11/30/2017 CPEC: Boon or bane?

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CPEC: Boon or bane?

Published on November 28, 2017

Nadeem Mumtaz Qureshi Follow

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Chairman at Mustaqbil Pakistan

The China Pakistan Economic Corridor (CPEC) is part of the broader Chinese
sponsored Belt and Road Initiative (BRI). CPEC will be a road, and eventually, rail and
pipeline link between the Pakistani coastal city of Gwadar and Kashgar, the capital of
China's restive Westernmost province of Xinjiang.

All of China's existing ports are located along the Eastern edge of the country. Moving
goods to and from these ports to the Western part, Kashgar for example, involves a land
journey of some 5000 km. CPEC, when completed, will allow China to use the deep
water port of Gwadar. From there the distance over land to Kashgar is 2000 km. The
saving in cost and time is obvious.

Bear in mind also that China is now one of the largest importers in the world of oil and
gas. Most of this is supplied from the Arabian Gulf to ports in Eastern China. The
sailing time for supertankers which make this journey is about 20 days. Remember also
that once the supertanker offloads its cargo it has to sail back empty. The round trip
takes 40 days.

In contrast the sailing time from an Arabian Gulf oil export terminal such as Ras Tanura
to Gwadar is about 2 days. Add in an extra 2 days for the return trip and you have
reduced tanker rental from 40 days to 4 days for a single cargo. With tanker daily rental
rates of the order of $100,000 per day the difference is not small change.

There is also a strategic dimension to this that a nascent superpower like China has to
take into account. At present all of China's shipping moves through the Strait of
Malacca. This relatively narrow strip of water is the busiest shipping lane in the world
moving some 25% of global trade. Were it to be closed or obstructed due to war or

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geopolitical tension China would face possibly existential risk. CPEC would give it a
vital strategic lifeline.

That China will benefit, and benefit handsomely, from CPEC is not in doubt. The
benefit to Pakistan is, however, less clear. CPEC's proponents maintain that it will result
in a huge boost to Pakistan's economy. The much hackneyed phrase 'game changer' is
often invoked in this context. Exactly how it will be a game changer for Pakistan is less
clear. Yes, we will get some revenue from transit tolls. But this is about all.

Arguments are made that Gwadar will replace Dubai as a preferred transhipment point.
There are even suggestions that the Dubai authorities are worried about their business
being affected by CPEC. If I was in their place I wouldn't worry too much. The
argument that Gwadar can replace Dubai is fundamentally flawed. Dubai is a deep
water port that can handle the largest container ships in use today. It primarily meets the
import requirements of the countries of the Gulf Cooperation Council. Containers are
shipped in full and return empty. How Gwadar could possibly be a threat to Dubai is
hard even to imagine.

The argument is also made that CPEC will open up significant employment
opportunities for Pakistanis. Again it is not clear how this will happen. Security
personnel will be needed to guard the route. So some employment will be generated.
But nothing on the scale that is bandied about. Industrial estates are planned at several
points along the length of the corridor. And these could, if they take off, provide
additional employment. The question is: Why would investors want to locate to remote
locations away from major cities and centres of population?

Interestingly China has thrown into CPEC sweeteners that have nothing to do with the
transit corridor itself. These include building several power plants and setting up some
manufacturing. But here's the rub: All of these projects including the transit corridor are
being funded by Chinese loans to Pakistan. The total cost is of the order of some $50
billion. What's more the loans are priced, unlike loans from multilateral agencies, at
commercial rates. So China builds the facilities for their own use with money they loan
to us and which they intend to recover at full cost. In the end they get the facilities and
we are left with the bill.

And the bill is not small. Pakistan can expect to pay $4 billion per year in interest and
principal repayments to China for several years. For a country that is currently running a
current account deficit of $15 billion per year, and facing dwindling overseas
remittances, an additional charge of $4 billion may well have catastrophic
consequences.

Let's also not discount the strategic risk to Pakistan: We are allowing an ambitious
superpower to set up vast infrastructure along with a deep water port on our soil. If
tomorrow they move their warships into Gwadar, who is going to ask them to leave?
The threat to our sovereignty is real and is staring us in the face.

At Mustaqbil Pakistan we have officially called for a temporary halt on all CPEC
related activity so that an independent panel of experts can review the entire scheme and

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assess whether it either needs to be abandoned or continued with modifications that

limit Pakistan's financial exposure and guarantee our sovereignty.

If such a comprehensive review is not launched, I fear that CPEC will indeed be a 'game
changer' for Pakistan but, ironically, not in the way that its most ardent proponents now
make it out to be.

Nadeem Mumtaz Qureshi

Chairman at Mustaqbil Pakistan Follow
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