CPEC May Cost More Than Pakistan Bargained For

The Chinese Pakistan Economic Corridor, popularly known as CPEC, is widely lauded as an economic “game changer” for Pakistan. With a price tag of $46 billion, Pakistan is all but certain to see valuable infrastructure development over the next several years. What is less certain, however, is whether Pakistan’s broader expectations are realistic, and whether the potential costs have been given due consideration.

Husain Haqqani, Pakistan’s Ambassador to the U.S. from 2008 to 2011warned last year that both countries need to temper their expectations: “Despite announcing plans for more than $24 billion in investment into Indonesia since 2005, a decade later China has invested only $1.8 billion there.”While Pakistan’s government continues to predict far-reaching benefits, independent analysts are much more reserved in their outlook. Ali Salman, Executive Director of the PRIME Institute in Islamabad, warns that “the term-sheet for Chinese investment in the power sector does not seem very promising at the moment.”

This does not mean that there are no benefits to Chinese investment in Pakistan. Like many African countries, Pakistan will certainly benefit by Chinese investment through improved roads, energy infrastructure, and the development of ports. In more immediate ways, though, economic benefits may prove elusive. In many African countries, the influx of Chinese products has had “a devastating effect on local manufacturing,” and even where local employment has increased, it has largely been the result of hiring by Chinese firms that “engage in poor labor and environmental practices.” Tax income, too, is uncertain as China is demanding Islamabad grant tax exemptions that could deprive Pakistan of as much as $2 billion in revenue. Meanwhile, the government of Pakistan has set up “revolving funds backed by sovereign guarantees to ensure uninterrupted payments to Chinese sponsors of energy projects” to protect Chinese companies from Pakistan’s chronic circular debt problem.

In addition to economic impact, there are also questions about how CPEC will effect Pakistan’s internal stability. Speaking at the Hudson Institute earlier this month, Pakistani human rights leader Asma Jahangir predicted that the insurgency in Balochistan would worsen, “because we have this CPEC where Gwadar is going to become a port and already the fishermen are out of jobs.” She went on to explain that the government of Pakistan is “in a state of self-denial” about how CPEC is perceived by a local population that views it less as an economic investment than a colonization. Earlier this week, a Chinese worker and his driver were wounded in a bomb attack on the outskirts of Karachi. A pamphlet from the “Sindhudesh Revolutionary Army” condemning CPEC as an attempt to “attack Sindh and enslave its people” was found at the scene.

Pakistan has responded by mobilizing the Army against its own people. Last month, Pakistan’s President Mamnoon Hussain reportedly told Chinese President Xi Jinping that an entire division of the Pakistani Army had been reassigned to protect Chinese workers in Pakistan. The new division is led by a two-star general and comprises 10,000 active duty troops, half of whom are commandos from the Army’s elite Special Services Group (SSG). This raises serious questionsabout whether Pakistan’s response will exacerbate rather than alleviate simmering resentment. Pakistan already faces ethnic insurgencies in Balochistan, Sindh, and Waziristan, and an increased presence of soldiers deployed against locals could reinforce perceptions that the state does not represent the interests of its citizens.

Separatist groups are not the only ones troubledby CPEC’s implementation. Provincial governments have also been vocally objecting to the parts of the project. The Khyber-Pakhtunkwa government has accused the federal government of depriving the province of its due and demanded that existing energy projects be merged into CPEC. While the government of Balochistan has so far been supportive of CPEC so far, civil society there has been outspoken about their apprehensiveness. Civil society groups in Sindh have also raised objections over how the project is being implemented.

Earlier this year, China felt compelled to step into Pakistani politics and issued a rare public statement expressing dissatisfaction with the inability of different constituencies to resolve their differences over where the money would be spent. Despite reports subsequent reports that all parties had reached consensus, problems continue. Last month, the Khyber Pakhtunkwa provincial government announced that it would refuse to provide land for the Eastern route of the corridor as it believed that the province was not receiving its due share of the investment.Once again, Pakistan’s Army appears to be responding by taking over administration of the project without addressing popular concerns.

General Raheel Sharif, Pakistan’s Chief of Army Staff, announced earlier this year that the Army was “prepared to pay any price” to see CPEC to completion. While Pakistani authorities are keen to recitethe $46 billion mantra, little attention has been paid to determining a total price tag for Pakistan that includes social costs and other externalities. CPEC is more than just a windfall for Pakistan which desperately needs the investment in energy and other infrastructure. But the full price of this investment includes more than just labor and materials, and if Pakistan fails to properly adjust for economic realities and social resentment, the civil and military leadership may find that “any price” turns out to be much more than they bargained for.

Originally published by The Hudson Institute on 16 June 2016