Posts Tagged ‘China-Pakistan Economic Corridor’

The Maldives counts the cost of its debts to China — “Nobody wants to be enslaved by China”

February 11, 2019

The government joins a backlash against Beijing-financed infrastructure projects

The Maldives may join Malaysia, others in re-thinking China’s growing influence and financial leverage

By Simon Mundy in Male and Kathrin Hille in Taipei

Crowned with a soaring blue archway, the four-lane China-Maldives Friendship Bridge loops over 2km of the Indian Ocean to connect the Maldivian capital with its international airport and the fast-growing artificial island of Hulhumale.

Opened last year, the bridge was the flagship project in a surge of Chinese investment into the Maldives under former president Abdulla Yameen, who left office in November after a shock election defeat brought to an end his five-year rule.

But while China has portrayed its Maldivian projects as an example of how its Belt and Road Initiative can drive development in smaller countries, the new government in Male is taking a darker view. It claims that Mr Yameen’s administration saddled the country with vast debts — owed principally to China — through inflated investment contracts that involved personal gain for corrupt Maldivian officials.

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The Maldives-China Friendship Bridge, linking the capital Malé to the island of Hulhulé, where an international airport is located

Over the past two months, the Maldives has been struggling to establish the full scale of its exposure to Chinese debt, most of which is in the form of sovereign guarantees on Chinese loans to companies.

Finance ministry data show that these guarantees amount to $935m, on top of the $600m directly owed to Beijing by the government. Mohamed Nasheed, a key adviser to new president Ibrahim Mohamed Solih and himself a former president, believes that hitherto unreported guarantees could bring the total exposure as high as $3bn — an unaffordable sum, he tells the Financial Times, in a country of 400,000 people where gross domestic product in 2017 was $4.9bn. Ibrahim Ameer, finance minister, says the new government will ask China to reduce the sums owed, as well as amending the interest rates and repayment schedules for them.

Image result for Maldives’ President Abdulla Yameen and China’s President Xi Jinping, pictures

Maldives’ President Abdulla Yameen and China’s President Xi Jinping

Its argument is blunt: that the stated project costs, and the loans that funded them, were substantially inflated, with much of the surplus flowing to the pockets of Yameen administration officials. “Everything was engineered by government officials so as to ensure the most enrichment for them,” Mr Ameer says. “It was done that way by design.”

The Chinese investment boom in the Maldives got under way in 2014, when Xi Jinping made the first ever visit by a Chinese head of state to the archipelago. Beijing’s growing interest in the Maldives, despite the country’s tiny population, reflects its strategic location. With 1,200 islands stretching over a latitudinal distance of 850km, the Maldives claims an exclusive economic zone of 859,000 square kilometres — well over triple the land area of the UK — in a section of the Indian Ocean that touches the main shipping route between China, the oil suppliers of the Middle East, and Europe.

The year before Mr Xi’s visit to Male, he had announced a grand new centrepiece to his foreign policy: the Belt and Road Initiative. The hazily defined strategy brought a new push by Chinese state companies to finance and build large-scale infrastructure projects across Asia and beyond.

Mr Yameen’s ambitious plans for Greater Male made it a promising target for BRI projects. His government argued that it was unfeasible to provide decent public services to all the country’s 200 inhabited islands, and that it was more logical to concentrate the population on Male and Hulhumale, an artificial island created in stages since 1997 by filling in a nearby coral lagoon.

Hulhumale had been the creation of Mr Yameen’s half-brother Maumoon Abdul Gayoom, who ruled the Maldives as a dictator for 30 years.

After taking power in 2013, Mr Yameen pushed through plans to triple the size of the new island to accommodate 240,000 inhabitants — more than half the entire country’s current population. Chinese funding was central to these projects. Maldivian finance ministry data show that well over $1bn in loans were agreed in the four years after Mr Xi’s visit, all either borrowed directly or guaranteed by the Maldivian government. Chinese state companies lent $547.9m to fund the construction of 11,000 apartments in high-rise blocks that would be built in the second phase of Hulhumale.

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Hulhumale

They lent a further $180.9m for work to extend the electricity grid to the new island, and $421m to expand the airport serving Male and Hulhumale. The most celebrated project was the $210m Friendship Bridge, funded mostly by a $126m Chinese government grant and a $68m loan from Export Import Bank of China.

Malaysian prime minister Mahathir Mohamad told media that the country would be “impoverished” if it proceeded with a $20bn Chinese rail project agreed by his predecessor, Najib Razak © AP “The project is of great political significance,” China Central Television said in a report on the bridge, soon after its construction was completed last year.

“The Chinese helpers and builders are using their intelligence and their sweat to give glory to the Belt and Road Initiative!” But just two weeks after the first cars and scooters rolled over the bridge last September, Mr Yameen was swept from power in a shock election outcome that suddenly increased the scrutiny of Chinese lending in the island nation.

The controversy around recent Chinese investment in the Maldives is part of a worrying recent pattern for Beijing, in which newly elected governments have sought to cancel or amend supposedly unfavourable deals with China agreed by their predecessors. Last month, Malaysian prime minister Mahathir Mohamad told media that the country would be “impoverished” if it proceeded with a $20bn Chinese rail project agreed by his predecessor, Najib Razak.

On a state visit to Beijing soon after his return to power last year, Mr Mohamad had pointedly warned about the risk of “a new version of colonialism”. Similar criticisms have been made in Pakistan, Sri Lanka and Myanmar. “We should not sell our debt for equity,” says Mr Nasheed, warning against an outcome that would give China effective control of Maldivian territory.

PIX

Madives’ president Ibrahim Mohamed Solih © AFP

Mr Nasheed, who served as the Maldives’ first democratically elected president from 2008 to 2012 and remains the leader of Mr Solih’s Maldivian Democratic party, has been the most prominent critic of the former government’s relationship with China. China has hit back against allegations that the BRI is pushing some countries into a “debt trap”, saying that the programme is allowing developing nations to benefit from its capital and expertise.

“The BRI has been warmly welcomed to an extent that has far exceeded our expectations,” vice-minister for foreign affairs Le Yucheng told the FT last year, calling it “an effort to build a more fair and equitable international order”.

Maldives fears China Belt and Road debt trap In late January 2016 Wang Fukang, then China’s ambassador to the Maldives, travelled 36km south to the tiny island of Olhuveli to witness the signing of the biggest resort development deal in Maldivian history. As Mr Wang looked on, a representative of state-owned China Communications Construction Company signed a contract with Ahmed Siyam Mohamed, the leader of one of the parties in Mr Yameen’s ruling coalition and one of the biggest tycoons in the country’s lucrative tourism sector.

An online update from the Chinese embassy said the companies had agreed to build the Maldives’ biggest resort, with 509 rooms, and its first to be built by a Chinese company. The embassy release did not reveal the terms of the deal, which remained secret until the new government took power.

According to finance ministry data, Mr Siyam’s company funded the project with debt from the Export Import Bank of China — with the loans guaranteed by the Maldivian government up to an amount of $127.5m.

Officials in Male’s new government say such arrangements were typical of the opacity accompanying the huge debt increase under the previous administration. “There’s no information on many of these contracts centrally available — we’re collecting it now,” one senior official says. Sun Siyam, the resort operator, did not respond to a request for comment.

The new government’s biggest concerns relate to the $646m of sovereign-guaranteed Chinese loans to Housing Development Corporation, the Maldivian state company responsible for developing Hulhumale.

Of this, 85 per cent went to fund the construction of 11,000 apartments in the island’s second phase. Work on these residential projects, including the construction of 16 25-storey tower blocks by China State Construction Engineering, is continuing.

But the economic logic for such large-scale development has been weakened after the new government dropped Mr Yameen’s policy drive to concentrate the population in greater Male, instead promising more support for communities in the many smaller islands. The complaints from Male will add fresh ammunition to critics who warn of the BRI’s insufficient transparency and attention to debt sustainability.

Such claims were made by the proponents of a law that passed the US Congress in October, authorising the creation of an international development finance company. The new agency will compete with the BRI by extending loans in Asia and Africa, although its exposure cap of $60bn is far smaller than the lending already extended under the Chinese initiative.

A spokesperson for China’s foreign ministry says it had “provided concessional loans to some development projects in accordance with the wishes and development needs of the Maldives”, adding that both countries had “fully considered factors such as debt sustainability”.

Maldivian police said last week they had asked the prosecutor-general to press charges against Mr Yameen, for providing false information during a probe into alleged financial irregularities surrounding the leasing of islands for resort development. The police had in December announced the freezing of bank accounts belonging to Mr Yameen containing $6.5m.

“Allegations of corruption were widespread in President Yameen’s time, and whenever people questioned it, the response was that you don’t need to know,” says Mariyam Shiuna, executive director of Transparency Maldives. Corruption had become “normalised”, she says. Mr Yameen did not respond to a request for comment, but a spokesman last week issued a statement denying any wrongdoing, and political associates defend him against allegations of having acted against the national interest.

Recommended Belt and Road Initiative Maldives seeks to renegotiate with China over Belt and Road debt

“We have never betrayed our sovereignty,” says Ahmed Nihan, a senior figure in Mr Yameen’s Progressive Party of Maldives, arguing that the Chinese loans would produce a strong return on investment. “Which other country came with an offer to put a bridge here?” he adds.

“Can any of these people talking about transparency come with the answer to my question? Our big brother India, did they come? No.” India, whose coast lies less than 500km from the Maldives’ northernmost atoll, has historically been the island state’s most important diplomatic partner. But the relationship deteriorated severely under Mr Yameen, as New Delhi became increasingly alarmed by the Maldives’ growing closeness to Beijing.

India reacted angrily in August 2017, when three Chinese submarines docked at a Maldivian port. Indian prime minister Narendra Modi’s administration has seized the opportunity of the change of government in Male to rebuild close ties with the Maldives. In December, Mr Solih paid a state visit to India and accepted $1.4bn in financial assistance. The renewed ties with its huge neighbour, which is jostling with China for regional influence, will give Male’s new administration additional leverage as it lobbies Beijing for debt forgiveness.

And while officials say they still see China as an important partner, they insist that future deals will be arranged with far greater care than in recent years. “We think it is wrong that China is taking us . . . to where we would find it difficult to pay back the money that they have given us,” Mr Nasheed says. “We do not want to be consumed by China.”

The Chinese way: four countries in ‘Belt and Road’ debt

Pakistan

The $62bn China-Pakistan Economic Corridor plan is the single largest piece of the BRI, but it has come under pressure since last year’s election of Imran Khan as Pakistan’s prime minister.

Abdul Razak Dawood, a senior minister under Mr Khan, told the FT that the previous government “did a bad job negotiating with China on CPEC”, striking deals that favoured Beijing. In January, Karachi’s Dawn newspaper reported that the government had decided to scrap plans for a $1.6bn Chinese-built power plant.

Myanmar

Naypyidaw renegotiated a massive Chinese port project in 2018 at its western town of Kyaukpyu, two years after awarding contracts to subsidiaries of CITIC Group. The new deal dramatically reduced the financial scale of the project to $1.3bn, from the $9bn originally planned. Myanmar is also resisting pressure from Beijing to allow work to resume on a Chinese-backed hydropower dam in its north.

Sri Lanka

Former president Mahinda Rajapaksa struck a deal with China to build a $1.3bn port named after him at Hambantota on the country’s south coast (pictured), before being voted out of power in 2015. Colombo’s new government was saddled with heavy losses from the little-used port, and in 2017 handed it over to a Chinese state company on a 99-year lease, sparking domestic controversy.

Malaysia

Since returning as Malaysia’s prime minister last May, 93-year-old Mahathir Mohamad has taken a bold stance on the Chinese investments agreed by his predecessor Najib Razak. In July, the government suspended four Chinese projects worth about $23bn. It followed this in September by cancelling three China-backed oil and gas pipelines worth more than $3bn.

Malaysian Prime Minister Najib Razak (left) shakes hands with Chinese President Xi Jinping during the welcome ceremony for the Belt and Road Forum in Beijing on May 15, 2017. (Kenzaburo Fukuhara-Pool/Getty Images)

Malaysian Prime Minister Najib Razak (left) shakes hands with Chinese President Xi Jinping during the welcome ceremony for the Belt and Road Forum in Beijing on May 15, 2017. (Kenzaburo Fukuhara-Pool/Getty Images)

Malaysia says it will continue talks with Beijing over the biggest BRI project in the country, a 688km rail project on its east coast.

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Pakistan: Four key areas under China CPEC prioritised

January 19, 2019

Prime Minister Imran Khan on Friday prioritised four key areas under the China-Pakistan Economic Corridor (CPEC) for the next couple of years and ordered the groundbreaking of at least three special economic zones (SEZs) before end-June this year.

He was presiding over a meeting here to review progress on the CPEC.

Minister for Planning, Development and Reforms Makhdoom Khusro Bakhtyar briefed the participants on the outcome of the 8th CPEC Joint Cooperation Committee (JCC) meeting and progress on the projects.

Early completion of the CPEC projects is in Pakistan’s interest, says prime minister. — File photo
Early completion of the CPEC projects is in Pakistan’s interest, says prime minister. — File photo

The prime minister gave targets for short- to mid-term phases, focusing on cooperation in industrial, socio-economic, agriculture and Gwadar. “It was decided to make the period as a phase of industrial cooperation, socioeconomic and agriculture sector development. Timelines for the development of prioritised SEZs were finalised to ensure groundbreaking in first half of 2019,” an official statement said.

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PM orders groundbreaking of three special economic zones by end of June

The meeting was told that four SEZs — Rashaki in Khyber Pakhtunkhwa, Dhabeji in Sindh and M-3 Faisalabad and one in Islamabad — had been planned for development in the first phase and three of them — Rashakai, Dhabeji and Faisalabad — would be ready for groundbreaking by June this year, starting with Rashakai in two to three months. However, IT SEZ in Islamabad would take more time for various reasons including but not limited to selection of its site and then land acquisition process.

The prime minister directed to make full use of upcoming visits of Chinese investors by explaining to them Pakistan’s tax policies and available facilities and speedy processing of business proposals to market SEZs aligned with its development. He desired that ease of doing business should be improved immediately so as these could be shared with the Chinese business delegations. He “directed that a timeline-based policy on provision of utilities to SEZs be prepared at the earliest”. The prime minister directed the Board of Investment’s chairman to present comprehensive recommendations within four weeks on speedy development of SEZs.

The prime minister was informed that the meeting of the newly created Joint Working Group (JWG) on agriculture would meet on Feb 15 in Beijing. It was reported that the Chinese officials had raised questions over Pakistan’s agriculture and the country’s experts wondered why an agro-based economy did not have consistent crop patterns and output predictabilities.

The prime minister directed the relevant agencies and ministries to finalise a well researched agriculture sector road map before going to the JWG meeting next month. “Don’t go unprepared” to the JWG, an official quoted the prime minister as saying.

Image result for Pakistan Railways, ML-1, pictures

Mr Khan directed that Pakistan side should finalise the road map for promoting agriculture sector, inviting Chinese companies to explore investment opportunities in Pakistan and leverage agro value chains.

The meeting decided to promote joint ventures in petrochemicals, iron & steel, food and agriculture. On the recommendations of the Planning Commission, the prime minister approved formation of a CPEC Business Advisory Council consisting of leading Pakistani business executives, heads of financial institutions and representatives of business chambers to create an interface with the private sector.

Mr Khan directed that that development of the corridor should continue with the priority to the development of its western route. He emphasised that infrastructure development needed a policy of pragmatism and due financial diligence and not on political considerations.

In the same spirit, a high-level committee, comprising ministers for planning, railways and finance, was formed to finalise modalities on Pakistan Railways ML-1 — the strategic project of the CPEC.

Informed sources said that some ministries had reservations over the Chinese financial and cost modelling of $8.2 billion ML-1 project — Karachi to Torkham border — and wanted some changes.

Image result for Pakistan Railways, ML-1, pictures

In the last month JCC meeting, the two sides had nevertheless agreed that “the project should be implemented in line with the Framework Agreement signed in May 2017”.

The prime minister directed that the development of Gwadar should be planned as a smart port city to make it a transhipment and petrochemical hub. He called upon the participants to further expedite progress on various projects under the CPEC because their early completion would bring huge socio-economic opportunities to people.

PM Khan made it clear that early completion of the CPEC projects was in Pakistan’s interest. He said Pakistan could greatly benefit from Chinese experience of bringing its people out of poverty traps and desired that poverty alleviation programmes should be based on multi-pronged schemes because BISP-like programmes could not go on forever.

The meeting that lasted about two hours reviewed overall progress on the CPEC, particularly in the areas of industrial development, — SEZs, ML-1 project, agriculture development, socio-economic development, infrastructure development and Gwadar development.

https://www.dawn.com/news/1458411/four-key-areas-under-cpec-prioritised

Pakistan: CPEC has no military dimensions, Pakistan says

December 28, 2018
DR Mohammad Faisal says the foreign minister will soon visit Qatar as part of efforts for boosting ties with countries in the region.
DR Mohammad Faisal says the foreign minister will soon visit Qatar as part of efforts for boosting ties with countries in the region.

Mr Faisal said the CPEC was an economic project between Pakistan and China. “The CPEC has helped Pakistan improve its economy, particularly energy and infrastructure sectors have improved under it. The CPEC is a bilateral economic project, which is not against any country,” he said.

Answering a question, he said the recent four-nation visit of the foreign minister was essentially part of the government policy to strengthen relations with all neighbours and regional countries and added that as part of the same effort the foreign minister would soon visit Qatar.

It is economic project which is not against any country: FO

The spokesman said Pakistan’s long-standing position to give peace and reconciliation a real chance in Afghanistan had become the basis of an international consensus.

“Recent developments in Afghanistan have all led to this widely acknowledged agreement. This new opening in Afghanistan and willingness of all countries who agree on Pakistan’s important role as facilitator has provided us a significant opportunity to also strengthen our bilateral relations with all the neighbours, especially for promotion of trade, economic and people-to- people linkages,” he said.

“The visit also provided an opportunity to listen to views of the leadership of these countries for promoting a joint regional approach towards Afghanistan and explore realistic possibilities of regional integration in economic terms,” he said.

Responding to another question, he said 341 Pakistani prisoners — 154 of them civilians and 187 fishermen — were currently incarcerated in Indian jails. Of them 45 prisoners, 12 civilians and 33 fishermen, have completed their sentence.

“Our mission is in contact with India’s external affairs ministry and related state governments for repatriation of Pakistani prisoners. The Pakistani high commission also engages with the Indian media to highlight the plight of Pakistani prisoners. A law firm has also been hired to assist in and facilitate the repatriation. Where required, NGOs working for prisoners and civil rights activists have also been engaged to facilitate repatriation of Pakistani prisoners.”

The spokesman said there were some problems in getting consular access, adding “however, our mission perseveres and actively pursues issues of all such prisoners.”

About reports of harassment by Indian authorities of Pakistani diplomats posted in New Delhi, and similar allegations from the other side, he said Pakistan stood for upholding the Vienna Convention on Diplomatic Relations and had always endeavoured to facilitate the working of the Indian high commission in Islamabad, within the diplomatic norms, international law and practice. “It remains our position that the smooth and unhindered functioning of diplomatic missions is essential,” he remarked.

The Foreign Office spokesman urged the international community, especially human rights champions, to persuade India to immediately halt human rights violations and atrocities in held Kashmir. He said Indian occupation forces, during the so-called search and cordon operations, had recently martyred six Kashmiris — Soliha Mohammad Akhoon, Rasik Mir, Rouf Mir, Umer Ramzan Mir, Nadeem Sofi and Faisal Javid Khan — in Pulwama district of the occupied territory.

He refused to comment on appointment of two former Afghan intelligence chiefs known for their anti-Pakistan stance as interior and defence ministers by Afghan President Ashraf Ghani.

He also refused to comment on President Donald Trump’s surprise trip to Iraq to visit US forces stationed there that was condemned both by Iraqi politicians and militia leaders, and cancellation of his meeting with the Iraqi prime minister due to disagreement over the venue, saying “we cannot comment on the relations between two sovereign nations”.

Asked to confirm the reports that the second round of talks between United States and Taliban would take place in Saudi Arabia, he said “No. I have nothing more to say on this issue”.

Published in Dawn, December 28th, 2018

https://www.dawn.com/news/1454000/cpec-has-no-military-dimensions-says-pakistan

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China’s ‘Belt and Road’ Plan in Pakistan Takes a Military Turn

December 20, 2018

Under a program China insisted was peaceful, Pakistan is cooperating on distinctly defense-related projects, including a secret plan to build new fighter jets.

When President Trump started the new year by suspending billions of dollars of security aid to Pakistan, one theory was that it would scare the Pakistani military into cooperating better with its American allies.

The reality was that Pakistan already had a replacement sponsor lined up.

Image result for Chinese-Pakistani military cooperation, pictures

Just two weeks later, the Pakistani Air Force and Chinese officials were putting the final touches on a secret proposal to expand Pakistan’s building of Chinese military jets, weaponry and other hardware. The confidential plan, reviewed by The New York Times, would also deepen the cooperation between China and Pakistan in space, a frontier the Pentagon recently said Beijing was trying to militarize after decades of playing catch-up.

All those military projects were designated as part of China’s Belt and Road Initiative, a $1 trillion chain of infrastructure development programs stretching across some 70 countries, built and financed by Beijing.

Chinese officials have repeatedly said the Belt and Road is purely an economic project with peaceful intent. But with its plan for Pakistan, China is for the first time explicitly tying a Belt and Road proposal to its military ambitions — and confirming the concerns of a host of nations who suspect the infrastructure initiative is really about helping China project armed might.

By Maria Abi-Habib
The New York Times

As China’s strategically located and nuclear-armed neighbor, Pakistan has been the leading example of how the Chinese projects are being used to give Beijing both favor and leverage among its clients.

Since the beginning of the Belt and Road Initiative in 2013, Pakistan has been the program’s flagship site, with some $62 billion in projects planned in the so-called China-Pakistan Economic Corridor. In the process, China has lent more and more money to Pakistan at a time of economic desperation there, binding the two countries ever closer.

For the most part, Pakistan has eagerly turned more toward China as the chill with the United States has deepened. Some Pakistani officials are growing concerned about losing sovereignty to their deep-pocketed Asian ally, but the host of ways the two countries are now bound together may leave Pakistan with little choice but to go along.

Even before the revelation of the new Chinese-Pakistani military cooperation, some of China’s biggest projects in Pakistan had clear strategic implications.

Source: Center for Strategic and International Studies | By The New York Times

A Chinese-built seaport and special economic zone in the Pakistani town of Gwadar is rooted in trade, giving China a quicker route to get goods to the Arabian Sea. But it also gives Beijing a strategic card to play against India and the United States if tensions worsen to the point of naval blockades as the two powers increasingly confront each other at sea.

A less scrutinized component of Belt and Road is the central role Pakistan plays in China’s Beidou satellite navigation system. Pakistan is the only other country that has been granted access to the system’s military service, allowing more precise guidance for missiles, ships and aircraft.

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The cooperation is meant to be a blueprint for Beidou’s expansion to other Belt and Road nations, however, ostensibly ending its clients’ reliance on the American military-run GPS network that Chinese officials fear is monitored and manipulated by the United States.

[Read The Times’s series “China Rules,” about how China wrote its playbook to counter the West.]

In Pakistan, China has found an amenable ally with much to recommend it: shared borders and a long history of cooperation; a hedge in South Asia against India; a large market for arms sales and trade with potential for growth; a wealth of natural resources.

Now, China is also finding a better showcase for its security and surveillance technology in a place once defined by its close military relationship with the United States.

“The focus of Belt and Road is on roads and bridges and ports, because those are the concrete construction projects that people can easily see. But it’s the technologies of the future and technologies of future security systems that could be the biggest security threat in the Belt and Road project,” said Priscilla Moriuchi, the director of strategic threat development at Recorded Future, a cyberthreat intelligence monitoring company based in Massachusetts.

The Chinese-built and operated port in Gwadar, Pakistan.Credit Drazen Jorgic/Reuters

The tightening China-Pakistan security alliance has gained momentum on a long road to the Arabian Sea.

In 2015, under Belt and Road, China took a nascent port in the Pakistani coastal town of Gwadar and supercharged the project with an estimated $800 million development plan that included a large special economic zone for Chinese companies.

Linking the port to western China would be a new 2,000-mile network of highways and rails through the most forbidding stretch of Pakistan: Baluchistan Province, a resource-rich region plagued by militancy.

Image result for Prime Minister Nawaz Sharif of Pakistan, center left, praying during the formal opening of Gwadar port in 2016. Credit Muhammad Yousuf/Associated Press

The public vision for the project was that it would allow Chinese goods to bypass much longer and more expensive shipping routes through the Indian Ocean and avoid the territorial waters of several American allies in Asia.

From the beginning, though, key details of the project were kept from the public and lawmakers, officials say, including the terms of its loan structure and the length of the lease, more than 40 years, that a Chinese state-owned company secured to operate the port.

If there was concern within Pakistan about the hidden costs of the China-Pakistan Economic Corridor, also known as CPEC, there was growing suspicion abroad about a hidden military aspect, as well.

Image result for Prime Minister Nawaz Sharif of Pakistan, center left, praying during the formal opening of Gwadar port in 2016. Credit Muhammad Yousuf/Associated Press
Prime Minister Nawaz Sharif of Pakistan, center left, praying during the formal opening of Gwadar port in 2016. Credit Muhammad Yousuf/Associated Press

In recent years, Chinese state-owned companies have built or begun constructing seaports at strategic spots around the Indian Ocean, including places in Sri Lanka, Bangladesh and Malaysia.

Chinese officials insisted that the ports would not be militarized. But analysts began wondering whether China’s endgame was to muscle its way onto coastal territories that could become prime military assets — much as it did when it started militarizing contested islands in the South China Sea.

Then, Sri Lanka, unable to repay its ballooning debt with China, handed over the Chinese-built port at Hambantota in a 99-year lease agreement last year. Indian and American officials expressed a growing conviction that taking control of the port had been China’s intent all along.

In October, Vice President Mike Pence said Sri Lanka was a warning for all Belt and Road countries that China was luring them into debt traps.

“China uses so-called debt diplomacy to expand its influence,” Mr. Pence said in a speech.

“Just ask Sri Lanka, which took on massive debt to let Chinese state companies build a port of questionable commercial value,” Mr. Pence added. “It may soon become a forward military base for China’s growing blue-water navy.”

Military analysts predict that China could use Gwadar to expand the naval footprint of its attack submarines, after agreeing in 2015 to sell eight submarines to Pakistan in a deal worth up to $6 billion. China could use the equipment it sells to the South Asian country to refuel its own submarines, extending its navy’s global reach.

The Sahiwal coal power plant in Pakistan’s Punjab Province was one of the first and biggest projects financed and completed under the Belt and Road Initiative. Pakistan has fallen behind on payments just to operate the plant. Credit Asad Zaidi/Bloomberg
The Sahiwal coal power plant in Pakistan’s Punjab Province was one of the first and biggest projects financed and completed under the Belt and Road Initiative. Pakistan has fallen behind on payments just to operate the plant. Credit Asad Zaidi/Bloomberg

When China inaugurated Belt and Road, in 2013, Prime Minister Nawaz Sharif’s new government in Pakistan saw it as the answer for a host of problems.

Foreign investment in Pakistan was scant, driven away by terrorist attacks and the country’s enduring reputation for corruption. And Pakistan desperately needed a modern power grid to help ease persistent electricity shortages.

Pakistani officials say that Beijing first proposed the highway from China’s western Xinjiang region through Pakistan that connected to Gwadar port. But Pakistani officials insisted that new coal power plants be built. China agreed.

With CPEC under fresh scrutiny, Chinese and Pakistani officials in recent weeks have contended that Pakistan has a debt problem, but not a Chinese debt problem. In October, the country’s central bank revealed an overall debt and liability burden of about $215 billion, with $95 billion externally held. With nearly half of CPEC’s projects completed — in terms of worth — Pakistan currently owes China $23 billion.

But the country stands to owe $62 billion to China — before interest balloons the figure to some $90 billion — under the plan for Belt and Road’s expansion there in coming years.

Pakistan’s central bank governor, Ashraf Wathra, said publicly in 2015 that he had no clarity on Chinese investments in Pakistan and was concerned about rising debt levels. It still took him months after that to secure a briefing from cabinet officials.

Years after contracting to have China build new power plants, Pakistan still has a problem with severe electricity shortfalls. Credit Rizwan Tabassum/Agence France-Presse — Getty Images

“My main question was, ‘Do we have any feasibility studies of these projects and a cost-benefit analysis?’ Their answers were all evasive,” recalled Mr. Wathra, who has since retired.

Ahsan Iqbal, a cabinet minister and the main architect for CPEC in the previous government, said the project was well thought-through and dismissed Mr. Wathra’s account.

“No one wanted to invest here — the Chinese took a chance,” Mr. Iqbal said in an interview.

But the bill is coming due. Pakistan’s first debt repayments to China are set for next year, starting at about $300 million and gradually increasing to reach about $3.2 billion by 2026, according to officials. And Pakistan is already having trouble paying what it owes to Chinese companies.

Pakistan already builds Chinese-designed JF-17 fighter jets, like this one. Under a secret proposal, Pakistan would also cooperate with China to build a new generation of fighters. Credit Reuters

According to the undisclosed proposal drawn up by the Pakistani Air Force and Chinese officials at the start of the year, a special economic zone under CPEC would be created in Pakistan to produce a new generation of fighter jets. For the first time, navigation systems, radar systems and onboard weapons would be built jointly by the countries at factories in Pakistan.

The proposal, confirmed by officials at the Ministry of Planning and Development, would expand China and Pakistan’s current cooperation on the JF-17 fighter jet, which is assembled at Pakistan’s military-run Kamra Aeronautical Complex in Punjab Province. The Chinese-designed jets have given Pakistan an alternative to the American-built F-16 fighters that have become more difficult to obtain as Islamabad’s relationship with Washington frays.

The plans are in the final stages of approval, but the current government is expected to rubber stamp the project, officials in Islamabad say.

For China, Pakistan could become a showcase for other countries seeking to shift their militaries away from American equipment and toward Chinese arms, Western diplomats said. And because China is not averse to selling such advanced weaponry as ballistic missiles — which the United States will not sell to allies like Saudi Arabia — the deal with Pakistan could be a steppingstone to a bigger market for Chinese weapons in the Muslim world.

For years, some of the most important military coordination between China and Pakistan has been going on in space.

Just months before Beijing unveiled the Belt and Road project in 2013, it signed an agreement with Pakistan to build a network of satellite stations inside the South Asian country to establish the Beidou Navigation Systemas an alternative to the American GPS network.

Beidou quickly became a core component of Belt and Road, with the Chinese government calling the satellite network part of an “information Silk Road” in a 2015 white paper.

A model of China’s Beidou navigation satellite network, shown during the China International Aviation and Aerospace Exhibition in Zhuhai in November. Credit Kin Cheung/Associated Press

Like GPS, Beidou has a civilian function and a military one. If its trial with Pakistan goes well, Beijing could offer Beidou’s military service to other countries, creating a bloc of nations whose military actions would be more difficult for the United States to monitor.

By 2020, all 35 satellites for the system will be launched in collaboration with other Belt and Road countries, completing Beidou.

“Beidou, whatever any users use it for — whether it’s a civilian navigating their way to the grocery store or a government using it to coordinate their rocket launches — those are all things that China can track,” said Ms. Moriuchi, of the research group Recorded Future. “And that’s what is most striking: that this authoritarian government will be a major technology provider for numerous countries in Asia, Africa and Europe.”

For the Pentagon, China’s satellite launches are ominous.

China’s military “continues to strengthen its military space capabilities despite its public stance against the militarization of space,” including developing Beidou and new weaponry, according to a Pentagon report issued to Congress in May.

In October, Pakistan’s information minister, Fawad Chaudhry, said that by 2022, Pakistan would send its own astronaut into space with China’s help.

“We are close to China, and we are getting more close,” he said in a later interview. “It’s time for the West to wake up and recognize our importance.”

The Pakistani military has been a vital supporter, and securer, of China’s projects in Pakistan. Credit Akhtar Soomro/Reuters

Though the relationship between China and Pakistan has clearly grown closer, it has not been without tension. CPEC could still be vulnerable to political shifts in Pakistan — as happened this year in Malaysia, which shelved three big projects by Chinese companies.

Campaigning during the parliamentary elections that made him prime minister in July, Imran Khan vowed to review CPEC projects and renegotiate them if he won. In September, after meeting in Saudi Arabia with the crown prince, Mr. Khan said that the kingdom had agreed to invest in CPEC too.

Pakistan’s new commerce minister then proposed pausing all CPEC projects while the government assessed them.

The moves by Pakistan’s new government angered Beijing, which was concerned they could set back Belt and Road globally.

But in Pakistan, China has a steady ally it can approach to smooth things over: the country’s powerful military establishment, which stands to fill its coffers with millions of dollars through CPEC as the military’s construction companies win infrastructure bids.

Shortly after the commerce minister’s comments, the Pakistani Army’s top commander, Gen. Qamar Javed Bajwa, hurried to Beijing for an unannounced visit with President Xi Jinping. The meeting came six weeks before Mr. Khan made his first official visit with the Chinese president, a trip he had listed as a priority.

Statements from the military said General Bajwa and Mr. Xi spoke extensively about Belt and Road projects.

General Bajwa “said that the Belt and Road initiative with CPEC as its flagship is destined to succeed despite all odds, and Pakistan’s army shall ensure security of CPEC at all costs,” read a statement from the Pakistani military.

Shortly after the Beijing meeting, Pakistan’s government rolled back its invitation to Saudi Arabia to join CPEC and all talk of pausing or canceling Chinese projects has stopped.

Prime Minister Imran Khan of Pakistan went to meet President Xi Jinping in China in November with high hopes for an economic deal. But few details have been announced. Credit Pool photo by Thomas Peter

But China could face another challenge to its investments: a Pakistani financial crisis that has forced Mr. Khan’s government to seek loans from international lenders that require transparency.

Throughout September, international delegations traveled to Islamabad carrying the same message: Reveal the extent of Chinese loans if you want financial assistance.

In a late September meeting with visiting officials from the International Monetary Fund, Pakistan’s government asked for a bailout of up to $12 billion. The fund’s representatives pressed Pakistan to share all existing agreements with the Chinese government and demanded I.M.F. input during any future CPEC negotiations — a previously undisclosed facet of the negotiations, according to communications seen by the Fund and a Pakistani official. The fund also sought assurances that Pakistan would not use a bailout to repay CPEC loans.

But the Chinese Embassy in Islamabad stepped up its engagement as well, demanding that CPEC deals be kept secret and promising to shore up Pakistan’s finances with bilateral loans, Pakistani officials say.

Three months after taking office, Mr. Khan still has not made good on his campaign promises to reveal the nature of the $62 billion investment Beijing has committed to Pakistan, and his government has backtracked on an I.M.F. deal.

In early November, Mr. Khan visited Mr. Xi in Beijing, a trip during which he was expected to clinch bilateral loans and grants to ease Pakistan’s financial crisis.

Instead, his government walked away with vague promises of a deal “in principle,” but refused to disclose any details.

A Chinese national flag, center at the Sahiwal coal power plant in Pakistan, which cost about $1.9 billion to build. Pakistan now owes around $119 million in back payments to Chinese companies just for operating the plant. Credit Asad Zaidi/Bloomberg

Luz Ding contributed reporting from Beijing.

A version of this article appears in print on , on Page A1 of the New York edition with the headline: What China Gets for Building Up Pakistan: A Military Toehold.
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Balochistan shocked over its poor share in CPEC projects

December 19, 2018

Only 9% of development work completed in about five years against the US$5.5 billion CPEC investment portfolio

A study carried out with the technical assistance of the World Bank has shocked the leaders of the volatile Pakistani province of Balochistan, which feels deprived of its due share of investments pledged under the China-Pakistan Economic Corridor (CPEC) mega-project.

The Balochistan cabinet, during a briefing last week, was informed that the investments thus far made in the province were dismally low while the ongoing development projects moved along at a snail’s pace.

Balochistan Chief Minister Jam Kamal Alyani was not part of Pakistan's delegation, says official. — File photo
Balochistan Chief Minister Jam Kamal Alyani was not part of Pakistan’s delegation for the  8th meeting of the CPEC Joint Coordination Committee to be held in China on Dec 20, says official. — File photo

The province’s legislative assembly termed Chinese investment a joke and exhorted Chief Minister Jam Kamal Khan Alyani to take up the issue with the central Pakistani government for rectification, a demand that the federal Planning Ministry cannot possibly meet without first ratifying it with the China-Pakistan Joint Coordination Committee (JCC).

To make things worse for Chinese policymakers, the politicians of Balochistan, a heartland of the Chinese Belt and Road Initiative, feel ignored in the multibillion-dollar initiative after learning that a mere 9% of development work has been completed during the last approximately five years against CPEC’s total investment portfolio of US$5.5 billion.

The briefing, given by the World Bank-sponsored CPEC cell of the province’s Planning and Development Department, dwelt at length on the five-year performance overview of the CPEC projects. The cabinet was informed that there was no progress on the Western Route of the corridor as none of the roads that are part of the so-called “western alignment” have seen any work. Also, out of the minuscule share of the total allocated for Balochistan, only $1 billion has been spent during the last five years or so.

Image result for Pakistan, Balochistan, CPEC, western route, map

The lawmakers learned that China had shelved two of the big projects, namely Quetta Mass Transit and the pat feeder (canal) to the Quetta water supply, which the provincial government is believed to be financing through its own resources. The findings also show that the power deficit of the province remains 700 megawatts, despite the additional power-generation capacity with the commissioning of early-harvest projects of the CPEC.

Feeling the heat, the federal minister for planning, development and reforms (PD&R), Makhdoom Khusro Bakhtyar, rushed to Balochistan House in Islamabad on Thursday to meet with Chief Minister Jam Kamal Khan and try to put his concerns about the CPEC’s Western Route to rest. He assured the chief minister that the implementation of the projects would “open up” and Balochistan would be prioritized in the socio-economic development component of the CPEC.

However, an official of the PD&R Ministry, on condition of anonymity, told Asia Times that the chief minister insisted that he would not attend the forthcoming CPEC JCC meeting scheduled to be held next week in Beijing unless the federal government gets the agenda of the meeting revised.

Balochistan, he claimed, wanted to get its stakes secured in the CPEC portfolio with an assurance from Beijing that completion of existing projects will take precedence over the rest of the corridor’s activities.

He disclosed that the chief minister was informed that the responsibilities for slow execution and elimination of mega-projects rest solely on the province’s Pakistan Muslim League (Nawaz) government and the present set-up would remove the grievances of Balochistan in this regard.

Khusro Bakhtiar did not respond to a call from Asia Times for comments despite repeated attempts.

The PML-N is, however, in a state of denial saying that neither the chief minister, Balochistan nor the provincial assembly issued any such indication that the province had been snubbed in CPEC-related funding. The whole issue, it claimed, was created by the anti-CPEC lobby to malign China and the PML-N government.

“In his recent interview with the BBC, Finance Minister Asad Umar disclosed that the chief minister of Balochistan during a meeting in Beijing [requested that the Chinese] make more investment in Balochistan. He was on board and fully committed with the developments,” Ahsan Iqbal, a former federal minister and a focal person for the CPEC initiative in the PML-N government, told Asia Times.

He said the elected representatives of Balochistan had not issued any statement to show their reservations on the pace of development or lack of funding under the CPEC umbrella. “Certain elements are busy feeding concocted stories to the press to create confusion and damage the friendly relationship between China and Pakistan,” he said, adding that the PML-N had never ignored Balochistan.

The official circles of Balochistan did air concerns on the CPEC projects. In a tweet last week, the chief minister wrote, “Balochistan shall work for its true share…. It’s sad in last 5 years we got only 5% of the overall share … and it’s sad to see how our governments proved incompetent in achieving … we missed the first 3 years where Balochistan could have gotten anything it needed.”

Balochistan is a belligerent and worrisome region for CPEC. The forces of Baloch radical nationalists have been waging a war against the Chinese penetration in the Global South. Baloch separatists have been opposing the project since its inception, fearing the circle of exploitation will further strengthen if the province collaborates with a foreign state. By carrying out targeted killings, abductions of Chinese workers and attacks on the Chinese installations and CPEC infrastructure, they have expressed anger over the Chinese involvement in Balochistan.

For the first time, the mainstream political circle of an estranged province of Pakistan has realized that all is not well with the CPEC and demanded greater share of the development pie.

http://www.atimes.com/article/balochistan-shocked-over-its-poor-share-in-cpec-projects/

See also:

Alyani not to attend JCC meeting in China

Pakistan: CPEC is in spotlight again as Balochistan raises questions over western route progress

December 15, 2018
The Gwadar-Hoshab-Surab road road is neither part of the western route nor is it a CPEC project at all. — File photo
The Gwadar-Hoshab-Surab road road is neither part of the western route nor is it a CPEC project at all. — File photo

Interestingly enough, the federal government describes the Gwadar-Hoshab-Surab road as a section of the western route in its official briefs and maps when in fact it is the southern common alignment. The government does so because this is the only road that has been built in Balochistan over the last five years.

Also read: CPEC and Balochistan

The reality is that this road is neither part of the western route nor is it a CPEC project at all. This scheme was conceived during the period of General Pervez Musharraf. Construction work on it began in 2007, long before CPEC came into being. The federal government insists on showing it as part of the CPEC’s western route just to deflect political pressure and criticism and to disingenuously show that progress has been made on the route in Balochistan.

Between Basima and Burhan, the western alignment passes through Surab, Quetta, Zhob and D.I. Khan whereas the eastern alignment passes through Khuzdar, Sukkur, Multan and Lahore. Excluding the common alignments, the western alignment is approximately 500km shorter than the eastern alignment.

Timeline for western passage

The western passage was supposed to be built on a priority basis. The grounds for this claim are as follows: First, the all-party conference held at the Prime Minister House on May 28, 2015 concluded that the western alignment of CPEC would be built first.

Second, the CPEC monographic study on transport planning (2014-2030), which was jointly conducted by the governments of China and Pakistan and approved by the fifth JCC in Nov 2015, provides the plan for short-term, medium-term and long-term transport and infrastructure projects under the umbrella of CPEC. This plan provided for the construction of an expressway from Burhan to D.I. Khan and the up-gradation of the existing road from D.I. Khan to Surab (via Zhob and Quetta) into a four-lane highway by 2020.

Work carried out in Balochistan

Over five years have passed since the memorandum of understanding on CPEC was signed in 2013 and progress on the western alignment remains virtually nonexistent. In fact, zero progress has been made on the 750km stretch of Balochistan component of the western alignment. Even worse, nearly three-fourths of the Balochistan component (Zhob-Quetta-Surab section) is not even included in the CPEC infrastructure portfolio. The only section that is officially on the CPEC infrastructure agenda is the D.I. Khan-Zhob section (205km) but here too no progress has actually been made. In contrast, construction work on the eastern alignment is likely to be completed by the end of 2019.

Also read: Balochistan being neglected in CPEC, says Bizenjo

The D.I. Khan-Zhob road was approved as a short-term CPEC project in the fifth JCC held in 2015. Its feasibility study and PC-1 were completed in 2016 and approved by the Executive Committee of the National Economic Council (Ecnec) in May 2017.

Subsequently, a framework agreement was prepared and loan request was submitted to the Chinese side through the Economic Affairs Division. However, in Dec 2017 the Chinese government stopped the promised loan, arguing that previous procedure of release of funds was meant for early-harvest projects only and that new guidelines would be issued for financing non-early-harvest projects.

More than a year has passed since the loan was stopped, and the project remains without finances. In the last meeting of the joint working group on infrastructure held in October 2018, the project was once again postponed till next year.

The Zhob-Quetta and Quetta-Surab sections are not yet officially included in the CPEC agenda. Of these two sections, the Quetta-Surab section was supposed to be built through fina­nces from the Asian Development Bank under the CAREC programme. NHA was supposed to complete the feasibility study by March 2016 and submit the PC-1 to Ecnec for approval.

Three years on, NHA still hasn’t finalised the feasibility study and PC-1 for this road. About the Zhob-Quetta section, the federal government had pledged that it would be financed through the federal PSDP. Token amounts were allocated for this road in the federal PSDPs for 2017-18 and 2018-19, but no concrete step was taken.

In the revised PSDP for 2018-19, both the Zhob-Quetta and Quetta-Surab road projects have been deleted. Balochistan is also home to a section of the eastern alignment, i.e., the Basima-Khuzdar road. This road was approved as a short-term CPEC project in 2015. Like the D.I. Khan-Zhob road, the loan for this project was stopped by China in Dec 2017. The federal government pledged to finance this through the federal PSDP but hasn’t yet delivered on its promise. As a matter of fact, the amount allocated for this road in the revised PSDP for 2018-19 was reduced to mere Rs0.5 million.

Status of land acquisition

Lastly, the directives for acquiring land for the above-mentioned roads were issued in 2015 by the office of the prime minister. In line with the premier’s directives, the Balochistan government conducted surveys, issued notifications under Section 4 of the Land Acquisition Act 1894, shared cost estimates with NHA in Dec­ 2016 and demanded the release of funds to the DCs concerned. Two years on, NHA still hasn’t released a penny for land acquisition, despite allocations being made for this purpose in the federal PSDPs for 2016-17, 2017-18 and 2018-19.

Given where things stand currently, the western alignment of CPEC is highly unlikely to be upgraded in the next five years, let alone be completed by 2020.

The writer is an independent public policy analyst and consultant, who has served as an adviser to the Balochistan government on CPEC

Published in Dawn, December 15th, 2018

https://www.dawn.com/news/1451519/no-progress-made-on-balochistan-component-of-cpecs-western-route

‘Hope is very much in the air’: Asad Umar on Pakistan’s economy

December 13, 2018
Finance Minister Asad Umar said both the monetary and fiscal policies were moving in the direction of reforms that are required by the IMF. —BBC News screengrab
Finance Minister Asad Umar said both the monetary and fiscal policies were moving in the direction of reforms that are required by the IMF. —BBC News screengrab

When asked how well the government was doing to keep up with the promises made by Imran Khan before coming into power, especially given the fact that the prime minister had previously remarked that he would be “ashamed to go abroad and ask for money”, Umar responded by saying:

“When the government came into power, it was a well-known fact that Pakistan needed some kind of a bailout…the real challenge, the real decision is — and that’s how we will be judged in the future — did we take the decisions of setting the country’s economy on a path where this is going to be what I have repeatedly said, the last IMF programme if we get into one right now.”

Umar said after he took charge as the finance minister, the government reached out to friendly countries for bilateral financial assistance as well as started a dialogue with the IMF simultaneously because it had no time to first work out a strategy and then start negotiations.

The finance minister said, the government did not wait for the IMF to impose any conditions on Pakistan to do what it was required to do.

“In the very first 100 days we increased electricity prices, gas prices, we put in place a supplementary finance budget, we increased taxes, the policy rate has been increased by the central bank, the currency rate has been adjusted by the central bank,” he explained.

He said both the monetary and fiscal policies were moving in the direction of reforms that are required by the IMF.

“We don’t need IMF’s dictation for us to do that because we believe this is what’s necessary. However, the path for reforms is different in the eyes of IMF, as we stand today, versus what we think is right.”

The finance minister said that this was what the ongoing dialogue with IMF was debating over. “There is no difference of opinion with the IMF in terms of what needs to be done. It is the pace, the sequence, and the extent which is being discussed,” he added.

To a question regarding Pakistan standing with Saudi Arabia and in return acquiring monetary assistance, while the world was shocked and disgusted over the news of journalist Jamal Khashoggi’s murder, the finance minister said:

“I would be happy to be ashamed of standing up with a country with whom we have had close bilateral ties…maybe the western leaders should be ashamed of themselves talking about democracy, talking about freedoms, and still reaching out in the same Saudi pockets to take billions of dollars of business deals. The leader of the Western world Donald Trump stands up and openly says ‘I am getting too much business from Saudi Arabia for me to worry about what happened to Khashoggi.'”

He clarified Pakistan was just being consistent in the bilateral relationship with Saudi Arabia which has remained the same regardless of who remains in power. Pakistan’s relationship with Saudi Arabia goes back half-a-century and it had got nothing to do with Yemen or Khashoggi, he added.

With respect to the investment in Balochistan under China Pakistan Economic Corridor (CPEC), the minister said the Balochistan government was eager to enhance investment in the province under the CPEC project.

He said Pakistan’s debts payable to China were less than 10 per cent of its total debts while the US was the largest debtor of China with over $1.3 trillion debt owed to it.

To another question, Umar said people of Balochistan were patriotic Pakistanis but there were some sponsored activities by terrorists who were trained and funded from outside Pakistan.

“There are concerted efforts led by India to damage the CPEC. People of Balochistan have elected a government that fully stands by CPEC and have also shown loyalty with Pakistan,” the finance minister said.

To a question regarding tax reforms, he said the government has taken several new initiatives aimed at enhancing the tax base and revenue to facilitate the socio-economic development of the country.

The revenue generation aspect is absolutely central to be able to deal with the horrendous challenges that we have, the finance minister said.

“The health and education situation needs drastic reforms and for that you need revenue, and for that, you need an efficient revenue authority,” Umar said, adding: “We have separated tax policy from tax administration.”

The finance minister said that almost the entire top leadership of the revenue authority has been changed.

He also said that modern technology is being utilised to chase those who were evading taxes and 3,100 of them have already been served notices, whereas a list of over 7,000 top tax evaders has been prepared.

https://www.dawn.com/news/1451028

Why is Pakistan Chasing Away Foreign Investors?

December 3, 2018

With a population of more than 200 million people, Pakistan may be a growing market for foreign electronic goods and mobile phones. But a host of issues relating to the business environment, taxation and low purchasing power of consumers continue to keep them from investing in the manufacturing industry here.

“Pakistan is a strategic market for us… but it still remains a very small market for electronic goods because of the low purchasing power of consumers,” TCL Pakistan General Manager Sunny Yang said in response to a question whether her company planned to invest in TV parts manufacturing in Pakistan. She went on to list problems that foreign companies have to take into account when the time for making such a decision comes up.

Image result for , pakistan, pictures

“A small market size or the low purchasing power of consumers isn’t the only issue… a company has to consider the country situation as well,” added the executive of the world’s third largest LED TV manufacturer from China, which entered the Pakistan market back in 2013. Before that, it marketed LED TVs in Pakistan as a vendor of the Nobel brand 2006 onwards.

‘Customs duty on TV assemblers rose from 5pc to 30pc in five years’

“The ever-changing customs tariffs, exchange rate volatility leading to economic instability and a growing grey market of illegal and under-invoiced goods hurt a manufacturer’s pricing structure and its ability to plan for future,” she argued. “On top of these, there is this issue of inconsistency in policies. Every (foreign) investor wants to have a reliable policy environment and tax and other incentives for the next 20 or 25 years to plan for the long term.

“Just consider the example of the customs duty for TV assemblers in Pakistan. When we came here five years back, it was five per cent. Today it is 30pc, including 10pc regulatory duty (RD). Similarly, the dollar was priced at Rs99. Today it has fallen to Rs140. Can we pass on the full impact of higher tariffs and exchange rate depreciation to consumers? No, we cannot. The presence of illegal, grey market makes it even more difficult for a company like ours to recover the cost. These things don’t affect us alone. Every business in Pakistan is facing these problems,” she says.

Although total investment as a percentage of GDP has increased slightly in the last five years — from 14.6pc in 2014 to 16.4pc in 2018 — it is half the investment-to-GDP ratio of 30pc in India and Bangladesh. On top of that, private gross fixed investment (GFI) has decreased by 10 basis points from 9.9pc to 9.8pc during the same period.

TV sales by different foreign and local brands are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc

Similarly, foreign direct investment (FDI) inflows have also risen slightly to $2.7 billion a year during the last two financial years on the back of Chinese investments in power and other infrastructure projects.

Board of Investment (BoI) Chairman Haroon Sharif agrees with Ms Sunny’s assessment of the factors impeding fresh (foreign) investment in Pakistan. “We are aware of these issues… foreign investors need protection and we’re making decisions that are required to improve the business environment to attract FDI flows,” he told this correspondent recently.

Ms Sunny said the demand for high-end electronic goods was growing in the country as Pakistani consumers became more aware of global brands and technology. “For the last few years, the market has been shifting towards bigger-sized panels and smart and 4K TVs. This is a positive development for our company because we already have a strong presence in this market.”

TV sales by different foreign and local brands, for instance, are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc.

“Pakistan is a tough market, but has a lot of potential. We think Pakistan’s TV sales volume should have been three to four times bigger than its current size given the country’s large population. In view of this potential, we are looking for increasing our presence in this market and introduce our white goods and mobile phones,” she said.

She was hopeful about a spike in the demand of electronic goods in Pakistan once economic growth picked up pace and the China-Pakistan Economic Corridor completed. “Going forward, we are hopeful that the problems (facing foreign investors) will be taken care of and an environment conducive for doing business created.”

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018

https://www.dawn.com/news/1448966

China: IMF pressure won’t weaken Pakistan’s CPEC commitment

November 28, 2018

Global Times report by Zamir Ahmed Awan states that Pressure and challenges from the IMF regarding debt woes over the China-Pakistan Economic Corridor (CPEC) won’t compromise Pakistan’s commitment to the CPEC.

(AFP photo)

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Pakistan is experiencing a deep economic crisis, and the nation is facing a burden of foreign debt of $95 billion.

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Overseas Pakistanis have been sending their earnings to their family members in Pakistan, which for a long time was a good source of foreign exchange earnings for the government of Pakistan. But due to mismanagement, poor planning and corruption, these remittances have been decreasing over time.

http://www.arabnews.com/node/1412426/press-review

Also, the Pakistani rupee has weakened against the strengthening US dollar, resulting in a decline in Pakistan’s foreign exchange reserves. This, along with the difficulty Pakistan faces in repaying its debts, has worsened the country’s economic problems. These led Pakistan to seek a bailout package from the IMF.

The IMF team has been in Pakistan recently and negotiations started over a bailout, which included many conditions, including details of CPEC agreements. Although Pakistan was in dire need of financial assistance and could accept some of the IMF’s monetary conditions, it could not compromise regarding the CPEC.

Pakistan’s involvement in the CPEC is backed by the whole country, and this won’t change even if there is a new government. The CPEC is an essential element of Pakistan’s national strategy, and we believe it is the only way forward for Pakistan. So the IMF’s pressure can only prompt Pakistan to strengthen its ties with China. We are already good and trustworthy friends.

The US has used the World Bank and IMF as tools to exert its political hegemony in the past and it still does so. Secretary of State Mike Pompeo has previously warned against any IMF bailout for Pakistan that would pay off Chinese loans to Pakistan. Categorically, they asked not to fund any project that is part of the CPEC or backed by China. They wanted us to guarantee there would not be any transfer of funds to China.

It is obvious that the US does not accept China’s rise and is trying to restrain it. The US will use all necessary means to put pressure on China and anyone entering into a partnership with it. The US aims to pressurize Pakistan as a way to limit China’s further economic development. But Pakistan enjoys a very special relationship with China and wants to take this friendship to new heights.

China has established the Asian Infrastructure Investment Bank (AIIB), which is helping developing countries to improve their infrastructure. The bank works on the basis of merit and without any political prejudice. India offers an example of this. India has been skeptical about the Belt and Road initiative (BRI) and has had a sometimes difficult relationship with China, but India has already been one of the beneficiaries of AIIB loans. Many other developing countries have received AIIB loans and are satisfied with its policies.

It is time to establish an Asian Monetary Fund in order to help developing economies based on merit only, without any political motives. The IMF is bound by US influence and functions as an economic wing of US foreign policy. Many developing countries have been victims of harsh IMF terms and want to get rid of IMF control. I think China has the experience and resources to come up with new initiatives, and the developing world would appreciate and support it.

There is a visible divide in the world, between those who are pro-globalization and those who believe in protectionism. Creation of a new funding institution would put China in a position of global moral leadership. Developing countries would extend their support for globalization and Chinese initiatives like the BRI, free from external monetary coercion. Pakistan, being an all-weather, time-tested friend, will stand with China at all times.

The author is a non-resident fellow with the Center for China and Globalization and a professor at the National University of Sciences and Technology in Islamabad, Pakistan. bizopinion@globaltimes.com.cn

Newspaper headline: Pressure won’t weaken Pakistan’s CPEC commitment

http://www.globaltimes.cn/content/1129236.shtml

IMF ready to link Pakistan bailout to crackdown on money laundering, terror funding and financial details of its deals with China

November 26, 2018

Pakistan’s hopes of getting a $6 billion lifeline may hinge on how it responds to demands for a crackdown on money laundering, terror funding and financial details of its deals with China

 NOVEMBER 26, 2018 5:37 PM (UTC+8)
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Pakistani Finance Minister Asad Umar. Photo: Wikipedia

Pakistani Finance Minister Asad Umar. Photo: Wikipedia