16 November 2016

Is the China-Pakistan Economic Corridor a 21st Century East India Company?

By Abdur Rehman Shah
November 11, 2016

A closer look at the hidden dangers CPEC could bring for Pakistan. 

When a Pakistani lawmaker recently warned in Parliament that “another East India Company is in the offing” in the form of China-Pakistan Economic Corridor, he certainly raised some eyebrows. This view came from Senator Tahir Mashhadi, chairman of the Senate Standing Committee on Planning and Development, who specifically voiced concerns about the exorbitant loans Pakistan will need to pay back to China for CPEC. Mashhadi also objected to China’s demands regarding power tariffs on projects according to Chinese interests. Since the official discourse in Pakistan has presented CPEC in very rosy terms (often calling it a “game-changer”), the “East India Company” analogy merits a proper analysis.

To compare China’s role, within the context of CPEC project, with that of the British East India Company would be hyperbole, though not a totally discreditable argument. There cannot be exact parallels between both the cases. First of all, the method used by the East India Company (EIC) was entirely different. The EIC came to the subcontinent primarily with the intention of doing trade but usurped power through the brutal use of force, which the renowned British historian William Dalrymple described as “probably the most bloody episode in the entire history of British colonialism.” By contrast, China and Pakistan enjoy an exemplary friendship based on mutual trust and respect.

Second, the EIC was enticed by the fabled riches, wealth, and resources of this region. In other words, the subcontinent was by far more prosperous than the EIC. In case of China and Pakistan, the story is the other way around. As an economic power, China is second only to the United States and sits on the largest foreign exchange reserves in the world ($3.20 trillion). With Beijing’s deep pockets and passion for spending, economic ties with China are even prized by the wealthy countries of the West like Britain and Germany. On the other hand, Pakistan presents little, if any, economic attraction for foreign investments. Uncongenial security conditions, failing state institutions, and corruption are some of the many maladies that have dogged Pakistan and dissuaded others from investing in this country. Perhaps no other country would dare take the risk of investing so much money in Pakistan as China has ventured. Pakistan needs China more than the other way around.

Finally, Pakistan might be depending Chinese largesse at the moment, but it retains a fairly independent political and institutional structure. Consider just a few examples: NEPRA’s disapproval of Chinese investors’ demand for an increase in power tariffs; the Supreme Court’s rejection of a Chinese company’s plea to be allowed to participate in the bidding process for the Dasu hydro project, and a local court’s ruling barring a Chinese firm from controlling Sost dry port. Despite its preeminent position under CPEC, there is a limit to China’s influence and interests in Pakistan. Mughal emperors did not enjoy any of these advantages vis-a-vis the highly assertive EIC.

However, the obvious historical differences between EIC and CPEC don’t obviate the serious issues in arrangements for the CPEC. A lack of transparency regarding the terms and conditions and other financial details of CPEC projects has been the main source of concern. The situation is such that the governor of the State Bank of Pakistan stated, “I don’t know out of the $46 billion [in CPEC deals] how much is debt, how much is in equity, and how much is in kind.” He added that “CPEC needs to be more transparent.” Similarly, the International Monetary Fund (IMF) also has cautioned against the potentially unfavorable economic fallouts of CPEC.

Still the incumbent government is untiringly portraying the project as a “game-changer” and “fate-changer.” In fact, it has become convention for governments in Pakistan to undertake grandiose projects without proper financial justification. In the process, politicians, while sharing little of the burden, can adopt reckless economic policies that encumber the public exchequer.

The current government is no exception. It seems to be in too much of a rush to get the project completed within a specific time-frame that is neither achievable nor advisable. Even the intra-provincial consensus has been missing. Other provinces complain that CPEC projects are disproportionately focused on Punjab.

In a way, the Nawaz Sharif government’s approach toward CPEC is like the former Sri Lankan President Mahinda Rajapaksa’s attitude toward Chinese investment. Rajapaksa took billions of dollars in loans from China for projects in his own constituency, Hambantota, without bothering about the fact that there was little commercial justification for them. To the dismay of the next (current) government in Colombo, the Chinese told Sri Lanka that, as Forbes put it, “We want our money, not your empty airport.” At the end of the day, Sri Lanka was left at the mercy of IMF loans to pay back China’s hefty loans. Interestingly, similar to CPEC, there was a lack of information about the interest rates on loans for Hambantota projects. Like CPEC, Hambantota is part of China’s Maritime Silk Road Strategy.

No doubt, CPEC has enormous potential to contribute to Pakistan’s economy. Pakistan needs China more than ever. At the same time, China has both the capacity and necessity to count on its “all-weather” friend. But these facts should not be allowed to overshadow the ground realities. Both countries should bear in mind that this is the first time they are coming so close at a practical level. The policies of one country can have a direct bearing on the other. As a matter of fact, there should be a balance of interests so that the position of either party is not compromised.

As far Pakistan is concerned, to avoid any situation like the Hambantota debacle, the government needs to adopt an economically sound and politically pragmatic approach toward CPEC. Pakistan has to overcome its propensity for overselling the China card. Rather than keeping things in dark, all the arrangements related to this project have to be based on solid financial and economic footings. Otherwise, this enduring friendship could be affected by the ensuing recriminations and mistrust between the people of two countries.

Abdur Rehman Shah is a Research Associate at the Center for Research and Security Studies (CRSS), Islamabad.

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