China-Pakistan Economic Corridor: Drawbacks For Pakistan

China-Pakistan Economic Corridor: Drawbacks For Pakistan

Question : The China Pakistan Economic Corridor has been lauded as a game changer for both nations. However, pragmatically speaking, there are several pitfalls for Pakistan as well. Discuss

• The China Pakistan Economic Corridor gave way to 51 agreements and USD 46 billion creating considerable benefits for Pakistan

• However, only USD 6 billion of the investment is for improvement of facilities in and around Gwadar, and another USD 5 billion has been set aside for metro for Lahore and railway track from Karachi to Peshawar

• Reports of the corridor being a network of rail, road and pipelines is a myth

• Around USD 33.8 billion is for renewable energy projects to tackle Pakistan’s energy crisis; but Chinese power companies have pulled out of such commitments before on grounds of non-feasibility For example in January 2015, Chinese investors pulled out of a 6600 MW power project in Baluchistan’s Gadani

• Work stopped on 5 Chinese power projects in Punjab that generated 6600 MW

• Though Pakistan’s installed capacity is 22,800 MW to meet current demand of 19,000 MW, it produces only 12,000 MW

• Circular debt standing at USD 5 billion confronts Pakistan’s energy sector

• Gwadar is also less crucial to China as it is expensive to pump or carry oil or gas over the Karakoram range to Xinjiang

• There is a problem of resources as well. 4 of 6 thermal power projects for which agreements have been signed are predicated in imported coal as against imported furnace oil from which 60% of Pakistan’s power is generated

• Moreover, solar power projects in Pakistan are not as cheap as thermal power; sun will therefore set on these projects fast as well

• Money will be taken from old investors to pay off new ones; CPEC will remain a pipe dream

• The impact of CPEC on Pakistan’s exports is also a big question. CPEC will generate 2 way trade so imports will rise as well; Envisioned projects will incur liabilities in foreign exchange for:

- Capital and fuel imports
- Debt Servicing
- Profit repatriation and wages

• Earnings will be in rupees and unless offset by increasing exports, it will be a drag for the BOP position of Pakistan

• Availability of local financing is another drawback. Government will borrow available credit from the banking system due to failure to reform public finances

Facts and Stats

• CPEC runs from Gwadar Port in Pakistan to Xinjiang in China for a distance of over 3,000 km

• Overall construction cost of the CPEC is estimated at USD 46 billion

• This corridor is an extension of the 21st century Silk Road Initiative of China

• The corridor is expected to be operational in 3 years
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  • RE: China-Pakistan Economic Corridor: Drawbacks For Pakistan -anwaarkhan (02/06/17)
  • The analysis is weak and devoid of facts. Apart from the infrastructure loan which has to be paid back, rest all of the investment in the energy sector is being done by the private companies of boht countries.