Islamabad, May 16: So called ‘China-Pakistan Economic Corridor’ (CPEC) envisages a deep and broad-based penetration of most sectors of Pakistan's economy and society by Chinese enterprises and culture. Beijing plans to turn Pakistan into its economic colony, reports a Pakistani newspaper leak.
According to Dawn Report, CPEC envisage thousands of acres of agricultural land being leased to Chinese enterprises to set up demonstration projects and a fibre-optic system that will facilitate the dissemination of Chinese culture. The proposals seem to confirm that Pakistan will become an economic colony of China as CPEC will help Beijing tighten its strategic embrace of its ally and provide it connectivity from Xinjiang to the Arabian Sea at Gwadar in Balochistan.
In some areas the plan seeks to build on a market presence already established by Chinese enterprises. Textiles and garments, cement and building materials, fertiliser and agricultural technologies (among others) it calls for building the infrastructure and a supporting policy environment to facilitate fresh entry.
Enterprises entering agriculture will be offered extraordinary levels of assistance from the Chinese government. They are encouraged to “make the most of the free capital and loans” from various ministries of the Chinese government as well as the China Development Bank. The plan also offers to maintain a mechanism that will “help Chinese agricultural enterprises to contact the senior representatives of the Government of Pakistan and China”.
However, for the Chinese, this is the main driving force behind investing in Pakistan’s agriculture, in addition to the many profitable opportunities that can open up for their enterprises from operating in the local market. The plan makes some reference to export of agriculture goods from the ports, but the bulk of its emphasis is focused on the opportunities for the Kashgar Prefecture and Xinjiang Production Corps, coupled with the opportunities for profitable engagement in the domestic market.
Meat processing plants in Sukkur are planned with annual output of 200,000 tons per year, and two demonstration plants processing 200,000 tons of milk per year. In crops, demonstration projects of more than 6,500 acres will be set up for high yield seeds and irrigation, mostly in Punjab. In transport and storage, the plan aims to build “a nationwide logistics network, and enlarge the warehousing and distribution network between major cities of Pakistan” with a focus on grains, vegetables and fruits.
In each field, Chinese enterprises will play the lead role. “China-invested enterprises will establish factories to produce fertilizers, pesticides, vaccines and feedstuffs” it says about the production of agricultural materials.
“China-invested enterprises will, in the form of joint ventures, shareholding or acquisition, cooperate with local enterprises of Pakistan to build a three-level warehousing system (purchase & storage warehouse, transit warehouse and port warehouse)” it says about warehousing.
Report says Chinese enterprises should seek “coordinated cooperation with Pakistani enterprises” and “maintain orderly competition and mutual coordination.” It advises them to make an effort “seeking for powerful strategic partners for bundling interest in Pakistan.”
For industry, the plan trifurcates the country into three zones: western and northwestern, central and southern. Each zone is marked to receive specific industries in designated industrial parks, of which only a few are actually mentioned. The western and northwestern zone, covering most of Balochistan and KP province, is marked for mineral extraction, with potential in chrome ore and diamonds.
The central zone is marked for textiles, household appliances and cement. For the southern zone, the plan recommends that “Pakistan develop petrochemical, iron and steel, harbor industry, engineering machinery, trade processing and auto and auto parts (assembly)” due to the proximity of Karachi and its ports.
The plan shows great interest in the textiles industry in particular, but the interest is focused largely on yarn and coarse cloth. The reason, as the plan lays out, is that in Xinjiang the textile industry has already attained higher levels of productivity. Therefore, “China can make the most of the Pakistani market in cheap raw materials to develop the textiles & garments industry and help soak up surplus labor forces in Kashgar”. The ensuing strategy is described cryptically as the principle of “introducing foreign capital and establishing domestic connections as a crossover of West and East".
One of the oldest priorities for the Chinese government since talks on CPEC began is fibreoptic connectivity between China and Pakistan. An MoU for such a link was signed in July 2013, at a time when CPEC appeared to be little more than a road link between Kashgar and Gwadar. But the plan reveals that the link goes far beyond a simple fibreoptic set up.
China has various reasons for wanting a terrestrial fibreoptic link with Pakistan, including its own limited number of submarine landing stations and international gateway exchanges which can serve as a bottleneck to future growth of internet traffic.
One of the most intriguing chapters in the plan is the one that talks about the development of a “coastal tourism” industry. It speaks of a long belt of coastal enjoyment industry that includes yacht wharfs, cruise homeports, nightlife, city parks, public squares, theaters, golf courses and spas, hot spring hotels and water sports. The belt will run from Keti Bunder to Jiwani, the last habitation before the Iranian border. Then, somewhat disappointingly, it adds that “more work needs to be done” before this vision can be realized.
The plans are laid out in surprising detail. For instance, Gwadar will feature international cruise clubs that provide marine tourists private rooms that would feel as though they were ‘living in the ocean.
Efforts will be made, says the plan, to furnish free and low interest loans to Pakistan once the costs of the corridor begin to come in. But this is no free ride, it emphasizes. Pakistan’s federal and involved local governments should also bear part of the responsibility for financing through issuing sovereign guarantee bonds, meanwhile protecting and improving the proportion and scale of the government funds invested in corridor construction in the financial budget, Report added.
The other big risk the plan refers to is exchange rate risk, after noting the severe weakness in Pakistan’s ability to earn foreign exchange. To mitigate this, the plan proposes tripling the size of the swap mechanism between the RMB and the Pakistani rupee to 30 billion Yuan, diversifying power purchase payments beyond the dollar into RMB and rupee basket, tapping the Hong Kong market for RMB bonds, and diversifying enterprise loans from a wide array of sources. The growing role of the RMB in Pakistan’s economy is a clearly stated objective of the measures proposed.
Notably, But the entry of Chinese firms will not be limited to the CPEC framework alone, as the recent acquisition of the Pakistan Stock Exchange, and the impending acquisition of K Electric demonstrate. In fact, CPEC is only the opening of the door. What comes through once that door has been opened is difficult to forecast.