CPEC Financing: Is Pakistan Being Ripped Off By China?

[AUz]

Lol are you serious? Changing the base year will increase the growth rate?

So, your current growth rate is being compared to 2005-06 base year and you think if your base year was 2010-11 (When economy was bigger than it was in 2005-06) you will have get a higher growth rate? LOOL

Yes dumbass. Learn basics of economics.

Change in base year will bring a lot of other major sectors into economic output data and we will calculate their growth too in our GDP--and hence it'll increase the growth rate overall bc some of the highest growing sectors (telecommunication--mobile phones sales and services etc) are not being counted properly in our GDP growth rate since our base year is 2005-06

Rest assured, Pakistan is more prosperous than toilet less india on almost every account of prosperity: Wealth, income levels, poverty rates, middle class by percentage of population etc etc.

india does better in health and education however. And due credit to it there. We should learn from it

 

[khanmubashir]

http://www.riazhaq.com/2017/07/cpec-financing-is-pakistan-being-ripped.html

Is China ripping off its all-weather friend Pakistan by charging high interest rates on loans and exorbitant guaranteed returns on investments in China Pakistan Economic Corridor (CPEC) projects? That's a question that is being asked on a frequent basis by Pakistan's friends and foes alike. While friends of China-Pakistan ties are concerned about an undue burden on Pakistanis, the foes see CPEC as an opportunity to create a lot of fear, uncertainty and doubt about it and its benefits for Pakistan's economy and society. Who's right? Who's wrong? Why? Let's dive into it.


CPEC Projects in Pakistan

Claims by CPEC Detractors:

Many Western and Indian opponents claim that the cost of CPEC financing will be so high that Pakistan will not be able to bear it. They assert that China is attempting to catch Pakistan in a debt trap from which the country will not be able to escape, eventually turning it into a Chinese colony. The financing costs for Chinese loans and investments they claim are in high teens.

Misguided Pakistani Analysts' View:

Many well-meaning Pakistanis, including serious economists, seem to echo detractors' claims without any serious examination or comparison with prevailing bench-marks. They do not mention how similar projects in other parts of the world are financed and what sort of interest rates and return-on-equity are guaranteed.

CPEC Finance Rates vs Benchmarks:

About two-thirds of Chinese CPEC funding is for power projects while the one-third is for infrastructure projects like roads, rail lines and ports.

The Chinese soft loans for CPEC infrastructure projects carry an interest rate of just 1.6%, far lower than similar loans offered by the World Bank at rates of 3.8% or higher.

Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.

The rate of return guaranteed by Pakistan power regulators to the Chinese power companies is about 17%. Is it too high, as some claim? Let's compare it to the US market considered among the safest investments in the world.

Rate of Return in United States:

The average return on equity for almost 8,000 US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.

In the United States, rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.

In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% while the lowest belongs to United Illuminating Co. (CT) at 9.15%.

Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?

Growing Infrastructure Gap:

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

Rich countries generally raise funds for infrastructure projects by selling bonds while most developing countries rely on loans from international financial institutions such as the World Bank and the Asian Development Bank to finance infrastructure projects.

The infrastructure financing needs of the developing countries far exceed the capacity of the World Bank and the regional development banks such as ADB to fund such projects. A recent report by the Asian Development Bank warned that there is currently $1.7 trillion infrastructure gap that threatens growth in Asia. The 45 countries surveyed in the ADB report, which covers 2016-2030, are forecast to need investment of $26 trillion over 15 years to maintain growth, cut poverty and deal with climate change.


Pakistan Country Report in Shanghai Business Review Feb/March 2016


Summary:

China is financing CPEC projects at rates that are comparable to similar projects elsewhere. Chinese loans for infrastructure projects such as rails, roads and ports are at rates (2% or less) below those (3.8%) offered by the Asian Development Bank and the the World Bank. The rate of return on power project investments under CPEC is 17%, somewhat higher than the 13.75 offered by much safer US state of Alabama.

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

An unrelenting campaign of fear, uncertainty and doubt (FUD) about China-Pakistan Economic Corridor (CPEC) has been unleashed in the media in recent weeks. This strategy harkens back to the aggressive marketing techniques used by the American computer giant IBM in the 1970s to fight competition. Part of the motivation of those engaged in FUD against CPEC appears to be to check China's rise and Pakistan's rise with its friend and neighbor to the north. As in IBM's case, the greatest fear of the perpetrators of FUD is that CPEC will succeed and lift Pakistan up along with rising China. Their aim is to preserve and protect the current world order created by the Western Powers led by the United States at the end of the second world war. Pakistani government should respond to the FUD campaign against CPEC by countering it with facts and data and increasing transparency in how CPEC projects are being financed, contracted and managed.

Related Links:

Haq's Musings

Harvard Projects 5.97% Growth in Next 10 Years in Pakistan

Media Advertising Boom in Pakistan

China-Pakistan Economic Corridor to Add Over 2 Million Jobs

Pakistan's Growing Middle Class

Vehicles and Appliance Ownership in Pakistan

Rising Consumer Confidence in Pakistan

Pakistan to Build Massive Dams for Abundant Water and Power


http://www.riazhaq.com/2017/07/cpec-financing-is-pakistan-being-ripped.html

Interesting a post about Pakistan economics and first one to jump to comments r Indian who nothing else to do then b jealous

 

[Mangus Ortus Novem]

@Kaptaan @Gufi


Dear Pak Friends,

The dead horse of CPEC is Chinese colonisation of Pak or Pak is going to be bankrupt or this or that.... all wishes of our indian friends flying on one legged wooden horse... we shall keep seeing such nonsense for at least a decade.

Even seen from pure cynical lense... Chinese need to invest in Pak... Pak happens to be a very important country in the global and Asian Geo-Strategic Architecture. Wondered why despite painting Pak pitch black... di Americanz... always end up dealing with Pak?

My Friends, your take on economy/development is correct... if I may ask... please, just look at the map of Pak and China...SEE from Kashmir to South Tibet (use Nepal, The Kingdom of Sikkim, Bhutan as stepping stones)... there is an arch that is not complete yet...

For China to become the True Leader of Asia.... the arch needs to be completed as well.

Name of the Great Game is Eurasia. And your beautiful Pak is sitting ginerly right in the middle of it. Talk about Pivots..

Just look at the map.

CPEC is many things... reducing it just either economy or military is doing it no justice...

Time is the Great Revealers of Mysteries.

You take care.



Regards,


SPF

PS. Please, also understand that PsyOps require to create negative narratives in the minds of Pak people regarding CPEC. When terrorism as proxy fails... bought politicians and media jump in... never underestimate indians or the empire... they know the True significance of CPEC...they know the Game... after all they are opposing party.

Stand off between China and india has nothing to do with Bhutan and has everything to do with CPEC. All I see is indian tactics...but there is no strategy yet.

 

[aakash_2410]

Yes dumbass. Learn basics of economics.

Change in base year will bring a lot of other major sectors into economic output data and we will calculate their growth too in our GDP--and hence it'll increase the growth rate overall bc some of the highest growing sectors (telecommunication--mobile phones sales and services etc) are not being counted properly in our GDP growth rate since our base year is 2005-06

Rest assured, Pakistan is more prosperous than toilet less india on almost every account of prosperity: Wealth, income levels, poverty rates, middle class by percentage of population etc etc.

india does better in health and education however. And due credit to it there. We should learn from it

and I thought we were going to have a constructive debate. But, I guess I am a dumbass for thinking that indeed.

Don't worry it's not your fault.

 

[LeGenD]

Couple of things here to note.

1. China is not going "rip off" Pakistan. I say this not because I think China is a saint but because I know they are smart. Pakistan is important to China in a geo-strategic sense and is only one of few countries that are inside Chinese "close circle". For a few billion dollars to wreck a stategic allies economy which would send Pak into a tailspin would be suicidal thing to do for Beijing. China for it's own strategic strength needs Pakistan as a strong, prosperous country, that it can trade with, build military alliance with and have a long term strategic alliance with. Do you chop a apple tree for short term benefit or do you nurture it to gain fruit year after year?


2. Having looked at CPEC few things have become apparent to me. I always felt it difficult to comprehend exactly how Gwadar would act as a port for China. The location is too far from mainland China and given the huge distance only high quality rail link would offer any chance of this happening - even at lower levels. I now understand that CPEC is not about finding a alternative route to the Arabian Sea that gives competition to the sea route through the Straits of Malaca. The real intention behind CPEC appears to be a Chinese effort to bring Pakistan into Chinese economic engines influence. That is it is a way for Chinese to enter Pakistan's economy and drive standards up which has win win effect for both Pak and China. In other words Pakistan has to open up to China and learn to walk the walk Chinese style. This will requite culltutal change inside Pakistan.

The full details of CPEC are in the link below. It's important to note that lot of sensitive details are left out and Chinese are subtle with teir language but you can read in between the lines what they want and what they expect of Pakistan. As long as Pakistan plays ball there is no chance of Pakistan losing. Indeed it will come out better even while it has to surrender some space to Chinese wishes and habits. Pakistan will by definition have to chill with Islamic rhetoric and move gently toward secularism without openly saying so.

I see nothing wrong with this. I see similarities in how America brought poor European countries into it's arc of influence (resulting in significant US influence and culture permeating ) after WW2. Here I am thinking of Greece, Spain, Italy etc and I would even include Turkey in this category. These countries gave space to US and in return were assured entry into American economic/military order which assured kiving standards and military security through NATO. Presently countries like Poland etc are getting the same benefits from Uncle Sam.Economc investment/trade is normally linked with military agreements entailing opening of US military bases under NATO architecture. Turkey has also been recipient of this and we know NATO has bases in Turkey.

In the same way I see CPEC as a vehicle for Chinese economic ingress into Pakistan which will tie Pakistan economically within the Chinese arc. This down the road will mature into full spectrum economic, military (expect Chinese bases ) and social relationship. For instance Chinese see Baloch coast as a place for Chinese holiday makers to visit as they do for instance Antalya in Turkey. Presumably full scale resorts that cater for Chinese holiday makers including drinks, food and other pursuits will be needed further down the road. It's all exciting stuff and I see Pakistan changing over the decades.

In short CPEC appears to be way for Chinese to move into Pakistan and help Pak economy on a road to development using Chinese technology and skills that they have learned in the miracle that country has witnessed in last 3 decades. CPEC will harvest the potential Pakistan has that at the moment lies latent. CPEC is not aboy funneling Chinese trade through Pakistan but switching on and turboboosting Pak trade and economy which has lied dormant all this time.

https://www.dawn.com/news/1333101/exclusive-cpec-master-plan-revealed

Do you think it is wise for Pakistan to put all of its eggs in the same basket?

How about a strong and independent Pakistan that can function without heavy reliance on USA or China for its needs?

Also, I don't get the love for secularism; it will undo our culture and fabric of morality in the long-term. A powerful motivation for creating Pakistan was preservation of Islamic identity in the subcontinent - do not forget this.

A crow copies a swan's walk, and forgets even his own walk.

I support CPEC but I am against making every aspect of our economy a part of it. We need to diversity our foreign investments and strengthen domestic industry. Pakistan should be an EXPORTS-driven economy in the future.

 

[Indus Pakistan]

Do you think it is wise for Pakistan to put all of its eggs in the same basket?

The short answer is "Yes". The fact is in the present world order who do you have besides the "West"? Iran is a example of a country spreading it's eggs so fine that it has no leverage or even presence anywhere. Everything bypasses it. That is called islolation.

Let's take countries like Greece, Turkey, South Korea, Singapore, Saudia Arabia - all of them have placed all their eggs in the Western order. Ditto Germany. Ditto France. So what is Pakistan supposed to do? The important thing is if you do place all your eggs in one place you must get "gold pass" with it. Turkey, Greece, Japan, South Korea have placed all their eggs in US (Western) basket and to be fair they do get "Gold Pass". The West would be prepared to send it's young men and spill blood to protect Greece, Turkey, South Korea or Japan via various defence vehicles. Even more so their economies are tied to Western economies entirely.

In Pakistan's case where do we go? Pakisdtan will never get the same "Gold Pass" like Turkey gets. Yeh we might at best get "Bronze Pass" like we did during 1960s but our geography is so distant from the Western fulcrum and our culture so divergent if not hostile to West that combined we will never get Gold Pass like Turkey has got.

Therefore where do we go? Arabs? Not a chance in hell. To begin with they are themselves puffters with oil and at any rate look at Pakistani's as vermin. Iran is Shia and for variety of reasons for now this is no go. Do we go with India? If so why 1947? Therefore you are left with China which stupendous luck is heading to the hyperpower. Pakistan is right next door China and this is one country which we could get a "Gold Pass" with and that would offer even greater benefits than getting Gold Pass from the West as it happens to be next door.

How about a strong and independent Pakistan that can function without heavy reliance on USA or China for its needs?

We live in a world where there is utter interdependancy and even superpowers exist as part of blocks. No country (well excluding Iran or Somalia) are islands unto themselves. Germany or Japan or Turkey are far, far stronger than us and have history iron spirit of independance but today they are entirely interlocked with America far, far more than Pak is to any other country. In that sense German or Japanese sovereighnty is more compromised then Pakistan yet are they lesser then Pakistan?

Also, I don't get the love for secularism; it will undo our culture and fabric of morality in the long-term.

What culture? What darned morality? These are concepts like gravity but they do manifest themselves. Have you been to Pakistan? Crime, murder, rape, corruption, dog eat dog, kill, kill, screw everything, screw every rule as long as you come out on top and to top it all hypocracy unlimited.

Is that what you want to preserve? The Pakistan you see is the gross manifestation of our culture and our morals. It's not like we have Pakistan but have Scandanavian morals and values. You want to see manifestation of Scandic culture go to Sweden or Norway and you will see everything - warts and all.

A powerful motivation for creating Pakistan was preservation of Islamic identity in the subcontinent - do not forget this

Powerful reason for creation of India was the British India Company. Do you think Indian's should worship East India Company for eternity? In 1947 we just uncreated what East India Company and it's soldiers had created back in 1843/49.

Every generation has responsibility to choose and head in a direction that is in it's interest. America was created because of "no taxation without representation" and Saudia Arabia was created, well by "Mr Saudia" lust for power. So no big deal. We are in 2017 and have to tacke reality as exists.

And Islam was around for thousand years before Pakistan. Indeed it survived 98 years of kaffir British rule and before that 150 years of kaffir Sikh rule. I am sure you know that from 1700 onwards most of what is now Pakistan was ruled by Sikh Empire of Ranjit Singh and after that by British. If nearly two centuries of kaffir rule did not diminish Islam in our land I dare say a Pakistan with 98% Muslim majority is not going now see Islam vanish under secular dispensation. To think that is to affront Islam in that you suggest it is so fragile/.

 

[volatile]

Pal In India`s case the rating for investment is somehow favourable if not speculative ,secondly companies hire professionals to do these investments and in case of India mostly JV are done for many companies which shifted there technology e.g

https://dir.indiamart.com/impcat/cryogenic-tanks.html
These are export related projects and companies already prefer to source thru India bcas of cheap labour

Yes bro,when company comes to india they come at their own risk,there is no garuntee of returns,if everything has garuntee they would have invested in any market ,people invest if they think they will get returns .you start a business and if it runs you make money if you don't you go empty handed

Nobody is giving India a free lunch. They are trying to get piece of Indian assets cheap before it appreciates.
They are betting on future Indian growth

I think India growth has been speculative and reason for last 10 years of investment is China containment as well as lower labour . E.g still fundamental for any investment if you see are way below than expected

lower medium grade i.e near to non investment group

https://tradingeconomics.com/india/rating

https://tradingeconomics.com/india/corruption-rank
National pride is some thing reality is some thing

 

[wiseone2]

Pal In India`s case the rating for investment is somehow favourable if not speculative ,secondly companies hire professionals to do these investments and in case of India mostly JV are done for many companies which shifted there technology e.g

I think India growth has been speculative and reason for last 10 years of investment is China containment as well as lower labour . E.g still fundamental for any investment if you see are way below than expected

No one can keep the asset bubbles inflated. at some point returns have to justify asset prices.
i am a stock market investor. i have found american companies have better value than a lot of companies in emerging markets

 

[volatile]

No one can keep the asset bubbles inflated. at some point returns have to justify asset prices.
i am a stock market investor. i have found american companies have better value than a lot of companies in emerging markets

Hi Stock market is a good field but mainly works on speculations ,by the way my core work is business economics and strategies and in capitalist system bubble are the final outcome ever

 

[ghazi52]

Once upon a time Pakistan exported ships to China.
A 13,160 Ton Cargo Vessel Hetian was built for China National Machinery Import & Export Corporation, China, in 1978.

 

[wiseone2]

Hi Stock market is a good field but mainly works on speculations ,by the way my core work is business economics and strategies and in capitalist system bubble are the final outcome ever

bubbles pop eventually. The Indian economy is growing. But the rise in asset prices has outpaced economic growth. India might be in a better shape to withstand a pop in asset prices because lot of population does not own these assets

 

[Kabira]

its amazing how many years old fake news keep getting posted.

 

[Chak Bamu]

I have noted with concern how @Gufi & @Kaptaan have disparaged Pakistani Industrialists. They seem to have used their emotions and skewed perceptions take the better of their posting skills.

I was an industrialist and my company was wiped out during 2013. This had a lot to do with not having electricity for 14-18 hours a day. I struggled to pay my labor and in trying to save my company and my reputation, I lost most of my capital. It was a point of pride to employ people and while I took the beating, not one person can fault me for having not paid my staff.

By calling Industrialists leeches, you are doing a dis-service to our country & our economy. Throw the Industrialists out and see how it goes? We did that in 1973, remember? It turned out real well did it not? There was zero investment until early 80s and that too started on a very meager scale. Pakistan has really enjoyed the lack of investment and growth, has it not? Is it any accident that biggest industrial unit installed in Sudan in late 1970s was a textile mill installed by Gen (R) Habibullah Khan? Sharif Brothers invested in UAE. Erstwhile owners of BECO (turned into PECO by Pakistan government) got dealership of Bethlehem Steel of USA and kissed manufacturing good-bye. Saigols too vowed not to invest in high-profile projects. It is no surprise that none of these families trusted Pakistan with all their wealth & experience (... hence Panama papers). Almost every industrialist who invested in Pakistan was an entrepreneur. Seeing how they have been treated is a sight to behold by many, including our Indian friends.

So we did real well in calling our Entrepreneurs (who invested in a new country with uncertain future) Leeches. Since it worked wonders in late 60s & 70s. It would work real well now too. Kyun bhai @Kaptaan & @Gufi ?

Productivity in an economy depends upon Labor, Kapital (Capital in original German), Human & Natural Resources.

Y (productivity) = A* f[L, K, H, N]
where A is the technological constant reflecting the level of technology at any given time for an economy

To grow an economy, one can invest in Labor (left-wing politics), or Kapital (right-wing politics). Investment in Labor gives results in longer term, while investment in Kapital provides results sooner. They both complement one another too. Investment in K provides a trickle-down effect to L, and vice versa. To jump start an economy, it is best to first focus on K, to increase the size of the pie, and then to shift focus to L to sustain growth in longer term. This is what we did during Ayub years. The predictable down-side was concentration of wealth, that also happened in South Korea. But due to political instability and populism, the gains were thrown away. Army, Leftist press, economically illiterate analysts, & stunted populist politicians all played their part in the scheme of things. It is pertinent to note that Ayub Khan got rid of senior politicians (presumably including Feroze Noone, who negotiated Gwadar with Oman) via EBDO. The crop of politicians sponsored by military regime had gems like Bhutto... ;-)

In economics we study trade-offs. One of those is the trade off between Guns (Army) & Butter (Social services). There is no doubt which side of this trade-off was chosen by Pakistan under the brilliant leadership of generals, pliable politicians, & bureaucrats. I do not think there is a valid reason to cry about the quality of Human Resouce (workers, entrepreneurs, teachers, analysts, etc...), when we have invested more in military hardware than in schools. Point to note is that quality of our Entrepreneurs & the quality of their workers has depended upon their environment. So, there is little to complain about over here.

Now I can tell the predictable hee-haw that would ensue...

"we are talking about unpatriotic industrialists, not the patriotic, hard working ones"... (Mian Sharif was considered Patriotic & hardworking when Gen. Umrao Khan recommended him for manufacturing Wheat Thrashers in 1960s)

"we mean that our industrialists keep share of wealth outside of Pakistan"... (1973 Nationalization? Enough said)

"we mean that our industrialists have not invested in the country like they should have" ... (Yeah, sure, like you would)

"we mean that our industrialists are not educated and have no vision"... (give them electricity first... then complain)

"we mean that our industrialists have done nothing for the people" ... (they do try to employ people, in case you noticed)

"we mean that our industrialists only think about maximizing profits" ... (what else should they do? Read Economics)

"we mean that our industrialists have failed our country" ... (and not vice-versa? 1973? political stability? fiscal stability? white elephant projects like PSM? Great press coverage? ELECTRICITY?... need more?)

I hope people study a little before proffering their opinions so readily.

 

[SoulSpokesman]

Chak Bamu sb,

You are a wonderful lot- I meant entrepreneurs from the Indian subcontinent, pls dont lose heart. The problem is the Brahminical mentality that all folks from the subcontinent, including Muslims suffer from- people look down upon mercantile people and qualities. The famous Indian sociologist Deepak Lal I think it was who coined the term "disdain of the literary castes for the mercantile" or something of that sort. The nasty references to banya etc are part of that disdain.

Regards

PS: I am neither a bamman nor a banya, so I can be trusted to be a neutral observer.

 

[Indus Pakistan]

I have noted with concern

I am sorry if I offended you. You must understand that when we talk about this subject by definition we have to use broad strokes. We know Pakistan police is corrupt. I think you would agree with that statement. I think you would also agree many PWD or tax officials are corrupt but we also know that not all of them are corrupt. Among them there are some honest, upright people but you know they are exception to the rule.

So in the same way you are exception to the rule. What I said about industrialist in Pakistan was statement as a class. That does not extend to each and every one. At any rate you can't have been a leech. If you were you would have managed to curry favour with the powers to either bail you out with loans or get some government contracts you sail you along.