First off, thank you for this detailed and meaningful analysis. It is always good to read constructive criticism about such a major project when 99% of the news and analyses declare it THE silver bullet for all our problems. However, I have a few comments of my own here and would like to read your response.
1. It doesn't fit the definition of an Economic corridor. An economic corridor [sic] “connects hubs or nodes of economic activity along a defined geography” (Asian Development Bank). Hence, an empty road through a barren landscape connecting strategically important point A with strategically important point B 3,000 kilometers away does not fit the description. To be truly an economic corridor, the envisaged roads will need to connect demand (markets) with supply (production centers and clusters). The markets as well as production centers can be per-existing ones, or new ones that will spring up as the ‘network effects’ of the economic corridor take root. The Question is will the proposed China-Pakistan Economic Corridor will truly be an ‘economic’ corridor, or will it be a string of strategically important roads and a bunch of power projects. The Power projects are almost equal to the domestic demand that will be there when its implementation is over. When envisioning the future it is always a thumb rule to have surplus installed capacity. Further there are no domestic Power plant equipment manufactures in Pakistan that make Steam generators and Turbines (500 MW+ capacity). (Would be great if you guys could get some JVs with the Chinese, but alas)
This is not just a road project. Both governments have planned and launched export processing zones along this route. There are some industrial parts (apparel parks, electronics city etc) which are in advanced stages. There is also a dedicated free zone for Chinese companies in Gawadar (land was allocated for it last week).
I agree that the power projects included in the early harvest program are for
current demand only. These projects, about 10,600MW in total, are supposed to start providing energy before the next elections in 2018. There are other projects as well in the pipeline. Besides no one said that more projects can't be started once this planned economic boom starts.
2. It won't create local employment and capacity building. Chinese documents have already stated that the projects would cost more than a similar project in China because of the increased cost of bringing Chinese labour to Pakistan. Means all the wages and machinery deployment costs will flow back to Chinese pockets. The same way they have been doing it in Africa.
Chinese companies do employ a lot of their local resources, as I believe this is Chinese government's official policy to kick start infrastructure projects in developing countries with soft loans and then drive this money back home by employing Chinese companies and Chinese manpower. But remember, Pakistan doesn't have anyother alternatives right now. A power plant company that employs 50% Chinese manpower is better than a power plant which doesn't exist at all! So I believe its a net positive sum for Pakistan. Plus foreign expertise is always welcome.
3. The corridor's main purpose is to grant Chinese access to the Gulf as an alternative to the vulnerable sea route in the South China sea. Rest is all add on. No worthwhile investment can come in the Balochistan KP stretch. Punjab and Sindh may imagine an export based strategy but can anyone produce cheaper than China? Further, export led growth is dicey in a world where major economies are in the doldrums [Eurozone, USA and even China is becoming sluggish].
Actually yes. A few countries have started producing cheaper stuff than China as China moves up the industrial ladder. Take that news of Foxcon opening assembly plants in India for example. Wages are increasing in coastal China and I believe CPEC like projects will serve to protect Chinese investments in low skill industries like textiles etc by moving them to cheaper locations like Pakistan.
4. The Karakorum Highway Route is Seismically active, snow laden for a little less than 6 months, and is very very very far away from China's consumption centers which lie in the far east. Its way cheaper to import via Ships to those areas, as for its energy requirements, China has gas pipeline links with central Asia, is making a super massive one from Russia. It is not going to be as dependent on gulf oil in the near future. So if the Chinese have any sense of economics and cost vs risk analysis, they will only keep this route as a fire escape. Highly expensive and risk laden.
Agreed. But CPEC has far more strategic value than purely economic one i.e. bypassing the Straits of Malacca. So I guess that's their rationale.
5. So how is proposed "investment" planned. it could have been made sweeter by allowing Pakistan to trade in rupees and then arrange fro currency swaps that would help in Pakistan in increasing its Forex and increase trade footprint at the same time. Whereby Pakistan gets to pay in rupees rather than in US dollars or renminbi. Interestingly it has already been agreed that payments will be in US Dollars.
Pakistan already has currency swap agreement in place with China. These projects are contracted in USD because of our current economic situation I guess. Your views on it?
6. The idea of becoming a 'trading' hub already has a competitor, its Dubai that allows trans shipments to all countries and is already established a business hub. For Gwader to become a competitor it will have to provide services at par with Dubai and better it, from day one. good luck. In view of the economic landscape cities have become prosperous like Singapore and Dubai is their location on sea trading routes which they have cultivated over decades. In view of the Iran Deal, West will get trading access to Central Asia Via Bandar Abbas and other Iranian ports (Chahbahar is not even in question here) by circumventing the instability, and insurgency of Afghanistan which they might go to... at a later date if the dust settle downs there. All possible from Iran.
I think this idea that Gawadar can rival Dubai anytime before 20~30 years is ludicrous. It will take time but of course there is potential. Pakistan has an edge over UAE everywhere (bigger market, bigger human resources) except for the monies right now. And CPEC aims to address this, albeit slowly.
7. China is making investments on which Pakistan has given sovereign guarantee of 18% return, meaning on investment of Rs 100 Pakistan will pay them back Rs 118 (that's in Compounded interest). In some cases its about 27.2 %.
Given our economic and security situation, I guess Pak would have taken anything. Like I mentioned above, its better than nothing. But I do agree that this whole project can be a massive death trap if its not managed properly. Right now, however every thing seems to be going as planned.
