Dismiss Notice
Welcome to IDF- Indian Defence Forum , register for free to join this friendly community of defence enthusiastic from around the world. Make your opinion heard and appreciated.

Pakistan heading towards a debt default? Best friend China thinks so

Discussion in 'South Asia & SAARC' started by Marqueur, Feb 21, 2017.

  1. Marqueur

    Marqueur Peaceful Silence ELITE MEMBER

    Joined:
    Nov 29, 2011
    Messages:
    11,294
    Likes Received:
    6,335
    Country Flag:
    India
    Pakistan heading towards a debt default? Best friend China thinks so
    China must ensure that the rising fiscal deficit in Pakistan does not "snowball" into a major financial crisis as it has invested heavily in the country, specially in the USD 46 billion CPEC project, official Chinese media said today.
    By: PTI | Beijing | Published: February 21, 2017 4:30 PM

    [​IMG]The investments under the CPEC alone amounted to USD 51 billion, the article said. (Reuters)

    China must ensure that the rising fiscal deficit in Pakistan does not “snowball” into a major financial crisis as it has invested heavily in the country, specially in the USD 46 billion CPEC project, official Chinese media said today.

    “While Pakistan’s fast growing economy has made it a darling for foreign investment, the surge in the country’s fiscal deficit and public debts has increasingly become a source of concern for international investors and has led to doubts about its capability to repay its debts,” an article in the state-run Global Times said.

    The investments under the CPEC alone amounted to USD 51 billion, the article said.

    “Given the massive investment that China has made in the country as part of the China-Pakistan Economic Corridor (CPEC), China has a vested interest to ensure that the rising fiscal deficit in Pakistan not snowball into a major financial crisis,” it said.

    “China should work closely with Pakistan to make sure that the projects it has invested in can generate tangible growth in Pakistan’s real economy, help the country properly manage its deficit level and put it on a sustainable growth path,” it said.

    You may also like to watch

    Write-ups critical of Pakistan are rare in Chinese media, considering the all weather close relationship between the two.

    Citing Mongolia’s experience where the fiscal deficit climbed to around 15 per cent of GDP in 2016, making it hard for to repay foreign debts, the article said “the worst-case scenario is the last thing China would desire in Pakistan”.

    Citing Pakistan media reports it said Pakistan’s fiscal deficit surged to around 2.4 per cent of GDP during the first half (July-December) of the fiscal year 2016-17, the highest in four years.

    In 2014-15, the half-year deficit stood at 2.2 per cent and full-year deficit at 5.3 per cent.

    The government hopes to keep the deficit below 3.8 per cent of the GDP during the full 2016-17 year.

    “A surge in the country’s deficit would make it vulnerable to external shocks and would increase Pakistan’s chances of a debt default. As a major creditor and the largest investor in Pakistan, China has an obligation to safeguard its investments in Pakistan and ensure it can recoup its loans,” it said.

    “China needs to develop a plan to help Pakistan properly manage its deficit and reduce an excessive build-up of debt. To do that, China and Pakistan should effectively implement the CPEC project, make it more inclusive and prevent inefficiency and corruption from undermining the project,” the Global Times report said

    “Meanwhile, China may need to diversify its ways of financing the CPEC projects. Currently, many projects are financed by Chinese government concessional loans. It is unrealistic and unsustainable to pin all hopes on government loans from China. Such a lending model is likely to drive up the debt level of the recipient country and toss it into a vicious cycle of inflation and currency devaluation,” it said.

    “More importantly, a majority of the projects China financed in Pakistan are part of the USD 51 billion CPEC, a flagship project of China’s One Belt, One Road initiative, which aligns the political, economic and strategic interests of both China and Pakistan. China cannot afford for these projects to fail financially,” it said.

    LINK -- http://www.financialexpress.com/wor...t-default-best-friend-china-thinks-so/560851/
     
    GSLV Mk III, Rain Man, AbRaj and 7 others like this.
  2. Marqueur

    Marqueur Peaceful Silence ELITE MEMBER

    Joined:
    Nov 29, 2011
    Messages:
    11,294
    Likes Received:
    6,335
    Country Flag:
    India
  3. PARIKRAMA

    PARIKRAMA Angel or Devil? Staff Member ADMINISTRATOR

    Joined:
    Mar 24, 2016
    Messages:
    1,432
    Likes Received:
    6,566
    Country Flag:
    India
    I believe RAW is behind this operation to sully Pakistan's name..


    Seriously, non performing debts will be transformed into investments and finally the fixed and current assets (meaning everything movable and immovable under CPEC) will be legally under State Financed Corporates of China..
     
  4. Robinhood Pandey

    Robinhood Pandey SECOND IN COMMAND Staff Member SECTION CHIEF

    Joined:
    Oct 16, 2016
    Messages:
    549
    Likes Received:
    1,474
    Country Flag:
    India

    A soft takeover without anyone even making noise about it in Pakistan.

    Nice !!
     
    Inactive, zebra7, GSLV Mk III and 5 others like this.
  5. Marqueur

    Marqueur Peaceful Silence ELITE MEMBER

    Joined:
    Nov 29, 2011
    Messages:
    11,294
    Likes Received:
    6,335
    Country Flag:
    India
    they actually dancing and cheering for it ... the look on their faces will be priceless ... when they realize they have sold their behinds because they hate India
     
    zebra7, Rain Man, AbRaj and 4 others like this.
  6. IndiranChandiran

    IndiranChandiran BANNED BANNED

    Joined:
    Jan 31, 2017
    Messages:
    695
    Likes Received:
    793
    Country Flag:
    India

    While in the long run , this will complicate Sino Pak relations , in the short run this will pose India with more challenges .
     
    Marqueur and PARIKRAMA like this.
  7. Pundrick

    Pundrick Lieutenant FULL MEMBER

    Joined:
    Oct 31, 2016
    Messages:
    414
    Likes Received:
    810
    Country Flag:
    India
    Any entity in the world, if it is run by emotions then it will destroy itself. First USA and now China.

    The results can be seen as early as 2022.
     
    PARIKRAMA, thesolar65 and SrNair like this.
  8. SrNair

    SrNair Captain FULL MEMBER

    Joined:
    Oct 28, 2016
    Messages:
    1,115
    Likes Received:
    1,349
    Country Flag:
    India
    Comedy season will soon begin when they celebration of happy marriage season ends .
    CPEC would become a failure .Pakistanis themselves will failed it and Chinese will show its real face .
     
  9. lca-fan

    lca-fan Major SENIOR MEMBER

    Joined:
    Sep 9, 2015
    Messages:
    2,020
    Likes Received:
    4,064
    Country Flag:
    India
    In short a bankrupt Pakistan is good for China this is what their media is quoting. If Pakistan goes bankrupt it will have no option but to beg from China as Pakistan now has taken loans more than it can pay and from every known source (country) in middle east and US and now these countries are in no mood to offer them more, middle east is in turmoil and with crude oil crash are in no position to offer them any and US (Trump) won't give them any.

    China has taken huge calculated risk with CPEC either this money will vanish with a bankrupt broken country with Smaller countries like Sindh, Baluchistan, etc coming out of it or Pakistan will be forced by China to sell their land bit by bit taking over Baluchistan and then connecting it through FATA, Gilgit Baltistan to China, giving China entry into Arabian sea and alternative sea routes and hold on Gulf of Hormuz from where world's 40% crude oil moves. It could be very dangerous for India if neglected.
     
    PARIKRAMA and AbRaj like this.
  10. proud_indian

    proud_indian FULL MEMBER

    Joined:
    Feb 7, 2017
    Messages:
    49
    Likes Received:
    86
    Country Flag:
    India
    Windfall for Chinese on coal fired projects
    By Shahbaz Rana

    Published: February 15, 2017

    ISLAMABAD: In what appear to be heavily China-favoured deals, Pakistan has offered up to 34.5 per cent annual profit on equity invested in coal-fired energy projects of China-Pakistan Economic Corridor and loans have been obtained at six per cent interest rates, excluding insurance cost.

    The official documents revealed that by including the cost of insurance, also paid to a Chinese insurance company, the cost of borrowings would surge to 13 per cent. Adding insult to injury, the government has already exempted income of Chinese financial institutions from dividend income tax.

    Several China-sponsored power projects hit snags

    The Ministry of Water and Power on Tuesday submitted details of terms of conditions of financing and tariff structures of energy projects in a meeting of the National Assembly’s Standing Committee on Planning and Development, shedding some light on these deals.

    The ministry provided financing details of eight energy projects having cumulative generation capacity of 7,880 megawatts and being set up at a cost of $12.54 billion. Their sponsors have obtained $9.5 billion loans at an interest rate of London Interbank Offered Rate (Libor) plus 4.5 per cent, according to these documents. The six-month Libor rate was 1.34 per cent and one-year Libor was 1.71 per cent. This would translate into an interest rate equivalent to 5.84 per cent to 6.2 per cent.

    The debt to equity ratio for all these eight projects is 75 per cent debt and 25 per cent equity except in case of Karot hydropower project where the debt ratio is 80 per cent.

    Besides, China Export and Credit Insurance Corporation (Sinosure) would charge seven per cent fee on the insurance of the loans given to these companies.

    Pakistan and China had signed CPEC Energy Framework Agreement in November 2014. Out of $55 billion estimated cost of the CPEC, an amount of $35 billion is earmarked for energy projects.

    However, the alarming thing was the return on equity that in case of coal-fired power plants was in between 27.2 per cent to 34.49, almost double the standard 17 per cent rates. In case of hydel-based projects, the internal rate of return (IRR) was 17 per cent. The high return on equity had to be given to make these projects attractive, as people were not ready to invest in coal-based projects, said Omer Rasul, Additional Secretary Ministry of Water and Power after the meeting.

    Pakistan, China ink agreement for coal project

    In his article, “Financing burden of CPEC”, former Governor State Bank of Pakistan, Dr Ishrat Husain recently wrote, “The loans would be taken by Chinese companies, mainly from the China Development Bank and China Exim Bank, against their own balance sheets”.

    Dr Husain estimated that at 40 per cent equity and 17 per cent guaranteed return on these projects would entail annual payments of $2.4 billion from the current account.

    But the details showed that the equity is 25 per cent while the return is as high as 34.55 per cent. So far, National Electric Power Regulatory Authority (NEPRA) has approved tariffs for eight CPEC energy projects, said Safeer Ahmad, Director Finance of Private Power Infrastructure Board (PPIB).

    Pakistan has approved 30.65 per cent return on Equity for 660MW Engro Powergen Thar coal-II project. The project cost is $995.4 million and the sponsors have taken $746.55 million loan at almost 6 per cent interest rate. The project got tariff of Rs8.5 per unit.

    The government did not approve a separate policy for CPEC energy projects as these plants are set up under the existing energy policies, said Ahsan Iqbal, Minister for Planning and Development, at the floor of the Senate.

    The government gave 27.2 per cent return on equity to 1320MW Port Qasim Power Plant. The total cost of the project is $1.92 billion and the sponsors have arranged $1.44 billion loan at 6 per cent interest rate.

    The 1320MW Thar Coal power plant by Shanghai Electric Power got the maximum return on equity at 34.49 per cent. The total project cost is $1.92 billion and the sponsors have obtained $1.44 billion loan at 6 per cent interest rate. However, the 1320MW Hubco Coal power, being built in collaboration with China Power Hub, having same cost and debt-equity ratio would get 27.2 per cent return on equity.

    The 330MW Thar Energy Limited project, having $497.7 million cost, would attract 30.65 per cent return on equity. The sponsors have got $373.3 million loan.

    Pakistan, China to build 350MW coal power plant in Karachi

    The 1320MW Sahiwal coal power project would get 27.2 per cent return on equity and the sponsors have obtained $1.44 billion loan, according to Ministry of Water and Power.

    Omer Rasul said that the CPEC energy projects were in IPP mode and there was no public financing involved. He said that the average tariff of coal-based power plant was Rs8.3 per unit. However, energy experts said that the actual tariff was far higher than this, as the NEPRA calculated the tariff at 85% plant capacity.

    The 870MW Suki Kinari hydro project, having $1.7 billion cost would get 17 per cent internal rate of return. The project will be completed by obtaining $1.3 billion loan at 6 per cent interest rate. The 720MW Karot hydro power project will also get 17 per cent internal rate of return. Its debt-equity ratio is 80-20 and the company has got $1.4 billion loan to complete it.

    https://tribune.com.pk/story/1327172/windfall-chinese-coal-fired-projects/
     
    Inactive, Rain Man and PARIKRAMA like this.
  11. thesolar65

    thesolar65 2nd Lieutant FULL MEMBER

    Joined:
    Feb 25, 2013
    Messages:
    260
    Likes Received:
    366
    Told this in the other forum many times. The way you are arming your friend(Pak).......they will point the same weapons towards you(China)!! Nobody listens.....thinks I am driving wedge between best friends.
     
    Rain Man and PARIKRAMA like this.
  12. vstol jockey

    vstol jockey Colonel MILITARY STRATEGIST

    Joined:
    Mar 15, 2011
    Messages:
    12,978
    Likes Received:
    13,928
    Country Flag:
    India
    China’s economy is dangerously close to unravelling
    The country’s debt is rising dramatically, while growth in gross domestic product is slowing. It came not with a bang but a whimper. The January data from China finally confirmed that the country’s foreign-exchange reserves fell by $12.3 billion to $2.998 trillion, which compares with the all-time high of $3.993 trillion in June 2014. A trillion here, a trillion there, and pretty soon we’re talking real money, right? What the official reserve data do not show is that massive borrowings outside China have accumulated over the past 15 years, bringing net reserves down to about $1.7 trillion, according to statistics prepared by Kynikos Associates.

    That much smaller reserve amount is not necessarily large enough to support the yuan exchange rate, particularly if foreign-exchange outflows accelerate again as the Chinese credit bubble has now burst, in my opinion. An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble.


    China has a total debt-to-GDP ratio of close to 400%, if one includes the infamous unregulated shadow banking system that is habitually omitted from official statistics. In 2000, China’s total debt-to-GDP ratio stood near 100%. As Chinese GDP grew from $1.094 trillion at the end of the 20th century to $11.75 trillion at the end of 2016, the country’s total leverage ratio ballooned. China’s economy grew 11-fold, and total credit in the financial system surged by over 40-fold.

    As the Chinese economy slows the level of borrowing is accelerating, as can be seen here in China’s “total social financing” data. This credit metric includes off-balance sheet financing outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales. If Chinese GDP continues to slow (and there are many observers, myself included, that do not believe the official 2016 GDP growth rate of 6.7%), and total credit in the economy continues to surge, then the Chinese economy will in effect be running as fast as it can just to stand still. An acceleration in borrowing with a slowing economy is the classic definition of a burst credit bubble. What was most surprising in 2016 is how orderly the situation in China was. There is also evidence of a slight uptick in economic activity, if one looks at the official statistics. But I don’t believe it to be fully accurate, because the Chinese have a history of “smoothing out” their official economic statistics. For example, their 34% devaluation of the yuan in December 1993 was aimed to help China deal with a recession that was never officially acknowledged. Evidence of the recession only showed up in secondary loan-loss data and other “undoctored” metrics.

    I am surprised at the current calm in China, as credit bubbles tend to pick up speed and get rather disorderly when they begin to unravel. I don’t know if this unraveling will come in 2017 or later, but I am watching the official forex reserve data for evidence of accelerating outflows, which would be one sign that the unraveling is picking up steam. On top of China’s own epic credit bubble, we have a phenomenon called Donald J. Trump, who has made it a priority to rebalance the U.S. trade deficit. While I fully support the president in his quest, he appears to point the finger at both China and Mexico in the same fashion. However, the Mexican situation is very different from the one with China, where the trade imbalance is running out of control. In 2016, as this table shows, the Chinese bought $115.775 billion of U.S. goods and services, while the U.S. bought $462.813 billion worth of Chinese goods and services, which makes for a gargantuan $347 billion trade imbalance and accounts for the lion’s share of the total U.S. trade deficit (see chart).

    To be fair to Trump, the Chinese have been running a persistent trade surplus with the rest of the world over the past 10 years but that surplus has been getting bigger because exports to China are slowing with the decline in Chinese GDP growth. More importantly, the Chinese have been using trade as a political tool as they habitually run bilateral trade deficits with many of their Asian trade partners to increase their political influence in the region. Such trade strategies are unlikely to influence the Trump administration, which is hell-bent on rebalancing the U.S.-China trade imbalance. Trump’s clash with China on the trade issue comes at precisely the wrong time for the Chinese as their epic credit bubble is unraveling. While trade frictions and financial issues in China are unrelated events, Trump’s election is like kerosene thrown on an already burning economic fire in China. What I foresee happening here is similar to the Asian crisis in 1997-1998, this time emanating from China, with the caveat that today’s Chinese GDP is much bigger than total Asian GDP in 1997. To those who may suggest I am merely making observations and not predictions, please see my January 23, 2015, MarketWatch article, “Why 2015 could be rough for China,” which I wrote before the bulk of China’s $1 trillion foreign-exchange outflow materialized. I am not sure if 2017 will be the year when the wheels come off the wagon in China, but I have seen increasing evidence of my credit-bubble theory coming to fruition and the economic repercussions likely to follow.

    Ivan Martchev is an investment specialist with institutional money manager Navellier and Associates. The opinions expressed are his own.
     
    Inactive, Rain Man, zebra7 and 6 others like this.
  13. IndiranChandiran

    IndiranChandiran BANNED BANNED

    Joined:
    Jan 31, 2017
    Messages:
    695
    Likes Received:
    793
    Country Flag:
    India

    I doubt Pakistan will point any weapons at China .These are sweetheart deals concluded by China with the elite in Pakistan ( read Fauji Foundation , the politicians , the bureaucrats & local businessmen .You may also throw in a few influential religious leaders all whom will be fronted by proxies.)

    It's the people of Pakistan who'd end up paying for this .Which means when they rise, it'd be against their elites .Chinese would be insulated from the fallout .By the time the heat gets to them , they'd already have recovered their costs & windfall profits which in turn would lead them to a show of generosity by reducing tariffs , interest rates, etc or it could pave the way for their exit depending on how bad( & it will be bad , make no mistake about it ) the scenario pans out a good 2-3 decades from today .

    The Chinese are extremely shrewd businessmen & an ordinary Punjabi Muslim is good enough to be a fine sol dier , a peasant , a low level clergyman or a petty tradesman .They don't have the aptitude for anything better than that .If by an accident of chance they do achieve a higher station in life to what I've mentioned , they'd bring the same mindset to those exalted positions as they would to the petty positions they're so used to occupying .

    That's been the case in the past 1 millennia or more of their recorded history .The present state of affairs in Pakistan bear out the depth of truth in my statement . Why should the future be any different ?
     
  14. lca-fan

    lca-fan Major SENIOR MEMBER

    Joined:
    Sep 9, 2015
    Messages:
    2,020
    Likes Received:
    4,064
    Country Flag:
    India
    China's entire GDP is debt driven and is about to explode, it in fact exploded on 02/01/2016 itself when there shanghai stock market tanked 35% in a day and 50% in first week itself. The whole economy was shaking due to debts when they rolled over $1 trillion of debts which stabilized it for the year 2016 but situation is getting from bad to worst the total debt to GDP ratio now stands at 400% as compared to 300% last year that means they now have debt of more than $40 trillion. All these debts have gone in property and over capacity in steel and other industries which will only get worsen with falling exports. Also search for "CHINESE GHOST CITIES" where they have made 1000 cities but there is no one to live all this has cost money which is debt and now could not be paid as there are no takers for it. Also 11000kms of bullet trains which were made by taking debt are also a liability as the ride costs more than Airlines so they have to subsidize and is no longer serviceable.
     
  15. IndiranChandiran

    IndiranChandiran BANNED BANNED

    Joined:
    Jan 31, 2017
    Messages:
    695
    Likes Received:
    793
    Country Flag:
    India

    I think the Chinese bubble has been waiting to burst since 2012.I've been reading about it since then .While they've faced headwinds in the growth of their economy , there isn't any evidence of a catastrophic depression as yet.While I'm not denying that the future could bring about a major setback to the Chinese economy , I'd rather discuss it when it happens .

    My personal take on it is while it'd be enormously bruising to them it won't be a body blow .After all the US recorded 104% to its GDP in 2015 & they have been continuing the trend since the end of WW 2 .No major mishap has overtaken the US economy .At least none which has overwhelmed them .

    Granted that China is not the US .Which is why I've stated what I did above .

    An interesting corollary to the article which I've quoted is China shifting all its surplus industrial capacity ( or whatever it can ) to nations like Pakistan or Sri Lanka or even in the African continent , camouflaging it as largesse to the citizens of those nations , an ostensible attempt to build up their economies & replicate the Chinese miracle economy there .That's killing 2 birds with 1 Stone.

    This also means they'd need our markets more than we need them.
     
    Golden_Rule, arbit and PARIKRAMA like this.

Share This Page