Pakistan and China have entered the second phase of the project. Syeda Mamoona Rubab explains what that entails
Pakistan and China have sealed the deal for the next phase of the China-Pakistan Economic Corridor (CPEC). This is good news for both partners, but the job is still unfinished.
The agreement on the next phase of CPEC was among a number of MoUs signed during Prime Minister Imran Khan’s visit to China for participation in the Second Belt and Road Forum (BRF) in Beijing. Addressing leaders and representatives at BRF, Prime Minister Imran Khan said, “Together, Pakistan and China are entering the next phase of CPEC with greater emphasis on socioeconomic uplift, poverty alleviation, agricultural cooperation and industrial development. We are expanding the frontiers of knowledge through closer engagement and deeper cooperation in the fields of education, innovation and technology.”
CPEC’s route, he told the BRF, would now be dotted with Special Economic Zones (SEZs) with opportunities for investments. This industrialisation stage is being supplemented by an expanded Pakistan-China Free Trade Agreement.
The next stage of CPEC, which is centred on the construction of special economic zones and participation of investors from third countries, is a welcome development for Pakistan, which is struggling with economic growth rate, foreign exchange reserves and massive outflow of foreign direct investment.
Reliance on China as a source of foreign investment is expected to increase, but there are also expectations that the opening of CPEC projects to third party investors will encourage others to invest here
China is already the biggest foreign investor in Pakistan, making up for 44 percent of the total inflows during the last eight months of the current fiscal year. Reliance on China as a source of foreign investment is expected to increase, but there are also expectations that the opening of CPEC projects to third party investors will encourage others to invest here.
The most important element of this development, at least from the political perspective for PM Khan, is the consensus on socio-economic development projects, something which the prime minister had been insisting since coming to power last year. There was, however, scepticism that the Chinese government, which sees CPEC as an economic venture, would agree to such an undertaking. A relatively smaller amount of $1 billion has been pledged by the Chinese government for 27 socio-economic projects in education, health, agriculture, water and irrigation, human resource development, and poverty alleviation sectors.
A bigger impact can, however, be achieved if large Chinese companies investing in Pakistan are obligated to spare certain percentage of their investment for welfare projects in areas where they are working. This would not only ensure welfare of the local people, but also develop a sense of ownership among them for the Chinese projects.
The graduation of CPEC into the next phase and its eventual success is equally important for China as well because accomplishment of CPEC, being the flagship of the umbrella Belt and Road Initiative (BRI), is also a crucial yardstick for the mother project that would connect China with the rest of the world and also realise Beijing’s dream of greater international political clout. The participation of 37 heads of state and governments in BRF was a clear proof that the world is interested in the BRI and China’s political star is set to rise further.
Undoubtedly the launch of the next phase of CPEC is something for both countries to celebrate. It would further strengthen their historical relationship that is underpinned by longstanding economic and defence cooperation. Aristotle would have said: “Well begun is half done,” but then are sceptics, who believe that a job half done is as good as none.
I believe that the later assertion is more applicable to Pakistan, which has a history of squandered opportunities. Optimists like Senate Foreign Relations Committee Senator Mushahid Hussain Syed believe that the first phase of CPEC (2015-19) was successful because substantial progress was made in terms of addressing energy crisis, reviving dead projects like Thar Coal and Gawadar Port, and jobs creation. Yet, a deeper look into these projects shows there was lot of space for improvement. Instead of getting bogged down by mistakes of the past, it is important to realise the challenges in front of us as we start the journey into the next phase.
Islamabad Policy Institute (IPI), an independent think tank, in a recently published study BRI & CPEC: Venturing into the Future, cautioned about those challenges noting that they could “impede progress.” The key challenges listed by the think tank include political instability, economic crisis, security issues, and regional dynamics.
All these issues merit strong attention, but Pakistan’s troubled economy is the most important of all. The government would need to urgently undertake reforms to put its economic house in order. That is required for CPEC’s success, but is equally needed to improve common man’s conditions. Citing an example of energy projects set up under CPEC during the last four years, IPI study states that after the onset of the balance of payment crisis, the payments to the Chinese companies were delayed. In one instance, Pakistan owes around $119 million to a Chinese company for operating the coal power plant in Sahiwal. The issue is part of the bigger problem of circular debt.
The situation, it is feared, could slow down the progress on some of the upcoming projects, and worse, some of the operators would be compelled to run below full capacity. Not an ideal backdrop for Khan’s statement in which he told the audience in Beijing: “We are changing Pakistan’s economic landscape and God willing, the destiny of our people.”
No investor, Chinese or others, would like to face such a situation. The issue has to addressed by the government. Others cannot be of much help.
The writer is a senior researcher at Islamabad Policy Institute. She can be reached at firstname.lastname@example.org