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Arguments against CPEC

CPEC as its name indicates is China Pakistan Economic Corridor. Although this project seems
very fruitful but in the long run its not in Pakistans interest. There are certain questions that
need to be answered e.g. why has china invested so much in a country like Pakistan that is
economically, politically un stable. Obviously at the back end it has its own interest. Now lets
examine them

1. Article written by a student of LUMS

http://pakchinanews.pk/cpec-and-chinas-strategic-interest-in-pakistan/

The Malacca dilemma is one of the most pressing foreign policy concerns of China. The Chinese
aspire to maintain their economic growth to help them achieve their great power ambitions. In
order to satisfy their energy requirements, the Chinese need an uninterrupted supply of oil but it
lacks the naval power to secure its Sea lines of communications. China imports 60 percent of its
oil from the Middle East and this figure is expected to rise up to 75%.

The Strait of Malacca is a narrow passage between Malaysia and Indonesia with Singapore on its
Southern tip. Due to the strong ties of Singapore with the Anglo-American bloc, Chinese need a
safe passage of oil into China from the Middle East. Therefore, the only passage that allows their
imports to enter is through Gwadar, Pakistan.

2. http://nation.com.pk/letters/24-Mar-2016/china-s-interest-in-pakistan

China wants to become the regional power. It also wants to become the super power at global
level. Due to the strategic importance of Pakistan, China visualizes its many interests in
Pakistan.

The interest of China is to get the access to Gulf region and Central Asian states through
Pakistan. China takes so much interest in the Gwadar Port of Pakistan. China wants to connect to
the whole world through Gwadar port of Pakistan. Gwadar port is strategically very important in
this context. It is a deep sea port.

It is located at the mouth of the region of Persian Gulf, Strait of Hormuz which holds 2/3 of the
oil reserves of the world. It is situated at the cross junction of oil trade routes and International
sea shipping. It connects three regions of the world i.e. South Asia, Middle East and Central
Asia. Chinas interest lies in the Middle Eastern region and Central Asian states. The western
part of China is far away from its sea port in Eastern China. China can access Persian Gulf
through short route of Gwadar port.
3. https://gwadarprivatescheme.wordpress.com/chinese-investment/

Middle East is very important region in the world because of its Oil Reserves and large markets.
China has a natural dependence on them.

Chinese Goods will find an easier, shorter and secure route to Middle East increasing
profitability and increasing trade.

China will greatly benefit from the industrial zone by setting up industries close to the markets.

Some analysts perceive Gwadar seaport turning into Chinas naval base in the Indian Ocean,
enabling Beijing to monitor Indian and American naval activities and thus frustrating their
ambition to convert the ocean into exclusive Indian lake. Modernization of Pak Navy by China
is seen as a step in that direction.

According to financial express, there is a view emerging in Pakistan that the China Pakistan
Economic Corridor (CPEC) could well have the makings of another East India Company, given
the kind of control the Chinese are being allowed to have over the 46 billion dollar project.

The author of the article, Samir Ahmad said, Pakistan isnt the only country China has its eyes
on. This year Chinese firms have already announced to double the record USD106 billion in
foreign acquisitions they made in 2015, according to data compiled by Bloomberg. Lately,
reports have circulated that the Chinese are interested in buying 40 percent of the Pakistan Stock
Exchange. This comes after Chinese company already expressed interest in buying a stake in a
Pakistani cement company

Furthermore the most interesting fact is that is not an investment its a loan which has been given
to Pakistan according to Ahsan Iqbal, the minister of planning and development in an interview
in Tonight with Moeed Pirzada , Pakistan will pay back with an interest rate of two percent.

The statement came in after a report of International Monetary Fund (IMF) claimed that Pakistan
would be in trouble with inflows and increased rates over CPEC, so

Pakistans economic sovereignty is mortgaged to China - The CPEC is based on a $46


Billion loan that Pakistan has taken from China. It is not a FDI that China will recover
from the proceeds of the CPEC.
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.

China with the lions share - it is estimated that the movement of Chinese goods over the
next decade will be $1 Trillion and all that business growth is for China, while Pakistan
assumes all the risk and is liable for the $46 Billion loan.

US relations - The US was not in good terms with China earlier under the Obama
administration, and the relationship has exponentially worsened under Trump. In fact,
there is a real chance of military conflict between the US and China. In an extreme
scenario, China might even implode and break apart like Soviet Union. In such an event,
USs need-based friendship will evaporate very quickly for Chinas allies and
especially its "all weather friend.

Baluchistan - With its track record in corruption and catering to the powerful Punjabi
elites in civilian and military circles, Pakistan is not expected to fairly distribute the
riches of this venture to its rightful recipients, including the Baluchistan people. This will
result is further aggravation and disillusionment of this large province that is already
trying to break away from Pakistan. This is a tremendous opportunity to bring them back
in the fold, and away from Indian influence, and hopefully Pakistan will play its cards
well.

Indigenous industry - China has an established track record of arriving much like a
horde of locusts and completely wiping out local indigenous industry. The floodgates to
Pakistan have been opened to the Chinese and it is just a matter of time before Chinese
goods do the Wal-Mart-effect on Pakistani industry and destroy what is left of it. Perhaps
Pakistan could learn a lesson or two from neighboring Indias "Make in India initiative
to not only sustain local industry but also master strategic technology in house.

Environmental impact - A repeat of the point above, except Chinas disregard for the
environment and utter destruction of ecological systems wherever its tentacles reach, are
a sad eventuality of letting China in.

The IMF has warned Pakistan that China's growing investments in the country, including the US
$46 billion economic corridor, have the potential to lift the cash-strapped economy's potential
output, but the repayment obligations that come with it will be serious. "During the investment
phase, as the 'early harvest' projects precede, Pakistan will experience a surge in FDI and other
external funding inflows," says the IMF in a short evaluation of the impact of China-Pakistan
Economic Corridor (CEPC) related investments on Pakistan.
However, the import requirements of these projects "will likely offset a significant share of these
inflows, such that the current account deficit would widen" within manageable levels during
these years, the international lender was quoted as saying by the Dawn newspaper.

The report estimates that CPEC related imports could reach 11% of total projected imports by
2020, equal to just over US $5.7 billion, while inflows under the corridor will touch 2.2% of
projected GDP in that year. Gross external financing needs of the country will jump almost 60%
by then, from a projected US $11 billion for the current fiscal year, to US $17.5 billion in 2020.

Pakistan will see US $27.8 billion in "early harvest" projects under CPEC in the next few years,
with the remaining US $16 billion coming over a longer timeline stretching out to 2030.
"Pakistan will need to manage increasing CPEC-related outflows," warns the IMF, once the
Chinese investors begin repatriating profits, adding that the amounts involved "could add up to a
significant level given the magnitude of the FDI".

Outflows will also come in the form of repayment obligations on the loans taken from Chinese
banks for these projects, which are expected to rise after 2021. Both of these, repayments and
profit repatriation, "could reach about 0.4% of GDP per year over the longer run". The IMF
acknowledges that CPEC related growth could cover these payments over the longer term, but
warns that this is not guaranteed.

4. Published in Dawn, November 12th, 2016

Small industries have expressed concern over concessions given to foreign companies under the
China-Pakistan Economic Corridor (CPEC) and free-trade agreements with different countries.

In a meeting with a senior official of the Ministry of Industries on Friday, local manufacturers
under the aegis of the Organization for Advancement and Safeguard of Industrial Sector (Oasis)
noted that CPEC was also posing new challenges for the domestic industry in Pakistan.

The Chinese industry has achieved economies of scale over the years, primarily due to their
huge domestic market, industry-friendly policies and multiple incentives by the government,
Oasis Executive Director Atif Iqbal told the media after the meeting.
Oasis believed that the CPEC could only be beneficial for Pakistan if the countrys exports were
boosted through this mega trade route.

Mr Iqbal added that Oasis has also requested the Federal Board of Revenue and the National
Tariff Commission (NTC) to adopt measures against unfair trade to safeguard interests of the
indigenous industry.

One issue regarding imports from China was under-invoicing, and the authorities on both sides
should set up an online system for data exchange as soon as possible, he said.

Oasis has also requested the NTC to be vigilant and take immediate cognizance of unfair trade
practices like dumping, he said, adding that priorities should be set by considering interest of
the local industry and then borders for free trade could be opened up.

The organization has been pushing for the protection of small and medium sized industries and
has also criticized large-scale manufacturers for ignoring their rights.

5. Published in The Express Tribune, January 14th, 2015.

Domestic industries are at risk of being wiped out due to dumping of cheap Chinese products,
Pakistan has offered to eliminate duties only on half of the total product lines in the second phase
of the free trade agreement (FTA) instead of 90% under the original plan.

Both the countries agreed on four broad principles for implementing the second phase of FTA,
which would protect the interest of local industries, said Khurram Dastgir Khan, the Minister of
Commerce.

One of the main principles is that tariff concessions will not be on a reciprocal basis, rather
these will be in favour of Pakistan, Khan said.

Firstly, tariff reduction modalities of the second phase will be independent of the first phase,
meaning there will be fresh negotiations on all aspects of the agreement.

Secondly, the tariff reduction will not be on a reciprocal basis and China will give more
incentives to Pakistan to make up for the adverse impact of the first phase.

Thirdly, both sides offered different timelines for bringing down duties and on the pace of
lowering tariff and in Pakistans case it will be slow.

Lastly, if imports surge beyond a threshold, the two countries can apply trigger mechanisms and
impose safeguard duties.

Pakistan offered immediate reduction in duties to zero on 50% of product lines, which was far
less than the original plan of lowering the duties on 90% of product lines, said Dr. Robina Ather,
Additional Secretary of Commerce Ministry.

At present, Chinese exporters were enjoying zero duties on 35% of total product lines, she added.
In comparison, China has offered to immediately slash duties to 70% of product lines. It has also
suggested that after five years it will reduce duties on another 10% and the 90% target will be
achieved in the next 10 years.

However, Pakistan would lower duties on 90% of product lines in the next 15 to 20 years, she
added.

These timeframes will be taken up in the next round of negotiations that will be held in Beijing at
the end of March.

Pakistan had been persistently sustaining a loss of Rs22 billion on account of tax exemptions
granted to imports from China.

At present, the balance of trade is in favor of China. Against exports worth $2.5 billion, Pakistan
imported $7.5 billion worth of products from China.