Pakistan better off with Chinese money

Unlike previous aid, this one will at least erect credible infrastructure all over the country which, in time, might just enable it to breathe some life into its exports

Notice how any doubts about CPEC (China Pakistan Economic Corridor) get Pakistani and Chinese officials behaving like cats on hot bricks? The latest instance, though, came at a particularly embarrassing time for the new government in Islamabad because Chinese Foreign Minister Wang Yi was in town. And the day local papers ran front-page headlines about ‘expanding the base of CPEC’, Financial Times quoted Razzaq Dawood, PM’s advisor on commerce, suggesting Pakistan might go the way of Malaysia and opt out of a number of Chinese infrastructure projects.

“The previous government did a bad job negotiating with China on CPEC,” Razzaq told the Times. He went on to say, though he later claimed he was quoted out of context, that “I think we should put everything on hold for a year so we can get our act together. Perhaps we can stretch CPEC out over another five years or so.”

Malaysia, of course, recently cancelled some Chinese projects because its new government, under Mahathir Mohamad, said the debt ridden country just ‘cannot afford them at the moment’; even though it is not quite as close to default as Pakistan. But Pakistanis, too, have their fair share of doubts about China’s ambitious Belt and Road Initiative (BRI), which seeks to revive the old, fabled Silk Road in a modern setting by establishing road, rail, energy and maritime infrastructure across almost 70 countries at a cost close to a trillion dollars.

All that Pakistanis know about the project is that its original cost was $46 billion — $35b for energy projects and $11b for infrastructure development – and later adjustments raised the final bill to around $60 billion. A major portion of this money, of course, will come from Chinese private banks. All other matters are shrouded in secrecy, which led Imran Khan’s PTI (Pakistan Tehreek-e-Insaaf) to promise opening CPEC books in parliament, to ensure transparency, as soon as it took office — a promise that has not yet been honoured. Elsewhere, including parliament, CPEC also raised the spectre of another era of colonisation. “Another East India Company is in the offing; national interests are not being protected,” Tahir Mashadi, former chairman of the Senate standing committee on planning and development, thundered in the Upper House in October 2018. Pakistanis, sadly, are not as up to speed on colonial history as their Indian neighbours, but there is still a collective memory of how the Company’s mercantilist ideals plundered India’s economy, which the British government exploited to the point of bankruptcy after it took direct control in 1858.

While there’s little chance of Colonisation

2.0, concerns about exploitative taxation, further skewed trade balance, and increased indebtedness have a point. Still, from Islamabad’s point of view, they are immaterial.

Let’s not forget Pakistan’s core foreign and economic policy for decades, regardless of the party or system in power, has been identifying patrons that can lend us enough to survive primarily on aid.

And now that American aid is all but a thing of the past, long-term Chinese commitment in the form of CPEC is, if anything, a God-send whatever interest rate and payback terms it entails.

More importantly, unlike previous aid, this one will at least erect credible infrastructure all over the country which, in time, might just enable it to breathe some life into its exports and, therefore, its own revenue. For the ordinary Pakistani, if the only difference is their tax money filling bank accounts in the Middle Kingdom instead of buying premium European real estate for their own leaders, then so be it. And if that trims China’s 10,000km distance to Middle East markets and beyond — from the South China Sea to the Straits of Malacca — by more than half when CPEC connects Kashghar to Gwadar, then so be it. Surely, it will protect such investment and, while doing it, keep Pakistan from drowning in its own debt.

Strangely, CPEC also plays a central role in the great trade war currently underway between the US and China. Though America still has the world’s largest GDP, China is inching its way close. Ever since it overtook America as the world’s leading exporter of goods and services in 2013, it is counting on BRI to secure markets and access routes for its trade. CPEC, incidentally, is the flagship project of BRI.

And since Islamabad desperately needs approximately $15 billion for an urgent bailout, which only the IMF can provide, Washington is leveraging its influence on the Fund to corner China.

It could, for example, link a likely bailout with a rollback on CPEC. If it succeeds it might get other BRI clients to follow Malaysia and, possibly, Pakistan. If not, it will have a hard time countering Beijing’s momentum as it buys and builds its influence from Asia Pacific, across Arabia, all the way to Central and Eastern Europe. And, despite evidence to the contrary, countries like Pakistan will be only too happy engaging in what Washington increasingly calls China’s ‘debt-trap diplomacy’.