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  • Dec 3rd, 2017
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The China Pakistan Economic Corridor (CPEC) has been a subject of controversy and misgivings since its inception, notwithstanding the fact that it offers tremendous and equal business and strategic opportunities to China and Pakistan. While the opportunities under CPEC are widely acclaimed, the misconceptions are by and large downplayed and ignored.

To derive maximum benefits out of CPEC it is important that voices of concern are duly acknowledged and complaints addressed.

The issues highlighted include the need for greater transparency in the conduct of businesses under CPEC, the influx of Chinese into Pakistan and the resulting cultural mix; surrendering Gwadar to the Chinese; induction of Chinese in businesses, thereby challenging local businesses such as cross-country transportation of goods, local employment and similar issues.

The Pakistan Business Council (PBC), which represents the interests of Pakistan's leading multinational and local business companies, has emphasized the need for "greater transparency" in CPEC projects to identify CPEC's impact on local industries, complaining that the country is de-industrializing.

"CPEC will no doubt be a game-changer for Pakistan and there is hardly a facet of the economy that will not be touched by it," the PBC said in its 16-page "Agenda for Economy" report. "However, there needs to be greater transparency on how CPEC will impact the competitiveness of existing domestic industries and the safeguards that will be deployed to prevent it becoming a channel for cheap imports." It notes that industries to be established in special economic zones under CPEC are expected to enjoy extensive concessions. "Pakistan should leverage CPEC to attract a meaningful percentage of the millions of jobs that are likely to move out of China, given the rising labour and conversion cost there."

The PBC report further stated that quantities of goods, bound for the Afghan market under the transit agreement are not commensurate with the size of Afghanistan's population. "The types 'imported' are not in line with consumer tastes/preferences; and in some cases Afghanistan lacks the industrial capacity to convert raw materials into finished goods. Such items are either smuggled back to, or never leave, Pakistan."

"Pakistan has a poor record of managing leakages from transit trade. A repeat of the experience with the Afghan transit treaty on transit of Chinese goods could wipe off many industries in Pakistan."

The council advised the Pakistani government to demonstrate caution on proposed free trade agreements (FTAs). In fact, the country's trade deficit shot up five-fold to over $15 billion under the FTA signed with China.

"FTAs must deliver more local employment because three million people need to find gainful employment every year," the report said. It called for improved profitability for domestic industry and higher value-added exports."

The PBC has concerns regarding transparency in conduct of business under CPEC. It seeks an even playing field for all investors ensured. It says exploitation of trade routes, the looming threat to Pakistan's local industry and shortcomings in the FTA between Pakistan and China are serious issues which needs to be addressed.

Only recently it was reported that the second supplemental treaty to the CPEC framework agreement aimed at extending preferential treatment in power purchase payments to another five projects having a capacity to generate 1,300 megawatts of electricity.

The 1,000MW Quaid-e-Azam Solar Power Plant Punjab, the 50MW wind power plant of Hyrdo China Dawood Power Limited being set up in Thatta, the 50MW Sachal Energy Development Limited wind project in Jhimpir, the 100MW Three Gorges Wind Power project and 99MW UEP Wind Power Private Limited would be entitled to special treatment.

Headed by Prime Minister Shahid Khaqan Abbasi, the Economic Coordination Committee of the cabinet approved the second Supplemental Agreement to the Implementation Agreement on CPEC projects.

Leading cross-country transporters of Pakistan fear that they may be ignored in the transportation potential arising out of CPEC. They say the decisions for transportation will be made in China. In the case of projects in Pakistan, which are being implemented by Chinese contractors, they will give logistics business to the Chinese state and to companies that are not state-owned. They apprehend that Pakistani businesses will get a very small part of the pie, that too in the shape of trade spillovers.

Regarding the influx of Chinese in Pakistan, it is reported that there are less than 20,000 Chinese nationals in Pakistan but some elements are continuously spreading rumours that Beijing will occupy Pakistan through CPEC. This reportedly was stated by Senator Mushahid Hussain Sayed at the third CPEC media forum held early last week. "Currently, China and its companies are executing 300 projects in Pakistan. Over 9,000 Chinese nationals are working under CPEC and around 10,000 on non-CPEC projects," he said.

"The fact is, no country is willing to invest in Pakistan the way China has been doing. Moreover, China has made investments across the country without differentiation of provinces and its people," he is reported to have stated.

The apprehensions regarding surrender of Gwadar to the Chinese is totally misconceived. Basically, the Gwadar Port operation and management contract earlier awarded to a Singaporean company through a competitive bid, was cancelled presumably on non-compliance and awarded to the Chinese. In addition, the Chinese are offered a contract to set up a container terminal and business zone on BOOT basis on a 40 years' lease.

It is reported that the Chinese company involved in developing the Gwadar Port and the Gwadar Free Zone has said it has fully considered the interests of the Pakistani side and has also agreed to share revenues from those projects, although it wasn't originally required to do so.

An employee from the China Overseas Ports Holding Co (COPHC) is reported to have told the Chinese newspaper Global Times that the company had agreed to turn over nine percent of the revenues from the Gwadar Port, as well as 15 percent of the revenues from the Gwadar Free Zone to the Pakistani side.

On the brighter side, there are many positive developments on CPEC.

The Pakistan Stock Exchange (PSX) is all set to attract more Chinese investments next year as foreign investors seek approval from their government institutions to acquire shares in Pakistan's top-30 listed companies, officials said.

According to Bloomberg, the director of China's Financial Futures Exchange (CFFE), You Hang, said work is being done to introduce a PSX-linked product in China next year.

CFFE is part of the Chinese consortium that acquired 40 percent stake in the Pakistan Stock Exchange at around $85 million last year.

Total investment envisioned under the China Pakistan Economic Corridor has increased to $60 billion, Radio Pakistan reported on Tuesday, quoting the deputy chairman of the Planning Commission, Sartaj Aziz.

Sartaj Aziz made the remarks after speaking to a delegation of Chinese journalists in Islamabad, whom he told that Pakistan has evolved a liberal investment policy to attract foreign investment in the country.

CPEC has become a regional project which offers immense investment opportunities, he said, adding that China and other countries can invest in industrial zones to be established in Pakistan.

The deputy chairman, who enjoys the status of a federal minister, said that CPEC is enabling the shifting of Chinese industries to Pakistan.

CPEC has added new global political, strategic and economic dynamics to Pakistan. The responsibility of how to make the best out of it depends on how best our state managers and entrepreneurs can get the best of it in terms of the FTA, protecting the local industry, creating job opportunities and other value addition. All agreements to start with are fair. Each of the two partners is smart enough to maximize its gains.

While there is a need to be cautious and active in protecting national interest, the progress on CPEC must move at speed as never before

(The writer is a former President of Overseas Investors Chamber of Commerce & Industry)

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