CPEC-China Pakistan Economic Corridor impact on Pakistan economy

Table of Contents
1.What is CPEC? ........................................................................................................................................ 2
1. Economic Benefits to Pakistan ........................................................................................................... 2
1.Information and Communication ........................................................................................................... 3
2. Agronomics:.......................................................................................................................................... 3
3. Manufacturing: ...................................................................................................................................... 3
2. How will CPEC hurt Pakistan economy ........................................................................................... 4
1.Manufacturing Sector............................................................................................................................. 4
2.Cost Structure......................................................................................................................................... 4
3.Culture Issues. ........................................................................................................................................ 4
4.Corruption. ............................................................................................................................................. 4
5.Dumping ................................................................................................................................................ 4
6.Huge Loan.............................................................................................................................................. 4
7. One sided bids for Chinese Companies ................................................................................................ 5
8. Preference for Chinese Workforce ........................................................................................................ 5
9. No Toll for Chinese .............................................................................................................................. 6
10. CPEC is Plan B ................................................................................................................................... 6
11. Security Conditions for FDI - ............................................................................................................. 6
12. Impact on Pakistan Industry................................................................................................................ 6
13. Lack of resources to pay back loans ................................................................................................... 6
14. Environmental Destruction - ............................................................................................................... 7
15.Military Tussle with its neighbors ...................................................................................................... 7
16. No other choice to protect from India ................................................................................................. 8
17. Pakistans economic sovereignty essentially mortgaged to China - ................................................... 8
18.Military sovereignty at risk too ............................................................................................................ 8
19. Falling Education System ................................................................................................................... 8
3. End Notes:............................................................................................................................................ 9

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By not just limiting my opinions based upon information dispensed via traditional
Chinese, Pakistani, Indian, Middle-Eastern, UK, Japan and US media outlets, and by
carefully extrapolating and analyzing data, and thoroughly studying reports
available to top academic sources, I am come to a conclusion to write about CPEC
project is for Pakistan. Mainly focus on negatively effect of Pakistan economy

1.What is CPEC?

People say that after every storm, theres a rainbow. And to me, this beautiful rainbow for
Pakistan is CPEC-China Pakistan Economic Corridor, which has been referred to be the Game
Changer, economically as well as Geo-strategically.
It is a $64 billion project, which would connect the Gwadar port of Balochistan province in South-
western Pakistan to Kashgar in the Xinjiang Uyghur autonomous region in North-Western China.
It is the highest overseas investment, ever made by China. Chinas Exim bank has approved a
concessionary loan to Pakistan, at a meagre interest rate of 1.6%, to build the required transport
infrastructure, which would include the construction of new routes and enhancement of old ones -
Highways as well as Railways.
It also includes a Gas pipeline project from Gwadar to Xinjiang, which could also be connected to
Iran, provided its sanctions are lifted. There are multiple networks of Highways, Motorways and
Expressways connecting the two points. Route A would be from Gwadar to Khuzdar to Jacobabad
to Dera Ghazi Khan to Islamabad to Muzaffarabad to Chilas to Gilgit and then pass Khunjrab to
enter Uygur region. Route B would take you to Gwadar to Karachi, and then take KarachiLahore
Motorway through Hyderabad, Sukkur, Multan. From Lahore, get on to the M2-Motorway to the
twin cities of Rawalpindi & Islamabad. From Islamabad, one can either go through Mansehra or
Muzaffarabad to get to Chilas, then touch S-1 road of Skardu, then arrive in the Gilgit region and
pass through Khunjrab to enter Chinese territory of Uyghur and stop at Kashgar. Route C takes
you to Quetta from Gwadar to Dera Ismail Khan to Peshawar to Mansehra to Chilas to Gilgit and
Khujrab.

1. Economic Benefits to Pakistan

Pakistan, on the other hand, which was already a time-tested, all-weather Chinese
partner, has become an integral part of Chinas economic success story. In lieu of this facilitation
to China, it receives about $35 billion direct Chinese investment, for energy production. Pakistan
currently faces energy shortage by 4500 MWs, which experts say has restricted its GDP growth
rate by at least 2.5%, each year. CPEC, just in its early harvest scheme would generate 10400
MWs of electricity by early 2018.
I cant give details of all the projects here, but just to name a few: 6500 acre Quaid-e-Azam Solar
park in Bahawalpur (900MW), Jhimpir Wind Power Plant (56.4MW), SK hydro consortium
(870MW) and a good possibility of 4500 MW Diamer-Basha dam (cost $14billion) are some
examples of renewable energy projects. Then, there are fossil fuel energy projects. Then, there are
projects in Gwadar port and city, including an international airport and a 22,82 Free Trade Zone
where manufacturing and processing units would be set up, as Gwadar connects Chinas one belt-

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one road project to its Maritime project. The rent of Rs200/month of one shop has gone up to Rs
30,000 in Gwadar, indicating the real estate price boom, not only in Gwadar port but all across the
Road & Rail network to Kashgar.
Special economic areas are being developed along the entire length of the country, which will see
a boom in technical, production and manufacturing industries in Pakistan, given the prodigious
amount of energy available to realize it. China and Pakistan are coming up with the Technical &
Vocational colleges in the country to train the mammoth required appropriate workforce, which
would hugely address the menace of unemployment. Then, there are road taxes, toll taxes, import
duty, enormity of which can be gauged by the exorbitant volume of Chinese trade, both-import as
well as export. The brightness of Pakistans economic future cant be overstated. CPEC is all set
to transform Pakistan from a near failed state in the recent past to an economic giant of the region.
The benefits for Pakistan in the long run are not just limited to Energy and Military sector, but if
executed as proposed, it will have big impact on three of Pakistans least discussed sectors.
Information and Communication
Agriculture & Aquaculture
Manufacturing
1.Information and Communication: CPEC is bound to have a major impact of Pakistans
Information and Communication landscape, it has potential to pit Pakistan directly against the
other Global Information Technology Power.
2. Agronomics: Today Pakistan has to route all its produce and catch to China via Dubai. Chinas
appetite for fruits and vegetables is insatiable and once CPEC becomes a reality, fruits popular
amongst Chinese like Cherries and Apricots that grow in abundance in Pakistan and surrounding
regions (Iran, Uzbekistan etc.) will have an easy path to the markets in Beijing & Guangzhou.
Similarly Pakistans aquaculture industry is under explored. Since Pakistans water along the
Arabian Sea share similar characteristics to that of Indias leading fishing hubs (Gujarat, Goa and
Maharashtra) the direct link to Chinese markets will kick-start this dormant industry as Chinese
appetite for seafood is World renowned.
3. Manufacturing: It is inevitable that with growing income Chinese society will get more and
more consumeristic. Just like the Americans are today, the burgeoning Chinese middle-class will
demand for wide range of products at affordable prices (read:Cheap).
It is a foregone conclusion that in the near future China will make a move up the value chain in
manufacturing sector, so while cornering the high tech manufacturing services ( pharmaceuticals,
air and space craft and computer/electronic/optical) for itself, it will outsource medium to low-
technology manufacturing activities (Food, textile, paper, leather etc.) to countries like Pakistan
and Bangladesh. With CPEC it is but obvious Pakistan will be a big beneficiary of Chinas
largesse.

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So people who say Pakistan has nothing to gain from CPEC are living in the fools paradise.
Of course, in the short term (1015 years) China will gain more than Pakistan from this
project. But, in the long term, Pakistan is going to reap quantum benefits in an incremental
fashion.

2. How will CPEC hurt Pakistan economy

The economy and business dynamics are going to change drastically due to CPEC. These
changes will bring both advantages and disadvantages.
Some of the disadvantages will be
1.Manufacturing Sector. This sector will face a high pressure due to an increase in
competition from Chinese manufacturing firms. Several Chinese brands of each product
will be floating in the Pakistan market.
2.Cost Structure. The economic activity is going to increase in Pakistan and jobs will be
increased. The increase in demand will increase the labor costs in Pakistan. The local
production will become costly due to high Labor and electricity cost. The exports of
Pakistan will become non-competitive in the international market.
3.Culture Issues. Over the years, Pakistan culture is rigid to accommodate other cultures.
The inflow of Chinese people can create friction among cultures.
4.Corruption. Corruption is a big problem in Pakistan whereas in China corruption is
punishable by death. How would Chinese companies react to corruption in Pakistan?
5.Dumping. There is a fear in Pakistan`s production sector that Chinese firms will start to
dump excess production in Pakistan.
6.Huge Loan - The CPEC is based on a $46 Billion loan (now it $64 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%.

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

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 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 china 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 dont know out of the $64 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.
7. 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.
8. 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

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be given that Pakistani labor would be recruited to work. So the money China is investing comes
back to China and with interest.
9. 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 Government of Pakistan has to do
without a single penny worth benefit getting out of it.
10. CPEC is Plan B - In practical, Chinas 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 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 cant see any win situation.
11. 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
12. 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 favorable 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.
13. Lack of resources to pay back 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

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compared to their imports. Pakistans 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 Remittances 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 India, Pakistan is spending 7 to 8 billion dollars on its
defense 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 defense budget, there is very less amount left for development work.

14. 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 dont have any choice to accept Coal based plants which later becomes
major problems for Pakistani Environment.
15.Military Tussle with its neighbors - Pakistan is spending more than 3% of GDP on its
military. Pakistans military ambitions are mainly India centric and to match the defense
capabilities it has spent more on its Military than its development works. It also has difference
with Afghanistan as it supports extremist elements who are destabilizing 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 neighbors. Without participation of neighboring countries CPEC
will never be successful as expected.

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16. 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 becoming Economic
Powerhouse, India is also increasing military capabilities. And in the military might, there is no
comparison between India and Pakistan. Defense spendings in India is $50 Billions in
comparison to Pakistans $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.
17. Pakistans economic sovereignty essentially mortgaged to China - The CPEC is based on a $64
Billion loan that Pakistan has taken from China. It is not a FDI that China will recover from the
proceeds of the CPEC. The success of CPEC depends on Chinas economy remaining successful
and free of global sanctions to freely move its goods to the rest of the world. This certainty has
recently turned suspect under the new US administration. What happens a when the CPEC fails to
generate the proverbial golden eggs? How does Pakistan propose to repay this loan?
18.Military sovereignty at risk too - China has sent a naval ship and other military assets to
safeguard its investment. If the port is in Pakistan and the ships are docked in Pakistans
territorial waters, what is China protecting its investments against? It is doubtful that a boatload of
armed terrorists will arrive from Mumbai to indiscriminately shoot the Chinese or Pakistanis! To
a casual observer, it seems an awful lot like China is setting up a small naval base in Pakistan to
militarily control this part of the world.
19. 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. and around 70% of
children out-of-school have never been to a school.
Without proper skilled workforce you dont 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.

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 3. End Notes:
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 Indias 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 favor of India as Chinese Regime is neutralizing Pakistan.
Actions like arrest of Masood Azar and Chinese Naval 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 is 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.

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