Background

1.                 
China
Pakistan Economic Corridor (CPEC) has taken Pakistan and the world by surprise.
It is portrayed as a game changer for the country and the world. The ambitious
trade and infrastructure corridor is not only unique in its approach but
connects billions of people across continents making Pakistan proverbial
“Eurasian Zipper”. The project stems from the grand vision of President Xi
Jinping to revive Silk Road and its maritime counterpart as Belt and Road
Initiative. CPEC is the Crown of BRI being its flagship project and its success
is paramount for success of the vision of President Xi and Chinese Government
to proffer an alternate model for economic cooperation and mutual development
in the shape of BRI as compared to Western approach of development which means
development of the few over the others.  The statement made by the President Xi during
the launch of BRI is an evidence for China’s desire for mutual peace,
prosperity and development:

 

“Today’s world is
filled with uncertainties, people have hopes for the future but at the same
time, feel perplexed. Some lands are prosperous and bustling are now synonymous
with difficulty, conflict and crisis. What has become of the world? What should
we do? The whole world is pondering over these questions and I m thinking of
them all the time. I proposed the Belt and Road Initiative in the hope that
with a focus on connectivity, the free and convenient flow of all elements of
production will be encouraged, multi-dimensional cooperative platforms
developed and mutual gains and shared development achieved. The BRI draws
inspiration from the ancient Silk Road and aims to help realise the shared
dream of people worldwide for peace and development. Sharing the wisdom from
the East, it is a plan that China offers the world for seeking common
prosperity and development1.

 

2.                 
The signing of CPEC MOU took place on July 5th,
2013. It aims to
enable the government to cooperate in the planning and development of CPEC and
facilitate and intensify economic
activity along the corridor alongside modernizing infrastructure. It also aims to up-grade the level of
development, particularly through industrial development. The cooperation is based on the “1+4”
cooperation mode, namely, the two sides take CPEC as the core while
prioritizing in Gwadar, Energy, Transport Infrastructure and Industrial
Cooperation along actively encouraging cooperation and communication in other
fields:

a.                  
Development
Strategies Synergy

b.                 
Gwadar Cooperation

c.                  
Energy Cooperation

d.                 
Transportation
Infrastructure Cooperation

e.                  
Industrial
Cooperation

f.                   
Cooperation in
Livelihoods

3.                 
While geo-political
concerns are many, but China has so far invested $62 billion in the China
Economic Corridor which is set to change the face of Pakistan’s fragile
economy. CPEC’s success is critical for China as it will give impetus to the
Belt and Road initiative which is valued at around US$1 trillion worth of
investment in energy and infrastructure spanning 2013-232. This
will engage 68 countries across continents such as South and Central Asia,
Africa, the Middle East and Europe.

4.                 
Pakistan’s economy has mercilessly been hit owing to an
energy predicament and vicious insurgence flung by Pakistani Taliban in 2007.
By various cautious estimates, whilst the rampant power cuts alone have cost
Pakistan up to 4 percent of GDP and became a major source of unemployment, the
country has borne some $123 billion of losses on account of lives, economic
prospects and devastation to its already feeble infrastructure since it became
the vanguard ally of United States in ‘war on terror’ – after 9/11. These
realities notwithstanding, CPEC is confronted with criticism amid all the
promises it makes. Many
critics claim that CPEC is China’s alternate to the heavily contested Strait of
Malacca and South China Sea and that it will bring benefits to China more than
Pakistan. There are apprehensions that the projects under CPEC are carried out
in complete secrecy, the terms and conditions under the loan agreements are
such that it would lead to colonisation of Pakistan, the Chinese labour will
replace Pakistani labour as they will be highly skilled, the country is marred
by extremism and incidents of terrorism, corruption and poor governance. It is
also predicted that the expected rise in exports of GDP growth will not
materialise and the economy will further come under stress due to return of
loans taken from China under CPEC umbrella. It is also highlighted that the
energy projects are non-competitive and the rates of electricity are so high
that they will offset any prospects of economic growth. The cost of production
will go high and Pakistan will be no longer competitive in export markets.

5.                 
Then there are those who are hopeful that Pakistan will gain
significantly from this partnership with China. It has been pointed out that
CPEC will add 2 % to the GDP of Pakistan and will generate significant economic
activity in the country3.
The arrangement will be a win-win situation as China will get sea access for
its western provinces and a definite short and secure route for import of fuel
from the gulf and trade route through Gawadr. The trade between the two
countries will increase exponentially and will further integrate the two
economies. CPEC will also spur skill development in Pakistan and relocation of
industries from China to Pakistan.  The
positives which are promoted through the media and Government officials is that
Pakistan will get a nationwide infrastructure modernization which will create
estimated 700,000 jobs.

6.                 
In
nutshell, it is stated that CPEC is vulnerable to many threats including
security related and if Pakistan is unable to
provide sufficient security or
adopt prudent policies including human resource development in the country, the
projects will have trouble getting off the ground and the promise of CPEC as delivering on
economic development may remain unfulfilled.

1.2 Problem Statement 

7.                 
CPEC is
predicted as a game changer with a promise to transform Pakistan from lower
middle income to upper middle-income country. However, growing debt burden and
decline in exports with alarming current account deficit jeopardies the dreams
of development through CPEC. This study attempts to analyze the CPEC related
debt burden as part of overall debt of Pakistan and also possibility of
increase in exports of Pakistan through CPEC related investment projects. It
further argues that Pakistan can meet its debt liabilities related to CPEC only
if it is able to meet its energy requirement, increase its exports, invest in
education and skill development and carry out appropriate institutional and
policy reforms alongside applying appropriate taxes on use of CPEC related
infrastructure.