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China–Pakistan Economic Corridor : News & Discussions

Discussion in 'South Asia & SAARC' started by Agent_47, Nov 16, 2016.

  1. nik141993

    nik141993 2nd Lieutant FULL MEMBER

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    I think we need to take it seriously... China if shift it's textile mills or some other industries to pakistan will give tremendous boost to slowing china & failed Pak economy & leverage against India, whole CPEC is nothing else but to cut Indian exports in long run in light of development of Western DFC & other freight corridors...Why do you think this CPEC suddenly popped up after Modi come to power & big push for make in India
     
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  2. Pundrick

    Pundrick Lieutenant FULL MEMBER

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    "Make in India" is just a slogan given by Modi govt, efforts to increase manufacturing in India was started since 2010-11. Plus CPEC will never hurt Indian textile as Bangladesh & Vietnam are the biggest export destination of raw material and cheap labour, Pakistan will never replace them in decades to come.

    CPEC is just a transit route for China and nothing else, all pakistani are getting is Chai-Biscuit jobs and thermal power plants, and of course single lane road for Chinese trucks.
     
  3. Golden_Rule

    Golden_Rule Lieutenant FULL MEMBER

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    In the guise of agriculture production yields, the Chinese will provide with toxic GMO seeds and pesticides in order to destroy the local Pakistani population thus gaining control over their land
     
  4. nik141993

    nik141993 2nd Lieutant FULL MEMBER

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    Pakistan has GSP plus status from EU... Chinese will shift textile mills to Pak & increase there exports under umbrella of pakistani exports, pakistanis might not have the capability but chinese do & they will & are doing everything to undermine India.
     
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  5. Pundrick

    Pundrick Lieutenant FULL MEMBER

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    Valid point, BUT they received it in 2013 and see what they have achieved today with it. Nothing.

    The infrastructure & labour cost in Pak is still on higher side compared to Vietnam & BD, so it will be tough for China to tackle that, Chinese will rather prefer BD & Vietnam, if they have to, instead of a radical Pak for trade.
     
  6. Blackjay

    Blackjay Developers Guild Developers -IT and R&D

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    Brilliant article with lots of nuggets.I wanted to bold the important stuff but thay will be pretty much the whole article.


    Pakistan's $100B deal with China: What does it amount to?
    By Nadia Naviwala @NadiaNavi24 August 2017

    [​IMG]
    The Gwadar port in southern Pakistan is part of the China-Pakistan Economic Corridor and will serve as China's trade center. Photo by: umairadeeb / CC BY
    ISLAMABAD — Early last year, the Pakistani government sent USAID officials in Islamabad a mystifying letter via snail mail: please stop doing feasibility studies for Diamer Basha Dam.

    Pakistan had been lobbying the U.S. Agency for International Development and the Asian Development Bank since 2010 to complete the dam. A USAID assessment found that it would have “monumental” development impacts in terms of power generation, agriculture and flood control, making it “more beneficial for the national economy than any other project.” The problem was the equally monumental cost of construction. Even if the U.S. government dedicated its entire $7.5 billion, five-year planned development assistance budget (the second largest in the world after Afghanistan) to the project, it would build only half the dam.


    It took three years for USAID to work out a compromise. The agency would put $20 million into feasibility studies so that international lending agencies such as the ADB would feel more confident funding the project.

    When USAID got the letter in 2016, they suspected that Pakistan had found funding with the Chinese. They were right. (USAID eventually got permission to continue the studies, but the ADB turned down the project anyway.)

    In May 2017 Pakistan and China signed a $50 billion agreement that included full funding for Diamer Basha and four other dams.

    Although enormous, the new agreement hardly merited coverage in Pakistan. China already captured headlines and public imagination in 2013 when the two countries signed memorandums of understanding worth $46 billion to build the China-Pakistan Economic Corridor. CPEC has since quietly grown to a $62 billion investment.

    The latest $50 billion in memorandums now brings Chinese loans and investments in Pakistan to well over $100 billion. A senior member of the CPEC team at Pakistan’s Ministry for Planning, Development, and Reform predicts that figure will ultimately grow to $150 billion. If the dams face cost overruns — which are 96 percent on average — then that will be a conservative estimate.

    The financing is coming to a country that is starved for cash, fatigued with western donors, and led by a political party that believes infrastructure is key to re-election.

    While the United States insists its priorities in the Mekong are unchanged, few remain convinced. This year’s forum was all about the new geoeconomics and how Greater Mekong countries can adapt to the changes in the region.

    “It takes many years to have any project approved by international financial institutions,” says a recently retired senior Pakistani official, who did not want to be quoted by name when commenting on donors, especially Chinese financing. “You want to borrow a billion dollars from the World Bank? It would take 20 delegations and 15 consultants coming in and making reports.”

    “The Chinese model is very much bricks and mortar, because they think bricks and mortar has a much greater trickle-down effect compared to the Bretton Woods model,” says a CPEC team official, referring to the western model of assistance where loans are given out on the condition that recipient governments make policy changes. The official — who also asked not to be named — reviews Chinese and other donor projects and referred to the Pakistani government as “skittish about upsetting the Chinese.”

    “The Bretton Woods model is to give technical assistance, but that technical assistance is $15 million that we have to pay back,” he continues. “And then there are consultants that make $20,000 or $30,000 a month. Frankly speaking, the quality is pretty poor. If you really hold their feet to the fire, by corporate standards, there are very few people [who are worth it].”

    one of six land routes envisioned under China’s Belt and Road Initiative. BRI is intended to intensify trade connections across Asia, Europe and the Middle East. Confusingly, “belt” refers to roads and “road” refers to maritime routes.

    But roads and rail are actually a small part of Chinese money in Pakistan — less than $11 billion of the original $46 billion agreement. It’s small because, contrary to popular perceptions, much of the CPEC route is actually financed by Pakistan.

    “Much of the roads being built are being built by our money,” says Miftah Ismail, who was Pakistan’s minister for investment until late last month, when the cabinet was dissolved because the Supreme Court voted to remove the prime minister on grounds of corruption.

    What Ismail estimates Pakistan will take on in Chinese projects this year — $4 billion in loans and investments — equals what the Pakistani federal and provincial governments have allocated for roads and highways in their own annual budgets.

    China is also financing the expansion and improvement of Pakistan’s neglected railway system, doubling its speed from 60 to 120 kilometers per hour.

    CPEC roads will connect landlocked Xinjiang province in western China through a new port city that it is building on Pakistan’s coast, Gwadar. China needs these roads to transport goods out, but it is hard to think of what will go in the other direction. China’s exports to Pakistan account for two-thirds of Pakistan’s trade deficit.

    “There are two dynamics,” explains Ali Salman, founder and executive director of the Policy Research Institute of Market Economy. “One is the trade-related dynamic, which is how Pakistan might use the CPEC corridor once the roads are established. For example, will Pakistani industries be able to export more to China than they are exporting right now? The second question is, will there be more industries in the [special] industrial zones being set up? If the answers are yes, that will be a very good thing for Pakistan. But I suspect the answer will be no.”

    Pakistan will, at least, collect tolls on the roads. “If out of 10 Chinese containers that move out of Gwadar, one is from Pakistan, then we should consider ourselves successful. Otherwise, we will be reduced to toll collectors,” says the recently retired official.

    Current officials, however, argue that Pakistan can be an attractive destination for Chinese companies to relocate to.

    “In China, the wage growth is exponential, so the Chinese now want to move some of their light manufacturing to western China and overseas to Vietnam, Myanmar, Cambodia,” says the senior official on the CPEC team. He cites an estimate of 80 million surplus jobs that will be moved overseas. “We’re going to try and grab some of those — 5 or 10 million; whatever we can. That’s part of the puzzle for us.”

    Ismail has the same idea, saying that rising wages means that some industries in China are becoming uncompetitive. He suggests that China can produce raw materials, and workers in Pakistan can stitch or assemble them.

    Officials also expect investors from other countries to follow China into Pakistan.

    “We are already getting interest from all the European countries — the U.K., Italy, Austria, Poland, Belarus. They all want to get on the CPEC bandwagon with us,” says the current official at the Planning Commission. “So for us it’s an opportunity to rebrand the country, make it an attractive [investment] destination.”

    Pakistan’s Board of Investment plans to set up nine special economic zones, or SEZs, around the route that will host Chinese factories and be linked to trade flows. But Ismail defers that to “phase 2” of CPEC. Salman points out that “most of our SEZs are very underutilized.”

    “A lot more is needed to jack up exports than just infrastructure,” argues Salman. “Real confidence is required to get entrepreneurs and investors to establish these factories. Our taxation policies and business regulations are not that business friendly. Not much is happening on that front. They are just spending heavily on infrastructure. But China has done this in many parts of the world, and big infrastructure ultimately has not translated into business gains.”

    “We haven’t really made a lot of progress on that,” concedes Ismail, referring to making the business environment more competitive and conducive. “And that’s something that we would really like to see done in Pakistan.”

    Energy and industry
    Without energy, however, there can be no industry. In recent months, Pakistan has achieved on its own what USAID and many other donors have tried to do for many years: dramatically reduce power blackouts that have debilitated the economy. This summer, major cities that once lost power every other hour are losing electricity intermittently for just three to four hours a day. The current government promises to fulfill its campaign promise of completely ending blackouts by the time elections are held in 2018.

    new turbines that use technology that has set a Guinness World Record for efficiency. Pakistan financed three such large gas-fired projects, although a Chinese company won the bid to construct the plants — and did it in record time.

    “It’s an example of how you could leverage China’s interest in Pakistan smartly to get additional value per dollar,” says Jamil Masud, director at Hagler Bailly Pakistan, an energy and environmental consultancy firm.

    The majority — $35 billion — of CPEC investments is for power plants. The agreements for what Pakistan will pay for each plant are surprisingly transparent and are posted on the website for the National Electric Power Regulatory Authority. The CPEC website lists projects, costs and progress.

    While there are some wind, solar and hydro projects, they are “nothing to write home about yet,” according to Ismail. Most of the projects are coal.

    Not all experts are concerned that Pakistan is moving to coal, as it helps the country shift its energy mix away from expensive furnace oil. Since Pakistan is coming to coal so late — less than 1 percent of the country’s power currently comes from coal, compared to 34 percent in the U.S. and 75 percent in India — the country can leapfrog ahead in terms of cleaner coal technology to control emissions. Today, new plants either use less coal or have pollution controls that many countries, including the United States and China, are going back to install in their existing plants. The problem is that Chinese companies are cutting corners on plants in Pakistan, even though they are charging a lot for them.

    “The Chinese rate is 8.50 rupees per kilowatt hour of coal,” says the retired official. “An efficient rate would have been 5 rupees. In India, it’s about 4 rupees. One would expect a good environmental package with their [high] rate. But they are not putting in the required controls.”

    report by the Mumbai-based Conservative Action Trust. Besides health problems, emissions can trigger acid rain that destroys agriculture.

    The energy projects are treated as investments by Chinese companies, but they are actually loans plus fixed returns to equity. Once constructed, Pakistan will buy what the plants produce at the 8.50 rupee rate. The rate pays back the loan that the Chinese company took from a Chinese bank to build the plant; a commercial 5 percent interest rate; a one-time payment equal to 7 percent of the cost of the project as insurance against default (even though Pakistan has offered sovereign guarantees); and a 15 to 20 percent return on equity. The rate of return is high but standard across similar projects that fall under the country’s policy for independent power producers.

    What Pakistan owes for the next 30 years will be calculated in dollars frozen at the 2013 exchange rate of 97.10 rupees to $1. (The current exchange rate is 105 rupees to $1.)

    “NEPRA is not competent enough to be able to independently determine tariffs. It is influenced by the rates that are conveyed to them through informal and formal channels. The policy is in a way done independently by NEPRA, but it is in many ways influenced by China. In theory it should be totally independent. But [China] has an influence,” says the retired official.

    The assumption is that increasing power production will ultimately add 2 to 2.5 percent to Pakistan’s gross domestic product — which is what the country loses each year due to blackouts. But such returns will not be automatic, if they materialize at all.

    “The problem we face now is getting too much power too quickly,” says Masud. “It takes time for the economy to respond and absorb the additional supply. If people don’t have blackouts, will they consume more or will they be constrained by the higher monthly energy bills that result? If they consume more, will they leverage consumption into just buying appliances, or expanding businesses as well? How quickly will growth take off? It will be interesting to see how electricity demand increases and how the economy responds to surplus power.”

    Without strong economic growth, Pakistan would not be in a position to pay for a sharp increase in electricity. The country already suffers from persistent circular debt, which means that Pakistan pays plants to produce energy but does not recover the cost through energy bills, due to theft, which is as high as 30 percent in some places. This ages transmission infrastructure and subsidies. Producing more power will mean more debt, although some costs may be balanced as Pakistan moves to a cheaper energy mix.

    Finally, one-third of Pakistanis live off the power grid or get very limited electricity. Many of them live in remote areas outside the reach of distribution networks. The nation’s existing power grid also needs to be updated to carry the huge influx of energy that China’s plants will produce.

    “There has been little attention to necessary reforms. Planning has so far been largely reactive and short term,” says Masud. “The government's thought-process is only now being jogged by the flurry of new activity, largely thanks to CPEC. Little thought has been given to the transmission and distribution bottlenecks that increased power production will have to overcome,” says Masud. “Our approach must now shift to resolving lingering issues, such as the circular debt, and letting the market guide investments.”

    Can Pakistan pay?
    “In terms of financing, there’s no issue [with the Chinese]. It’s like Santa Claus has come to town; you can ask for whatever you wish for. But one day it will all need to be paid back,” warns Masud.

    has said that Chinese officials privately admit that they expect to lose up to 80 percent of their investment in Pakistan.

    Salman argues that Chinese financing is driven by their own need to deploy excess human, financial and technical resources. “China has surplus industrial capacity and surplus capital. They are rich on foreign reserves. And they have engineers who need employment,” he says.

    What they offer coincides with the interests of politicians who are looking for short-term gains — much like Pakistan’s current government, which is in a rush to conclude agreements and get projects off the ground during its term, which started in 2013 and will end with elections in 2018.

    But beyond infrastructure, China cannot overshadow what Pakistan can do on its own.

    “The Chinese contribution to economic growth right now is overstated. A lot of the growth we’ve achieved is because of our own internal things,” says Ismail. “The great control in loadshedding has also been because of other initiatives that the government of Pakistan has taken outside of CPEC. That said, if we are able to parlay CPEC into what the [former] prime minister wants it to be then in the years to come, CPEC will help our growth.”

    Update, August 25, 2017: An earlier version of this story misattributed a pull quote about a lack of environmental controls. The correct source of the quote is a recently retired senior Pakistani official who spoke on the condition of anonymity.

    Link-
    https://www.devex.com/news/pakistan-s-100b-deal-with-china-what-does-it-amount-to-90872/amp
     
  7. Som Thomas

    Som Thomas 2nd Lieutant FULL MEMBER

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    Chinese ‘rigidity’ rattles Pakistani businesses
    Afshan Subohi
    [​IMG]
    Pakistani businesses find the Chinese too mechanical and rigid to deal with.

    Accustomed to a Western business negotiation and partnership style they found the predetermined and strictly limited terms of engagement of our Oriental partners a bit unsettling.

    It is not an accident that despite the scope and promise, the private sector’s share in projects under the CPEC umbrella is negligible.

    Faced with a completely different style of doing business, the private sector finds it difficult to keep its head above water

    Naheed Memon, chairperson of the Sindh Board of Investment, told Dawn recently that she expected a significant increase in the participation of the private sector once special economic zones become operational.

    Khizar Hayat Gondal, federal secretary for industries, promised to share information but nothing was received till filing of this report. Board of Investment chairman Dr Miftah Ismail, who recently moved his office to Prime Minister House, was too busy to offer comments.

    The representatives of the business class blamed the Chinese for the issue. “China, though not explicitly hostile to private sector participation in CPEC projects, implicitly prefers dealing with the government,” an executive commented.

    The four-year track record of progress, since signing of the bilateral deal in July 2013, reflected China’s seriousness towards CPEC.

    So far 59 projects have been identified (17 in energy, 11 Gwadar, eight infrastructure, two digital, four rail-based transit, six provincial road, port, water, mining, nine special economic zones, and two related to social development).

    Of all, four projects in the energy sector are operational, with Sahiwal coal-fired power plant contributing 1,000 megawatts, Sachal wind farm in Jhimpir 50MW, UEP wind farm in Jhimpir 100MW, and HydroChina Dawood wind farm in Gharo 50MW.

    The remaining are at different stages of progress monitored closely, according to details available on the dedicated government website.

    China clearly appeared determined to push through investment in the agreed projects with or without private companies. It was not ready to wait for private investors to digest the initiative and neither did it seem to have an appetite for private sector tantrums.

    For the Pakistani business community, therefore, it was a paradoxical situation. Cognisant of the scale and value of the gigantic investment drive under CPEC, they understand that they can’t afford to watch from the sidelines but the challenges of dealing with Chinese investors look insoluble.

    “They are both reluctant and keen to enter into joint ventures with the Chinese,” commented an official at the CPEC directorate in Islamabad.

    “The government of Pakistan will have to intervene to pave the way for a flow of local private capital and expertise in CPEC-related projects. The Chinese state-owned companies active so far lack the interest and flexibility required to attract private companies,” commented a top government functionary associated with CPEC.

    “Weaned on government support and conditioned by a Westernised business culture, hopes for Pakistani tycoons to cut deals with Chinese in the immediate future are dim. The stories circulated by people already in a business relationship with the Chinese did not help either. The perception of bureaucratic bottlenecks in China has deepened during the past four years,” he added.

    Talking about joint ventures with the Chinese, business circles mentioned Descon, Gatron and Al-Haj Group as leading the trend in power generation, engineering and the chemical sector. Outside CPEC, the Al-Haj FAW Motors rolled out its first car from their plant at Port Qasim in Karachi this month.

    CEO of Engro Powergen and Sindh Engro Coal Mining Company Shamsuddin Sheikh, who is partnering with two Chinese companies — State Power International Mendong and China Machinery Engineering Corporation — was perfectly satisfied with the progress and the relationship.

    He did express a desire of a longer term relationship with some premium for experience of working together.

    “Yes, business dynamics and the quality of relationship vary with different overseas partners. We have experience working with Japanese, European and US companies. For us the learning graph was steep. In the case of the Chinese, with their narrow focus on the bottom line and separate brief for each project, it is harder to capitalise on investment in trust between business partners,” he commented.

    Another businessman commented, “When China chose Pakistan for a huge investment initiative under the ‘One Belt, One Road’ plan, it generated euphoria in the business circles. However, just four years later it seems to be giving way to despair. The inability of private Pakistani companies to match Chinese demands has frustrated tycoons.”

    The businessmen are said to be approaching the government to mediate business deals with Chinese investors.

    “Diplomatically, China’s support for Pakistan has been consistent. The sailing might not prove to be as smooth on the economic front under CPEC,” commented an investment officer.

    “Last week China did not mince words and responded strongly in defence of Pakistan to President Trump’s harsh remarks. When it comes to economic interest its attitude is cold and calculating,” he said.

    Other government officers involved in managing affairs related to economic cooperation between the two countries endorsed the view. “In contrast to the Pakistani stance of bending backward to accommodate the Chinese, their attitude is cut and dry. They dictate terms that promote their own material interest first and foremost.”

    Pakistani companies in joint ventures with Chinese reported a lack of warmth in partners. “Unlike our business partners of the Middle East, the Far Eastern regions, Japan, Europe and America, the Chinese are just keen to complete the project on hand. They don’t seem to care about capitalising on subsequent business opportunities unravelled over the course,” an executive told Dawn.

    CPEC-level cooperation is new. And while some anxiety on either side is natural, the difficulties are also rooted in political systems. The dynamics of a centralised monolithic government in China are grossly different from a multi-party democratic set-up here.

    Published in Dawn, The Business and Finance Weekly, August 28th, 2017
    https://www.dawn.com/news/1354427/chinese-rigidity-rattles-pakistani-businesses

    Looks like the one sided deal is leaving its toll on the Pakistanis. :badass:
     
  8. Scotlander

    Scotlander Lieutenant FULL MEMBER

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  9. Agent_47

    Agent_47 Admin - Blog Staff Member MODERATOR

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  10. lca-fan

    lca-fan Major SENIOR MEMBER

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  11. screambowl

    screambowl IDF NewBie

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    India is investing $120 Billion in Sagar Mala Project to boost Shipping Industry and port capacities..
    and $41 Billion to connect all Himalayan states and further to Myanmar seeing ASEAN.

    This alone is baap of CPEC
     
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  12. Vyom

    Vyom Captain GEO STRATEGIC ANALYST

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