CPEC `a master plan for deep Chinese penetration of Pakistan`s economy`

Hong Kong: The over USD 50 billion China-Pakistan Economic Corridor (CPEC) project appears is a master plan for deep Chinese penetration into Pakistan`s economy, many businessmen in Pakistan have told the Hong Kong-based Asia Times.

According to an article published in the Asia Times, many Pakistanis have lamented that the CPEC will damage rather than benefit the local economy, especially in the agricultural and industrial sectors.

One industrialist was quoted by the Asia Times, as saying that while Chinese manufactured goods are relatively cheap; their export to other countries via the shorter route of Gwadar Port will further reduce import costs in markets that have so far been export destinations for Pakistan.

According to the daily, cheaper, made-in-China goods, items brought on trucks from China and entering Pakistan via the Karakoram Highway (KKH) have already begun to flood Pakistan`s domestic market.

As the cost of production in Pakistan remains relatively high, partly due to the high costs inflicted by a never-ending energy crisis, has hampered Pakistan`s export performance, and there is a view that CPEC will allow China to flood external markets at Pakistan`s expense.

That the International Monetary Fund (IMF) has warned Pakistan that while CPEC projects may generate a balance of payment outflows to the tune of USD 3.5 to 4.5 billion for Pakistan by 2024, enhancing exports could also pose a real policy challenge for the latter.

Failure in this will considerably diminish CPEC benefits.It has been suggested that Pakistan must build up its foreign exchange reserves, as the increase in Yuan (Chinese currency) inflows though welcome, will further expand Pakistan`s yawning trade deficit.Another IMF report has said that in the absence of a robust distribution sector, Pakistan`s added generation capacity will have little effects.

The report notes that "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 the long-term financial sustainability of the new energy projects".

No investment has so far been made in improving distribution. Another potential pitfall for Pakistan is the way Chinese companies are likely to emerge as new "middle men" in Pakistan`s economy, particularly in the agricultural sector.Pakistan`s "national food security policy" mentions the potential of enhancing the country`s agricultural exports to China and perceives opportunities through CPEC to achieve, among other things, "food sovereignty."

The policy measures outlined, however, indicate an increased role for Chinese companies in facilitating exports of produce from Pakistan to China, but will producers get a fair price.

It is unclear as to how this enhanced interaction between local producers and Chinese companies will benefit Pakistan.

When one considers this proposed co-operation in agriculture, along with Chinese development of road, rail and energy projects in Pakistan, CPEC could have long term economic and political consequences and may turn out to be more of a liability than a golden opportunity for Islamabad.