CPEC cost build-up

[I S I]

Pakistan's debt to Gdp stands around 64%, likely to drop to 60% in 2 years despite all these loans, compare it to India, Sri Lanka or Bhutan and they have even higher debt to GDP and yet growing at amazing pace.

Pakistan external debt to GDP is around 26% and that is very tolerable. It is not that we are only taking loans, the gdp is also growing at the same time and by 2030, The Gdp nominal will most likely be around 1 trillion dollars and possibly more with CPEC factor... so these loans would sound peanuts (although we will take more loans from elsewhere too maintaining the debt to gdp ratio very high).

CPEC had got 52 projects in 2013 and with additions the number of projects have risen and every project have got different terms and conditions so it it really hard to generalise the entire project without going into details of every project

Please don't worry; the future is brighter than what we witnessed in 2008-2014

Agree. Indeed we're living in a better time than the nightmares of PPP government. Hope they're never elected ever again.

There was news of Pakistan keeping some motorway as collateral for loans. What happens in case the loan cannot be paid back? What can the lender do with this road? Block it?

Are nahiin nahiin, wo dahi bare ka thela laga sakte hain motorway pe to recover their loan.

 

[Nanga Tarzan]

Preventing Islamic risk on ‘Belt and Road’
This article states that there are 33 Islamic countries where OBOR projects are running but then singles out Pakistan!

 

[Kaniska]

Preventing Islamic risk on ‘Belt and Road’
By Mei Xinyu Source:Global Times Published: 2016/12/15 15:33:39
2

Illustration: Liu Rui/GT



A few years ago, I predicted that for the next 10 to 20 years, economic recession will worsen and cause major social instability in emerging countries. Africa, Latin America and Middle East Islamic countries will be the prime source of this upheaval and turmoil. For nearly three years, the Ukrainian crisis, the emergence of the Islamic State, the Yemen civil war and 2016 Turkish coup attempt have proved my prediction. In the next 10 to 20 years, "Islamic risk" will be one of the world's biggest political risks.

For China's "One Belt, One Road" (OBOR) initiative, Islamic risk is also a prominent political danger. According to the broadest definition, OBOR involves 64 countries, 33 of which are Muslim countries, accounting for more than half the total.

Among the remaining 31 non-Muslim countries, 10 countries have obvious existing Muslim unrest and are at risk of terror attacks. In total, 44 countries have Islamic risk, making up 69 percent of the total number of countries along OBOR.

For example, Pakistan, China's iron-core brother, is a country with serious Islamic extremism. From 2012 to 2013, violent terrorist incidents in Pakistan caused 11,590 deaths, which included 6,008 civilians, 1,408 policemen and 4,174 militants.

As a country pursuing a policy of non-interference in the internal affairs of other countries, China has no obligations to get them out of the social upheavals. What China can do is to create a favorable environment for their peaceful development through equal trade after they walk out of turbulence. When promoting OBOR, China should fully consider risk returns, and try to maximize returns while minimizing risk.

In view of Islamic risk, China ought to give priority to pre-arrangements, supplemented by measures afterward. Chinese enterprises in Muslim countries should put self-help measures first, while making government guarantees and rescue mechanisms subsidiary. Relying on these tactics means that active arrangements are vital for reducing Islamic risk during the process of perfecting a transnational operation political risk-response system. Only in this way can China minimize the cost of political risks in transnational management.

In addition, the Chinese government should modestly promote overseas aid, and expand policy-oriented export credit insurance and overseas investment insurance. However, expecting the aid to eliminate all political risks is unrealistic, which is beyond the affordability of Chinese national strength and may lead to moral hazard for enterprises.

According to the above principles, China can take measures such as organizing Chinese security companies, and carrying out rescues and intervention when necessary. Nevertheless, what China should do most is as follows.

The probability of political risks should be reduced by appropriately arranging OBOR, moderately relaxing restrictions on media reports, discussing Islamic risk, implementing neutral and friendly policies, and taking appropriate international operations strategies.

Especially, a more open media environment and more discussions about corruption problems, social unrest, rampant violence and other negative issues in Islamic countries can prevent Chinese people from entering dangerous places.

Moreover, it is advised to speed up the organization of overseas Chinese chambers of commerce, so as to strengthen overseas merchants' ability to resist political risks. In addition, China should improve bilateral investment-protection mechanisms and upgrade policy-oriented export credit insurance and foreign investment insurance.

The author is a research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. opinion@globaltimes.com.cn

Interesting article.

 

[Wen Ling]

Preventing Islamic risk on ‘Belt and Road’
By Mei Xinyu Source:Global Times Published: 2016/12/15 15:33:39
2

Illustration: Liu Rui/GT



A few years ago, I predicted that for the next 10 to 20 years, economic recession will worsen and cause major social instability in emerging countries. Africa, Latin America and Middle East Islamic countries will be the prime source of this upheaval and turmoil. For nearly three years, the Ukrainian crisis, the emergence of the Islamic State, the Yemen civil war and 2016 Turkish coup attempt have proved my prediction. In the next 10 to 20 years, "Islamic risk" will be one of the world's biggest political risks.

For China's "One Belt, One Road" (OBOR) initiative, Islamic risk is also a prominent political danger. According to the broadest definition, OBOR involves 64 countries, 33 of which are Muslim countries, accounting for more than half the total.

Among the remaining 31 non-Muslim countries, 10 countries have obvious existing Muslim unrest and are at risk of terror attacks. In total, 44 countries have Islamic risk, making up 69 percent of the total number of countries along OBOR.

For example, Pakistan, China's iron-core brother, is a country with serious Islamic extremism. From 2012 to 2013, violent terrorist incidents in Pakistan caused 11,590 deaths, which included 6,008 civilians, 1,408 policemen and 4,174 militants.

As a country pursuing a policy of non-interference in the internal affairs of other countries, China has no obligations to get them out of the social upheavals. What China can do is to create a favorable environment for their peaceful development through equal trade after they walk out of turbulence. When promoting OBOR, China should fully consider risk returns, and try to maximize returns while minimizing risk.

In view of Islamic risk, China ought to give priority to pre-arrangements, supplemented by measures afterward. Chinese enterprises in Muslim countries should put self-help measures first, while making government guarantees and rescue mechanisms subsidiary. Relying on these tactics means that active arrangements are vital for reducing Islamic risk during the process of perfecting a transnational operation political risk-response system. Only in this way can China minimize the cost of political risks in transnational management.

In addition, the Chinese government should modestly promote overseas aid, and expand policy-oriented export credit insurance and overseas investment insurance. However, expecting the aid to eliminate all political risks is unrealistic, which is beyond the affordability of Chinese national strength and may lead to moral hazard for enterprises.

According to the above principles, China can take measures such as organizing Chinese security companies, and carrying out rescues and intervention when necessary. Nevertheless, what China should do most is as follows.

The probability of political risks should be reduced by appropriately arranging OBOR, moderately relaxing restrictions on media reports, discussing Islamic risk, implementing neutral and friendly policies, and taking appropriate international operations strategies.

Especially, a more open media environment and more discussions about corruption problems, social unrest, rampant violence and other negative issues in Islamic countries can prevent Chinese people from entering dangerous places.

Moreover, it is advised to speed up the organization of overseas Chinese chambers of commerce, so as to strengthen overseas merchants' ability to resist political risks. In addition, China should improve bilateral investment-protection mechanisms and upgrade policy-oriented export credit insurance and foreign investment insurance.

The author is a research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. opinion@globaltimes.com.cn

Interesting article.

I do not want to offense any one here.
As one of several Islamic countries that may have ideas of industrialization/modernization, I do hope some top Pakistani Islamic scholars can try to develop and modernize the religion of Islamic theory as Christianities did in 16/17 centuries. A social/cultural idea has to adapt to new reality and even facilitate it.
Again, no offense.

 

[abc123xyx]

There was news of Pakistan keeping some motorway as collateral for loans. What happens in case the loan cannot be paid back? What can the lender do with this road? Block it?

the lender will collect toll tax on it ?

 

[Nexus]

In simple terms: We're fu*ked man. See that's what i was talking about in other thread. All is loan on freaking hefty markups of 15-20%. Who the F in their right mind will decline us for that kind of loan ehh i mean investment. This project may or may not start to payoff in a century but we will be pulling out interest money from our own pockets for this mommoth in next few years. No Pakistani will die a virgin. Every single one will get Fked in the process. Great job takla shareef on negotiations table.

ever wondered why 180 years old Leahman Brothers Died in just 1 week ?

@Nanga Tarzan watch this video,

you, your country will not go down alone.

 

[SoulSpokesman]

Zulfikar sb,

The author's calculation indicates that the cost of debt is close to 8% and not 6.15% as you have estimated (unless I have missed something). That would push up WACC to 10% plus and that too denominated in USDs and not PKRs. That would be quite stiff. But possibly, given Pak's ratings that's maybe the least someone needs (even a brother!) to do a project of such large size in Pak.

Regards

 

[Nanga Tarzan]

I do not want to offense any one here.
As one of several Islamic countries that may have ideas of industrialization/modernization, I do hope some top Pakistani Islamic scholars can try to develop and modernize the religion of Islamic theory as Christianities did in 16/17 centuries. A social/cultural idea has to adapt to new reality and even facilitate it.
Again, no offense.

Hey hey hey. You are wading into dangerous waters here bro.

Anyway, it's Muslims who cause these issues, not Islam.

 

[90ArsalanLeo]

That is good, at least now.
Pakistan should invest some decent money on steel mill and oil refinery for its over 100 million people. That is the base for any decent country. believe me, it worth it!

I hope china can invest every penny properly in CPEC and if its done this will help people at grass root level poor people but if china let some of the money go to blood and money sucking corrupt politicians of Pakistan (specially commission seeking ones) for sake of personal relations between elite of china and Pakistan then this project won't give much benefit to people of Pakistan.

There was news of Pakistan keeping some motorway as collateral for loans. What happens in case the loan cannot be paid back? What can the lender do with this road? Block it?

Modi will pay for his bff nawaz seriously in every CPEC related thread why u indians are stressing over financial well being of Pakistan???

 

[Wen Ling]

I hope china can invest every penny properly in CPEC and if its done this will help people at grass root level poor people but if china let some of the money go to blood and money sucking corrupt politicians of Pakistan (specially commission seeking ones) for sake of personal relations between elite of china and Pakistan then this project won't give much benefit to people of Pakistan.

The question is several folds here.
First, Sino-Pakistan relationship is strategic, in principle, China do not need to give any personal money to Pakistan government. say, If they want to, let those people have some good chance to invest inside China, then the money will be huge.
Second, what about the lower level people inside Pakistan ask extra money/benefits to arrange the projects? so I do hope Pakistan have good supervision system on this matter.
Third, this is commercial project, and Pakistan has civil law, right?

 

[Zulfiqar]

Nanga Tarzan

Well I have not read the loan documents for motorway project. But collateral/security can be in several ways. Mortgage charge over land, Right of collecting toal over the road e.t.c backed by Govt. Sovereign guarantee.

Zulfikar sb,

The author's calculation indicates that the cost of debt is close to 8% and not 6.15% as you have estimated (unless I have missed something). That would push up WACC to 10% plus and that too denominated in USDs and not PKRs. That would be quite stiff. But possibly, given Pak's ratings that's maybe the least someone needs (even a brother!) to do a project of such large size in Pak.

Regards

The cost is not fixed but is variable benchmarked to LIBOR (6 months LIBOR according to him which is currently around 1.3% and is lower than 12 months LIBOR that I used). Add a spread of 4.5% (which I saw in several NEPRA tariff documents IIRC) then the COD is 5.8% (if 6 mths LIBOR is used instead of 12 mths).

It shall be noted that the actual negotiated spread are often lower than 4.5% spread quoted by NEPRA

Dollar denomination is not an issue if there is no major change in FX rate and even FX rate volatility can be hedged if required.


Small local financed power projects with capacity of 5-50 mw are being financed commercially on sole/syndicated basis with a spread of 0.5%-2% over KIBOR (currently benchmark rate is around 6.10% to 6.15% for 3-6 months KIBOR).

 

[Clutch]

I do not want to offense any one here.
As one of several Islamic countries that may have ideas of industrialization/modernization, I do hope some top Pakistani Islamic scholars can try to develop and modernize the religion of Islamic theory as Christianities did in 16/17 centuries. A social/cultural idea has to adapt to new reality and even facilitate it.
Again, no offense.

No offence taken...

You make some valid points to which i agree about reforms and islamic scholars taking some personal responsibility.

But i disagree about the term "islamic risk" ... it should be called "Saudi Risk" .

Was there any Islamic Risk before 9/11 or before Gulf Iraq war called dessert storm?... no. Therefore it's a bit of a fallacy to correlate the militancy to a system Islam which has been around for over 1,400 years to a conflict 20 years.

That is a mistake most western orientialist make... they don't really know islamic history or even people. Unfortunately Chinese think tanks import Western studies as is without realizing the biases.

 

[Wen Ling]

No offence taken...

You make some valid points to which i agree about reforms and islamic scholars taking some personal responsibility.

But i disagree about the term "islamic risk" ... it should be called "Saudi Risk" .

Was there any Islamic Risk before 9/11 or before Gulf Iraq war called dessert storm?... no. Therefore it's a bit of a fallacy to correlate the militancy to a system Islam which has been around for over 1,400 years to a conflict 20 years.

That is a mistake most western orientialist make... they don't really know islamic history or even people. Unfortunately Chinese think tanks import Western studies as is without realizing the biases.

Thanks for reply. I have to say the post is not mine. I have to stress that I do not know much about Islam world. for example, I have no idea about the difference between Islam and Muslim.
Chinese (including many scholars) have mixed feelings about Islam world. First, Islamic world shared the same fate as Chinese in colonial age, and be heavily biased by American/British media. Use one maybe not that appropriate sample, many Chinese felt somewhat sympathy and understanding why those guys will do 9/11 attack. Moreover, from Ming dynasty, Chinese Emperors used a special policy to make Muslims inside China tamed them to Chinese Muslims 回教徒, which is very different from Muslims outside China. Qing Dynasty conquered Xinjiang by genocide most of people over there, some of whom are Uguers, some of whom are Chinese Muslim. That is the origin of all muslim problem inside China, not all of them negative anyway.
Second, after the foundation of PRC, China took the policy of USSR, which is not same as the Muslim policy as before. So you may expect there were many problem. Plus, the economic reform from 1979 is basically an unbalanced reform, ignoring the west part of China first. Unfortunately that is where most of Muslim communities resides. It is not until 2005 or so, China starts to modify its domestic policy on Muslim, and develop the west China. Now China is in drastic reform on these matters.
Third, China's tradition on any religion is the same: the state must be ahead of any religion (admire the country and worship Allah). In general, Chinese agrees that Chinese Muslim can be lived with, and Islam can stabilize the society. On the other hand, They did not appreciate that the kids of Muslims are brought to church when they were young; Muslim girls are somehow forbidden to marry to other ethnic of China.
Forth, Chinese do not understand if Chinese can modify their traditions to catch up the world, why the Muslim world cannot modify their tradition to do it? Should any social /political ideas/system supposed to adapt to reality of world?

again, no offense.

 

[Mo12]

its impossible for pakistan to get bankrupt, so dont worry you will be fine

 

[aliaselin]

m

Thanks for reply. I have to say the post is not mine. I have to stress that I do not know much about Islam world. for example, I have no idea about the difference between Islam and Muslim.
Chinese (including many scholars) have mixed feelings about Islam world. First, Islamic world shared the same fate as Chinese in colonial age, and be heavily biased by American/British media. Use one maybe not that appropriate sample, many Chinese felt somewhat sympathy and understanding why those guys will do 9/11 attack. Moreover, from Ming dynasty, Chinese Emperors used a special policy to make Muslims inside China tamed them to Chinese Muslims 回教徒, which is very different from Muslims outside China. Qing Dynasty conquered Xinjiang by genocide most of people over there, some of whom are Uguers, some of whom are Chinese Muslim. That is the origin of all muslim problem inside China, not all of them negative anyway.
Second, after the foundation of PRC, China took the policy of USSR, which is not same as the Muslim policy as before. So you may expect there were many problem. Plus, the economic reform from 1979 is basically an unbalanced reform, ignoring the west part of China first. Unfortunately that is where most of Muslim communities resides. It is not until 2005 or so, China starts to modify its domestic policy on Muslim, and develop the west China. Now China is in drastic reform on these matters.
Third, China's tradition on any religion is the same: the state must be ahead of any religion (admire the country and worship Allah). In general, Chinese agrees that Chinese Muslim can be lived with, and Islam can stabilize the society. On the other hand, They did not appreciate that the kids of Muslims are brought to church when they were young; Muslim girls are somehow forbidden to marry to other ethnic of China.
Forth, Chinese do not understand if Chinese can modify their traditions to catch up and world, why the Muslim world cannot modify their tradition to do it? Should any social /political ideas/system supposed to adapt to reality of world?

again, no offense.

Your Chinese history must be taught by someone whose major is physical education.

Hui Muslim was very limited in Xinjiang in Qing Dynasty. And in Qing Dynasty the North Xinjiang is majority of Mongols such as Mongolia Zhungeer whose religon Lamaism and Uyghur are mostly lived in South Xinjiang. More specifically speaking, Uyghur does not exist at that time because Uyghur is created after PRC founded in 1949 by combing three different groups. Over 100 years of war between Mongolia Zhungeer and Qing, many Mongolia Zhungeer are slaughtered by Manchu government, and left field without owner. From that time, some "Uyghur" began to spread to North Xinjiang.

Well, this is history of recent 300 year.And if we go back to AD 1000, there is no Muslim in Xinjiang