CPEC Financing: Is Pakistan Being Ripped Off By China?

Is China ripping off its all-weather friend Pakistan by charging high interest rates on loans and exorbitant guaranteed returns on investments in China Pakistan Economic Corridor (CPEC) projects?  That's a question that is being asked on a frequent basis by Pakistan's friends and foes alike. While friends of China-Pakistan ties are concerned about an undue burden on Pakistanis, the foes see CPEC as an opportunity to create a lot of fear, uncertainty and doubt about it and its benefits for Pakistan's economy and society. Who's right? Who's wrong? Why? Let's dive into it.

CPEC Projects in Pakistan

Claims by CPEC Detractors:

Many Western and Indian opponents claim that the cost of CPEC financing will be so high that Pakistan will not be able to bear it. They assert that China is attempting to catch Pakistan in a debt trap from which the country will not be able to escape, eventually turning it into a Chinese colony. The financing costs for Chinese loans and investments they claim are in high teens.

Misguided Pakistani Analysts' View:

Many well-meaning Pakistanis, including serious economists, seem to echo detractors' claims without any serious examination or comparison with prevailing bench-marks. They do not mention how similar projects in other parts of the world are financed and what sort of interest rates and return-on-equity are guaranteed.

CPEC Finance Rates vs Benchmarks:

About two-thirds of Chinese CPEC funding is for power projects while one-third is for infrastructure projects like roads, rail lines and ports.

The Chinese soft loans for CPEC infrastructure projects carry an interest rate of just 1.6%, far lower than similar loans offered by the World Bank at rates of 3.8% or higher.

Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.

The rate of return guaranteed by Pakistan power regulators to the Chinese power companies is about 17%. Is it too high, as some claim? Let's compare it to the US market considered among the safest investments in the world.

Rate of Return in United States: 

The average return on equity for almost 8,000 US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.

In the United States, rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.

In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% while the lowest belongs to United Illuminating Co. (CT) at 9.15%.

Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?

Growing Infrastructure Gap:

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

 Rich countries generally raise funds for infrastructure projects by selling bonds while most developing countries rely on loans from international financial institutions such as the World Bank and the Asian Development Bank to finance infrastructure projects.

The infrastructure financing needs of the developing countries far exceed the capacity of the World Bank and the regional development banks such as ADB to fund such projects. A recent report by the Asian Development Bank warned that there is currently $1.7 trillion infrastructure gap that threatens growth in Asia. The 45 countries surveyed in the ADB report, which covers 2016-2030, are forecast to need investment of $26 trillion over 15 years to maintain growth, cut poverty and deal with climate change.

Pakistan Country Report in Shanghai Business Review Feb/March 2016


Summary:

China is financing CPEC projects at rates that are comparable to similar projects elsewhere. Chinese loans for infrastructure projects such as rails, roads and ports are at rates (2% or less) below those (3.8%) offered by the Asian Development Bank and the the World Bank. The rate of return on power project investments under CPEC is 17%, somewhat higher than the 13.75 offered by much safer US state of Alabama.

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

An unrelenting campaign of fear, uncertainty and doubt (FUD) about China-Pakistan Economic Corridor (CPEC) has been unleashed in the media in recent weeks. This strategy harkens back to the aggressive marketing techniques used by the American computer giant IBM in the 1970s to fight competition. Part of the motivation of those engaged in FUD against CPEC appears to be to check China's rise and Pakistan's rise with its friend and neighbor to the north. As in IBM's case, the greatest fear of the perpetrators of FUD is that CPEC will succeed and lift Pakistan up along with rising China.  Their aim is to preserve and protect the current world order created by the Western Powers led by the United States at the end of the second world war.   Pakistani government should respond to the FUD campaign against CPEC by countering it with facts and data and increasing transparency in how CPEC projects are being financed, contracted and managed. 

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Riaz Haq said…
#China Calls #Pakistan's #CPEC Fastest and Most Effective of #BRI Projects

https://www.voanews.com/a/china-calls-pakistan-cpec-fastest-and-most-effective-of-bri-projects/3951874.html

China says its large economic collaboration program with Pakistan has entered “the stage of early harvest", making it the “fastest and most effective" among all projects in Beijing’s Belt and Road Initiative, or BRI.

President Xi Jinping launched the China-Pakistan Economic Corridor, or CPEC, two years ago, during his landmark visit to Islamabad. Cooperation has since cemented decades-old relations between the traditionally close allies.

China is investing about $60 billion on a network of roads, railways, fiber optic cables, energy pipelines, industrial clusters and special economic zones in Pakistan.

The corridor will link China's western region of Xinjiang to the Pakistani port of Gwadar on the Arabian Sea, giving the Chinese region the shortest trade route to international markets.

China's acting ambassador to Islamabad, Lijian Zhao, says that 19 CPEC projects worth about $19 billion are either completed or in progress.

“CPEC, as a pilot and major project of BRI, is now the fastest and most effective project among all the projects under the BRI,” he told a seminar in Islamabad.

He described the cooperation as an “unprecedented undertaking” in the history of China-Pakistan relations.

Economic cooperation connected to CPEC has employed thousands of Pakistanis and officials anticipate tens of thousands more will be hired in the next few years.

Gwadar is in Pakistan's Baluchistan province, where deadly attacks on CPEC workers have taken place in recent months.

Some critics in Pakistan have raised concerns about the viability of CPEC, while others have questioned its implications for the country. But officials dismiss the skepticism as unfounded.

“Despite (the fact) there is this criticism and noises here and there, after this four years of hard work and joint efforts of both countries, the CPEC has not been affected by those noises. I can report to you that CPEC is going on very well on the ground,” said the Chinese envoy. He did not elaborate further.

Most of the CPEC projects are in Baluchistan. Pakistani officials allege rival India’s intelligence agency is behind the militant attacks in the province in an attempt to sabotage the Chinese investment.

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“May I point out, unfortunately, our eastern neighbor (India) has publicly announced its opposition to CPEC. The grounds they give for their opposition are baseless,” Janjua noted.

She went on to denounce India’s opposition as “appalling” for a project that she said would bring development and prosperity to the people of Kashmir.

“China and Pakistan stand shoulder to shoulder in developing CPEC on the agreed time lines. We will continue to march ahead with complete determination, ignoring the negative voices and forcefully responding to any threat to CPEC,” said Janjua.

The Pakistani military has deployed thousands of security personnel to guard the projects and protect Chinese experts and workers.

China has also rejected reported U.S. concerns China plans to turn Gwadar into a Chinese naval base.

Major infrastructure projects being established in the Chinese-funded port of Gwadar include a Free Zone and a new international airport that will be operational by next year, officials say.

While new highways are being built and existing roads upgraded to link areas under CPEC, a coal fired power plant in the central city of Sahiwal has recently been completed, adding 1,320-megawatts of electricity to Pakistan's national grid.

A second 1,320-megawatt coal fired power plant in the southern port city of Karachi is expected to be inaugurated by November at an estimated cast of about $2 billion.

China is also focusing on upgrading Pakistan's railways, increasing average speeds to about 180 kilometers an hour from the current average of 80 kilometers an hour, said Chinese envoy Zhao.
Riaz Haq said…
SPECIAL REPORT
One Lifebelt, One Road
China makes Pakistan an offer it cannot refuse

https://www.economist.com/news/special-report/21725101-leg-up-all-weather-friend-china-makes-pakistan-offer-it-cannot-refuse

MOVE OVER, DUBAI. Some day soon, cruise ships will disgorge frolicking pensioners not by the palm-fringed Persian Gulf but on the balmy Pakistan Riviera. From the muddy delta of the Indus to the barren Baloch coast, a twinkling constellation of attractions is set to rise: luxury hotels, water parks, golf courses, health spas, yacht harbours, night clubs, the works. To top it all, this “vacation product” will be developed in such a way that “Islamic culture, historical culture, folk culture and marine culture shall all be integrated.”

Or so promises a prospectus, drafted for the Chinese government by the China Development Bank, that sets out a detailed vision of the China-Pakistan Economic Corridor (CPEC). Billed as a flagship of China’s $900bn One Belt, One Road initiative to build an Asia-wide infrastructure system tying China more firmly to its markets, CPEC promises to inject some $60bn of Chinese investment into Pakistan. More than half is earmarked for power generation, but there is plenty left over for roads, seaports, airports, fibre-optic cables, cement factories, agro-industry and tourism.

For a country that has struggled to nudge its capital-investment ratio to 15% of GDP—compared with around 30% for India and 28% for Bangladesh in recent years—this gush of Chinese money comes as a godsend. Not only does it promise to energise the economy and fix such problems as chronic power shortages; it represents a strategic insurance policy against India. China has long been Pakistan’s chief arms supplier, and has quietly provided diplomatic cover and technical aid for its nuclear programme. As Chinese officials are fond of saying, China is an “all-weather friend”—unlike America, which has lavished some $78bn in economic and military aid on Pakistan since independence, but periodically gets stingy when Islamabad fails to curb terrorists.

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India views China’s spreading footprints next door with dismay. Officials put on a brave face. The Chinese are naive, say some, and will end up getting stung by Pakistan’s generals just as the Americans did. Others hope that once China discovers how far Pakistan’s deep state is entwined with Islamist radical groups, it will show less patience than the Americans.

Privately, however, Indian officials worry that Pakistan’s new patron may play the same role as America once inadvertently did, or as Pakistan’s nuclear deterrent still does: to allow Pakistan to sustain the awkward status quo. “Indian leaders have always calculated that sooner or later Pakistan would have to seek a normal relationship with us,” says Ashok Malik of the Observer Research Foundation, a Delhi think-tank. “CPEC gives them a new narrative: it puts them in China’s sphere.”
Riaz Haq said…
How #China beats #India hollow in trade and dominates #Indian homes, #markets #economy #trade http://economictimes.indiatimes.com/news/economy/foreign-trade/china-dominates-indian-homes-markets-and-economy-as-trade-deficit-widens/articleshow/59611452.cms via @economictimes

China seems to be grabbing most of it (solar panels). “The US and Europe are taking measures to protect themselves against Chinese dumping. We (Indians) have instead offered them a direct train to the Indian market. The government must ring fence Indian firms to allow them to grow,” says Chaudhary.

Miles away in Delhi, Rakesh Kumar Yadav shows you another Chinese-flavoured world. He is the president of the Federation of Sadar Bazar Traders Association. The umbrella platform for The umbrella platform for 83 other associations with 35,000 wholesale traders does business worth over Rs 3,000 crore annually and employs at least 100,000 people directly and indirectly.

About a decade back, the traders often used to source products — toys, plastic buckets, idols of Indian gods, among others — from domestic manufacturers. In toys alone, Yadav knows many Indian manufacturers who employed 500-plus people and were their suppliers. “They have all shut down and now import from China. Cheaper and better Chinese imports have wiped out the domestic industry,” says Yadav.

On the border, India is trying to ward off Chinese aggression. In the cold Himalayan plateau, temperatures have shot up as an old political rivalry heats up. India and China are sparring over the Doklam tri-boundary area (the third country being Bhutan), near Chicken’s Neck which connects India’s north-eastern states to the rest of the country. Shrill calls for a boycott of Chinese goods are getting louder, with the Rashtriya Swayamsevak Sangh (RSS) and its affiliate, the Swadeshi Jagran Manch, ..

Read more at:
http://economictimes.indiatimes.com/articleshow/59611452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Riaz Haq said…
Woodside sees Qatar LNG expansion hurting U.S. LNG growth

https://www.reuters.com/article/us-woodside-lng-idUSKBN1A50KT

MELBOURNE (Reuters) - A plan by top global liquefied natural gas (LNG) exporter Qatar to ramp up output will stall the expected growth of U.S. LNG exports, the head of Australia's Woodside Petroleum, operator of the country's biggest LNG plant, said.

Qatar surprised rivals this month when it lifted a self-imposed ban on development of the North Field, the world's biggest natural gas field, saying it would boost LNG output by 30 percent to 100 million tonnes a year in five to seven years.

That put it on course to it wrest back the title of the world's top LNG exporter from Australia, which is set to overtake Qatar in the next two years.

Woodside, operator of the North West Shelf project, said Qatar's plan showed the emirate shares its outlook for solid demand growth for LNG and gives importers like China, India, Pakistan and Bangladesh the supply certainty they need to lock in gas expansion plans.

"The Qataris will not take up all of the available market," Woodside Chief Executive Peter Coleman told Reuters in an interview on Thursday.

Qatar's expansion plan will compete directly with Woodside, which is looking to develop the Browse and Scarborough fields off Western Australia within the next decade - its so-called Horizon 2 projects - by processing gas through the North West Shelf plant or other existing facilities.

"On the challenge side, low cost will get into market, and that's what we're doing with our Horizon 2 projects. We're trying to make sure they're low cost, and they're well positioned, because we're targeting the Asian market," Coleman said.

Projects that will find it harder to compete will be those that need billions of dollars in new infrastructure and coal seam gas-to-LNG projects that need continuous capital spending to drill new wells, he said.

The International Energy Agency last week forecast the United States would become the world's second largest LNG exporter by the end of 2022, but Coleman said the Qatari expansion would stymie that growth.

"It'll keep a lid on U.S. expansions, because U.S. expansions are transportation-challenged," he said.

U.S. LNG flows largely into the Atlantic market, where it competes against pipeline gas from Russia and Norway.
Riaz Haq said…
#US to support #Pakistan to add at least 3,000 MW of clean power. #energy #renewables https://goo.gl/z1jLR1 via @NewIndianXpress

Giving a major relief to Pakistan, which has been facing chronic shortage of energy, severely limiting economic development, the United States will support Pakistan to add at least 3,000 megawatts of clean power generation infrastructure to Pakistan’s national electricity system by 2020. The U.S. assistance to Pakistan is being provided under U.S.-Pakistan Clean Energy Partnership, through which the USAID will support capacity building, technical assistance, USAID Development Credit Authority financial guarantees, business-to-business sales arrangements, and the construction of transmission lines to private projects to stimulate increased levels of private investment in clean power.

The U.S. has already made more than 2,400 megawatts available to Pakistan’s electricity grid, benefiting some 28 million Pakistanis, and has helped Pakistan take steps to reform its troubled energy sector since 2009. The U.S. has also funded the refurbishment or construction of nearly 1,100 kilometers of roads, enabling trade, security, and mobility.

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“The U.S. Agency for International Development’s (USAID’s) on-budget investments in energy generation, facilitated by the Energy Policy Program (EPP), contributed to increasing generation capacity, energy production, and the reliability of power. EPP helped Pakistan develop the contractual framework that led to the first importation of liquefied natural gas,” report says.

It further says, “In 2016, the United States continued to focus on five sectors determined in consultation with the Pakistani government in 2011. Energy, economic growth including agriculture, stabilization of areas vulnerable to violent extremism, education and health with emphasis on improving democracy, governance, and gender equity are integrated into programming across the five sectors”.

The report stated that U.S. assistance has helped Pakistan improve governance and management systems, and increase the country’s distribution companies’ revenue collection by more than US $400 million, as well as provide commercial opportunities for U.S. businesses. The United States continued to fund infrastructure rehabilitation projects, especially in clean energy, and provided technical assistance to Pakistani energy institutions, including distribution companies, to increase power generation and improve performance.
The U.S. has also trained more than 5,600 police and 1,000 prosecutors across Pakistan; provided scholarships to approximately 15,000 Pakistanis to attend Pakistani universities, 50 percent of whom were women; and supplied better access to comprehensive family planning services to more than 100,000 women since 2009.

In 2016, the United States continued to build strong cooperation with Pakistan, including through U.S. assistance, as a stable, secure, prosperous, and democratic Pakistan is in the long-term U.S. national security interest.
Riaz Haq said…
Is critical thinking a Western concept?

By Don Watson

https://www.britishcouncil.org/voices-magazine/critical-thinking-western-concept


Educators agree that critical thinking is a crucial skill for the 21st century, but is it harder to teach in some cultures than in others? Burmese educationalist Win Aung argues that critical thinking has a longer history in the East than many have recognised. The British Council's Don Watson reports.

According to IBM, 90 per cent of the data in the world was created in the last two years.

In order to make sense of this explosion of information you need to be able to tell the difference between wisdom and sophistry, between timely words of warning and interest-driven scaremongering. That power of analysis is what’s called critical thinking. It is defined by the Critical Thinking Community as the ability to check for ‘clarity, accuracy, precision, relevance, depth, breadth, significance, logic, and fairness’, to build knowledge from a range of sources, including your own experience.

Does an emphasis on critical analysis of information mean that one part of the world will be better equipped to learn the skills necessary for success? Received wisdom indicates that critical thinking is embraced more enthusiastically in the West than it is in the East. Politics, tradition and religion have, according to this view, formed a powerful triumvirate which conspires to leave half the world with an approach to knowledge that relies on rote learning, and regards questioning as anathema.

Dr Win Aung, a consultant with 30 years’ experience of working in education in Burma, accepts this view has some foundation in day-to-day life. It is particularly evident in a country still struggling to emerge from the shadow left by decades of authoritarian rule, but it is by no means the whole story.

‘We do have a more vertical and hierarchical model of society,’ Win Aung says. ‘Myanmar is largely still a country where the father rules in the home and the teacher rules in the classroom.’ But, he argues, the notion that critical thinking is a foreign concept is not just misguided, it is factually wrong.

‘Certainly in the Buddhist tradition, which is influential across the whole of Southern and Southeast Asia, there is a strong tradition of critical thinking. Some of the fundamental tenets of the Buddhist tradition are essentially an early version of critical thinking,’ he says. ‘The Buddha taught freedom of thought and freedom of enquiry to his disciples. The emphasis is on internal reflection and consideration of the value of a proposition, rather than on blind belief’.

So why is rote memorisation a predominant way of learning in Burma? The answer, Win Aung says, is partly down to the structure of the Buddhist religion. ‘The fact that Buddhist teachings are recorded in the Pali language, which does not have a writing system, puts a great emphasis on the ability to absorb and recite correctly, which consequently gained a value in the East that it was never accorded in the West’.


Riaz Haq said…
Big Power for Little #SriLanka in the #India-#China Rivalry. #Bhutan #Nepal #Doklam #HambantotaPort #Pakistan #CPEC
https://worldview.stratfor.com/article/big-power-little-sri-lanka-india-china-rivalry

When it comes to this periphery, one particular concern for New Delhi is Sri Lanka's Hambantota deep sea port project. This new port and others at Gwadar in Pakistan, Chittagong in Bangladesh and Djibouti constitute the Indian Ocean leg of China's 21st Century Maritime Silk Road. And ever since construction began in Hambantota in 2008, China has taken on an increasingly prominent role in the project, which includes not only the $1.4 billion port but also an airport, numerous highways and an as-yet-unbuilt 15,000-acre industrial zone. Initially, Sri Lanka intended to build the project with massive Chinese loans and operate the port on its own, but it has confronted the difficulty of making the port profitable. Thus, in late 2016, Colombo announced a potential deal to trade an 85 percent stake in the project, which would include a 99-year lease on land there, to China Merchants Port Holdings in exchange for $1.1 billion in debt relief. Sri Lanka is $8 billion in debt to China, and over one-third of its government revenue goes to servicing that debt.


Domestic tensions over India's involvement in Trincomalee will only continue. And ultimately, the revised deal with China over Hambantota will not end competition over Sri Lanka and its ports. After the tumultuous conclusion of the Sri Lankan civil war in 2009, the country was left internationally isolated and at odds with India. New Delhi notably did not offer Colombo substantial assistance in defeating the Tamil Tigers, and Sri Lanka instead relied on Chinese, Pakistani and Iranian involvement. In the wake of these events, restoring a balance between patronage from India and other nations does not mean Colombo will be making a full tilt toward New Delhi. Moreover, India simply does not have the economic heft or state control of businesses needed to assist Sri Lanka in the way that China does.

On a broader scale, the regional rivalry between China and India grows ever stronger, as the two nations push for dominance over their shared border and India's various neighbors. But direct military confrontation between Beijing and New Delhi is extremely unlikely, and the tensions will instead play out in nearby countries. Bhutan, for example, has already been caught up in this rivalry with the ongoing Doklam Plateau crisis. East Africa, too, has become the target of an early stage Indo-Japanese attempt to counterbalance China's infrastructure initiatives. For its part, Sri Lanka appears to have used its political savvy to square the circle for now, but the country will no doubt remain involved in the affairs of India and China in the future. And while being sandwiched between two great powers can be a precarious position for a small nation like Sri Lanka, the country has proved itself adept at playing these powers off one another for its own benefit.
Riaz Haq said…
CPEC to create trading bloc of three billion people


https://www.thenews.com.pk/print/218706-CPEC-to-create-trading-bloc-of-three-billion-people


CCIEE Chief Economist Ms Wenling Chen, who was keynote speaker, showcased the CPEC as key example of what BRI stood for and frequently referred to the game-changer while explaining BRI to participants of the roundtable. She cited CPEC as an excellent example of intergovernmental coordination.

She highlighted the role of OBOR in global economic integration, explained the driving forces and objectives of BRI, underlined the interaction and mutual support between BRI and other components of global trade governance and how BRI can strengthen and guard multilateral trading system.

Ms Wenling Chen said BRI is for cooperation, peace, and mutual benefit of all the 60 plus countries involved in this initiative. She said OBOR is about connectivity, quality intra-governmental coordination, infrastructure development, trade, investment, global supply chains, financial integration and ultimately for elimination of poverty and development of whole region and 2 world at large.

While commenting on BRI, Dr Tauqir Shah gave Pakistan’s perspective on the CPEC as an early harvest component of BRI. He said OBOR is immensely important for the Global economy and critically significant for Pakistan.

“The CPEC, a US $54 billion initiative, has all the vital elements of economic development like - transport, highways, railways, ports, urban metro, industrial parks, information technology, last but not the least energy - considerable part of this is renewable energy.”

The ambassador said the CPEC is proving to be a game-changer for Pakistan and the region, and will be a bridge between three engines of growth, - China, South Asia and Central Asia.

While highlighting economic significance of CPEC for Pakistan, he said the country had a four to five thousand MW energy deficit in 2013, which is 25% of its total generation capacity; and it was costing us 2% of GDP growth. “This development deficit needed an initiative of “Big Bang Scale”, like - CPEC. It is a set of 55 projects - 75% of funding is for providing 17000 MW of energy, over next ten years. This includes solar, hydro and Wind energy projects, many of these being foreign direct investment of Chinese private sector.”

Dr Tauqir Shah said the CPEC has created opportunities for everyone. The solar and wind energy projects have wind turbines and other components from Europe. “Our solar projects have consultants for quality assurance from Germany. During 2016, exports from Europe to Pakistan increased by more than 20%, from US $4.2 billion to $5.2 billion, primarily due to increased economic activity resulting from infrastructure development through CPEC.”

Citing another example to show the impact of CPEC on economy, he said that spurred by the CPEC infrastructure projects, Pakistan’s cement industry is expected to increase its capacity by 56 % to 70 million tons in next five years; Pakistan’s cement sector profitability grew 17pc in the last one year on account of higher domestic demand - credit to the construction sector as of Dec 2016, increased by 26pc.

The ambassador said the speedy implementation of the CPEC and the economic stimulus brought about by it has led to increase in demand of cement across Pakistan. Majority of existing cement plants in Pakistan are expanding, and licenses to set up 10 new plants has been given to foreign investors—mostly foreign direct investment.

He said that the hallmark of the CPEC is the north south highway and rail link, designed to link Arabian Gulf coast of Pakistan at Gwadar in south, to north western Chinese region of Xinjiang and Kasghar, thus reducing the distance of China’s northwest from Arabian Gulf from 14000 kilometers to 2500 kilometers, transforming the trade cost for whole region. “We firmly believe the CPEC will result in increase in trade, investment and financial flows, bringing peace and prosperity to the region and even beyond.”
Riaz Haq said…
#IMF says #CPEC outflows from #Pakistan to peak at $4.5 billion in Year 2024

https://www.dawn.com/news/1345414

In a detailed look at the China-Pakistan Economic Corridor (CPEC), the International Monetary Fund (IMF) cautions that corridor projects will generate outflows of as much as $4.5 billion by 2024, while the export benefits of the projects “will likely accrue gradually over time”. Filling the gap in between could pose a policy challenge.

“These considerations warrant policymakers’ attention to two priority areas in order to realise the transformational potential of Pakistan’s investment programme while maintaining external stability,” the IMF report says.

The first challenge is to ramp up export revenue and build foreign exchange buffers, which “will be important to cushion the period of increased BoP outflows”. Ramping up exports will require “improving competitiveness and the business climate” in order to realise the potential benefits from the increased energy supplies and transport infrastructure that the corridor projects will create.

The second big challenge is bringing “full cost recovery” in power distribution. “Routing the increased generation capacity through a loss-making distribution sector could result in faster accumulation of circular debt and fiscal costs, as well as undermine long-term financial sustainability of the new energy projects,” the report adds.

The report stops short of advocating a specific path for improving recoveries, but points towards greater private-sector participation in metering and recoveries while “maintaining a strong and enabling regulatory framework”. The language could be aimed at the government’s proposed reforms to the Nepra Act that seek to parcel out many of the powers the regulator currently enjoys to the federal and provincial governments and their departments.

The report also cautions against going too far down the road of granting incentives to certain categories of investor. It urges the government to “rationalise and limit tax incentives and exemptions [and] maintain uniformity of the tax regime with respect to all investments” and ensure that new external commitments are in line with expected balance of payments trends.

The report notes the positive impact that CPEC projects can have on Pakistan’s economy. It says the direct impact of corridor projects on GDP will go from $2bn in 2017 to $4bn by 2024. By that point in time, the indirect, second-round impacts could commence, which could be “significant” but “will depend on many other supportive factors.”

The report notes that the investments coming under the early-harvest scheme could close Pakistan’s power deficit as 8,600MW are envisaged to be commissioned under CPEC over the next seven to nine years, out of a total capacity expansion of 24,000MW currently in the investment plan. “[T]his expansion will help eliminate Pakistan’s deficit of about 6GW in 2016 to a surplus as early as end-2018.”
Riaz Haq said…
#China plans $4 billion petrochemical complex near #Karachi in #Pakistan #CPEC

https://www.dawn.com/news/1351945

A Chinese proposal to set up a refinery along with a downstream petrochemical complex near Karachi is advancing steadily as requests for 500-1,000 acres has been submitted to the provincial governments of Sindh and Balochistan.

The estimated cost of the project is about $4 billion.

This was disclosed by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Zubair M. Tufail after a meeting with the visiting Chinese delegation, led by Ms Li-Jial, Director Tianchen Engineering Corporation (TCC), at the Federation House on Wednesday.

Ms Li-Jial and Mr Tufail agreed in principle to establish and exchange investment missions to further enhance trade relations between the two countries.

The Chinese asked for land in Karachi since they found rents in Gwadar Free Zone to be too expensive, Mr Tufail told Dawn. “Port Qasim does not have enough space for a project of this size,” he said. “So they have asked for land a few kilometres away or in the Hub area, which falls in Balochistan

They will go with whichever provincial government best facilitates their interests, Mr Tufail added. “Any of the two provincial governments give better deal they would go for it and this would be a win-win situation for both the countries.”

Mr Tufail said both the provincial governments are interested in this project but would depend how they make a land deal with the Chinese investors.

The complex envisions a number of jetties, a refinery with 10 million tonnes per year capacity, as well as downstream processing facilities for naphtha and its component chemicals. “Currently we are importing $2bn worth of these chemicals from the Middle East” Mr Tufail said, adding that the complex could help reduce Pakistan’s external deficit.

Building of the complex will take four to five years, he said, “since they’re starting from scratch”.

Talks on the proposal have been under way for over a year now, but the proposal has begun to take shape more recently with the formal submission of a request for land.

Ms Li-Jial speaking on the occasion said that TCC would like to invest in Pakistan to enhance investment opportunities.

“Over the years, China had been extending cooperation in different sectors of the economy in Pakistan and lately there had been a sudden jump in these relations for the mutual benefit of both countries,” she added.

The FPCCI president said that Pakistan could benefit from the TCC’s vast experience in oil refinery, energy, chemical complexes and other projects and explore investment opportunities mutually beneficial to both the countries.
Riaz Haq said…
#CPEC provides avenues for #Pakistan to get a big slice of $100 billion #China's food imports

https://tribune.com.pk/story/1484291/cpec-provides-avenues-target-100b-chinese-agri-market/

The China-Pakistan Economic Corridor (CPEC) is a golden opportunity for overall development of this region and Pakistan should reorganise its agriculture sector to get a major slice of the $100 billion worth of agriculture produce imports by China, suggested Muhammad Mehmood, Punjab Agriculture Secretary.

Speaking at the launch of a study on “CPEC – Prospects & Challenges for Agriculture”, Mehmood pointed out that nearly one-fourth of the world’s population was living in China and most of its exports would be routed through Pakistan after the completion of CPEC. “Containers full of exportable surplus will be sent to various international markets, but on their return, these containers will be empty and we must capitalise on the opportunity to export our surplus agriculture produce to China,” he said.

Mehmood revealed that per capita income of China was increasing substantially, bringing a visible change in people’s lifestyle and food habits there. “Like other affluent societies, they also prefer rich and costly food and fruits,” he said, adding Pakistan could get maximum benefit of the emerging change.

“We are concentrating on high-value crops and a 10-year programme has been evolved to develop one lakh acres of land in the Potohar region for planting grape and other high-value crops.”

Major Chinese importers will also be invited to utilise this land for growing high-value fruits in addition to developing the agriculture processing industry on modern scientific lines.

“Its trickle-down effect will provide an opportunity to our farmers to upgrade their technologies and develop agriculture as a profitable business by shunning centuries-old practices,” Mehmood said.

He told the audience that foreign consultants had been engaged to analyse why Pakistan had not been able to get its due share in Chinese imports despite its friendly relations and close proximity.

He suggested that Pakistan should renegotiate the bilateral trade agreement and a meeting was expected in the current or next month. After that, “we would be in a position to decide which strategy is suitable for Pakistan to enhance its share in Chinese imports.”

Responding to a question about a research project on the China-Pakistan agricultural technical cooperation, the agriculture secretary insisted that the Punjab Agriculture Research Board was extending liberal grants to the viable projects planned by the public and private sectors.

“Initially, Rs259 million had been allocated for this purpose. The funding was immediately increased to Rs750 million and it would be further enhanced to Rs3 billion in the next three years,” he said.

He asked the Faisalabad Chamber of Commerce and Industry president to send the project to the research board where a group of experts would review its viability and approve the requisite grant.

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