications that Pakistan is obeying Chinese Orders.

As well as China has to keep in mind that Pakistan is in the habit of dumping the benefactors and working against their interests. Their duplicity are experienced and suffered by US. China need to be cautious. The tail is capable of wagging the body.

Only time will tell, whether CPEC will be a way for Pakistan to move towards the path of development or another burden to deal with and Like Sri Lanka, will Pakistan submitted to China, but looking conditions in Pakistan there is very little hope.