Pak-China Relations

Higher than Himalayas, deeper than Pacific, sweeter than honey, spicier than curry, until reality bites.

http://www.sharnoffsglobalviews.com/china-shaksgam-valley-191/
"The Chinese model of mineral exploration fails to support Gilgit-Baltistan’s economy since the corporations do not provide jobs to the locals and deny a share in the revenue to the resource-owners.
To make the situation worse, the Pakistani regime has placed a ten-year ban on local businesses involved in gem extraction and trade. Undue concessions to the international corporations and ban on the locals affect the economic well-being of tens of thousands of people.
Pakistani regimes are notoriously famous for bending over backwards to facilitate China’s involvement in Gilgit-Baltistan.
In 1963, Pakistan handed over 5,800 square kilometers of the territory of Gilgit-Baltistan to China without the consent of the local people. Authorities even threatened the ruler of Hunza, who claimed the valleys up to the Aghil Pass, of imprisonment and torture for objecting to such a deal. China currently occupies more than 20,000 square kilometer of Gilgit-Baltistan covering Shaksgam, Raskam and Aghil valleys.
The Communist Party of China might find it interesting that the Chinese official maps of 1917, 1919 and 1933 recognize the border of Jammu & Kashmir at the Kunlun mountain range. An earlier map of Xinjiang compiled in 1762 at the orders of the Chinese Emperor Chien Lung also acknowledged the southern border of Xinjiang at Kunlun. This comfortably places Shaksgam, Raskam and Aghil valleys within Gilgit-Baltistan."

http://archives.dailytimes.com.pk/editorial/23-Aug-2002/second-opinion-who-will-pay-for-the-death-of-bishop-john-joseph
2002: "Leader of Insaf Party Imran Khan wrote in Nawa-e-Waqt (17 August 2002) that the Chinese proverb was that the fish began to rot at the head, but we learned nothing from our Chinese friends and had allowed our country to become corrupt from the top.
There is a lot more to be learned from China apart from the proverb about corruption of which there is much in China these days. The real lesson comes from the opening of the four old "treaty" ports as Special Economic Zones for foreign investment. The one in Fujian across the strait is significant because the people here speak the same language as the one spoken in Taiwan and are of the same racial stock. Taiwan is the big enemy, but Fujian coast was literally given over to the Taiwanese capitalists. The Taiwanese investment in Fujian is equal to 20 billion dollars. Taiwan, together with the Hong Kong investment in Guangdong province, has given China the growth rate it has today while the global economy languishes. China has ignored Pakistan's Islamic mischief in Sinkiang under the same spirit of pragmatism but it keeps the Pakistanis out of China by making the visa to China almost impossible to get. Imran Khan should go much more deeply into the example of China than just corruption which, unfortunately, is rampant there in these days of transition."

http://archives.dailytimes.com.pk/business/14-Aug-2003/cheap-chinese-products-a-threat-to-cottage-industry
2003: "KARACHI: The mass availability of cheap Chinese consumer products in the local markets is posing a serious threat to the Pakistani cottage industry, traders have said.
"There is a flood of Chinese consumer products in the local wholesale, as well as retail markets and these products are available at unimaginably lower prices," said Fatah Khan, a vendor of Chinese products at Jodia Bazaar. "A Chinese torch is available at Rs 5 per piece in the market, while Pakistani torch is being sold at Rs 20 to Rs 25 per piece," he said.
Most of the Chinese products are much cheaper than the local products. For instance, a locally manufactured small shoe polish brush is available in the market at Rs 15 but the same Chinese product is being sold at Rs 7. Large sized shoe polish brushes of China are being sold at Rs 90 per dozen."


http://www.dawn.com/news/1179363
2 May 2015: Fortunately, the $30bn dollar Chinese investment in the China-Pakistan Economic Corridor is not in the shape of loans as the project is designed for China’s benefit. By connecting Gwadar Port to western China, it will save millions every year in transport costs. It is not clear, however, if we will charge the Chinese transit fees for trucks and trains carrying their goods across our territory as we have been charging Nato.
The remaining $16bn are intended for the power sector in solar, wind and coal-fired projects whose total output will be 10,400MW, a welcome addition to our present installed capa­city. However, this investment is subject to a 20pc matching investment from the private sector in Pakistan. But given the favourable conditions written into this tranche, I can see Pakistani businessmen queuing up to invest.
Consider: there is a guaranteed internal rate of return (IRR) of 18pc, and this is pegged to the dollar. So if the greenback is trading for Rs110 a couple of years down the road, we will be paying an extra 10pc in rupees. And presumably, Chinese contractors will be appointed without competition, so much of the investment will be recovered early if the contracts are front-loaded."

http://tribune.com.pk/story/943392/pak-china-trade-importance-of-negotiating-the-fta/
24 Aug 2015: One of the major impediments has been the concerns of the domestic industry in Pakistan that feels threatened from the competition of Chinese products.
The public sector is also apprehensive as elimination of custom duties would lead to substantial revenue losses as Pakistan heavily relies on taxation on international trade for revenue generation. According to the latest figures, 40% of the Pakistan’s total revenue is from taxes on import of goods.
This obviously has created major challenges for the Pakistan’s negotiating team to move forward with the negotiations. There are media reports that Pakistan has requested China to reconsider the tariff liberalisation done in the first phase instead of moving forward in the second phase of the FTA.
China is one of the most populous countries in the world and, according to IMF statistics, the world’s largest economy in terms of purchasing power parity. China is also the world’s fastest growing economy with a growth average of 10% in the last 30 years. China is also world fastest growing consumer market as well as second biggest importer in the world.
In 2014 China imported goods worth $2 trillion globally in which the share of Pakistan was just 0.2%. Similarly China’s global imports of service in 2014 were $400 billion against Pakistan global exports of $5.5 billion where the services destined for china were quite negligible."

http://tribune.com.pk/story/1041717/dumping-of-goods-psm-demands-punitive-duties-on-steel-imports/
7 Feb 2016: After missing the deadline to revive the steel mill, officials of the Ministry of Industries and Production appear convinced that the real reasons for the mill’s hefty losses are not only its operational challenges, bad management and poor plant maintenance, but also the competition with cheap steel products of China."

http://tribune.com.pk/story/1042818/unsafe-railways-receives-defective-locomotives-from-chinese-firm/
9 Feb 2016: LAHORE: Pakistan Railways is going to replace 16 newly inducted locomotives brought from China-based CSR Ziyang Locomotives Co Limited after engineers found serious defects in the locomotives and declared them unsafe to operate, especially for the passenger segment."


https://www.dawn.com/news/1259166
19 May 2016:

THE decision by a Chinese sponsor to withdraw from a coal-based power project in Punjab reminds us of two crucial facts. First, the investments arriving in Pakistan under the CPEC bouquet are entirely commercial; they come on a profit basis and are not exactly the ‘gift horse’ they are sometimes referred to as. Second, at least in some respects, the government’s much-vaunted push towards coal as the fuel of choice for Pakistan’s power generation could have been conceived in haste. The sponsor in this case is the China Machinery Engineering Corporation, and the project is a 330MW coal-mining and power-generation venture near Pind Dadan Khan in the Salt Range, Punjab. When CMEC applied for a tariff determination back in January of 2015, the total project outlay was $589m, translating into per megawatt CAPEX cost almost 15pc higher than that of Thar coal, even though this project is nowhere near as remotely located. CMEC claimed that the coal in the Salt Range had higher ash and sulphur content, the seam was far thinner, and its transport from the various locations where it would be mined added to the cost.

https://www.dawn.com/news/1290523
17 Oct 2016:

Chinese investments in Pakistan have the potential to lift the economy’s potential output, but the repayment obligations that come with this investment will be serious, warns the IMF in its latest and final review of the just concluded programme.

https://www.dawn.com/news/1290677
18 Oct 2016:

Recently, the National Energy Power Regulatory Authority (Nepra) had approved tariff for the project, while the government’s Private Power Infrastructure Board had filed a review petition on the tariff in order to address the sponsors’ concerns.

At this, Senator Usman Khan Kakar pointed out that Nepra had fixed the power tariff for the project at 71 paisas/unit, while Chinese investors were demanding 95 paisas/unit.

“The government has filed an appeal before Nepra, seeking the increase despite the fact that the burden will be borne by poor consumers,” he said.

The secretary also informed the committee that the Gadani power plant complex had been shelved due to the lack of a dedicated jetty.

He also said that the 6,000MW project was not part of the CPEC.

Senator Kakar immediately reacted, saying that despite the fact that the project was not part of the CPEC, Chinese Ambassador Sun Weidong had recently claimed that the Gadani power plant had not been scrapped and was indeed a part of the corridor. “Why is this project, which does not even exist, being counted in our account?” he asked.

He said that the infrastructure being established in Gwadar would only benefit the Chinese and Punjab governments, not the local community. “The people of Balochistan will only get one benefit from this project, which is the water supply,” he said, adding that no electricity or railway projects had been planned for Balochistan under the CPEC.

Senator Mandokhail said that a sense of deprivation was being instilled in smaller provinces. “We do not want the CPEC at the cost of the federation,” he added.

https://www.dawn.com/news/1302328
15 Dec 2016:

more than two-thirds of the money committed for the ‘early harvest’ projects is actually on commercial terms. Of the total $28 billion that come under the ‘early harvest’ projects, a full $19bn are in the form of foreign direct investment on commercial terms and even the agreement signed in November 2013 between the governments of China and Pakistan that created this raft of investments mentions that these will follow “market principles”.

In those project documents that are publicly available, the debt service terms are 7pc to 8pc with many of them pegged to six-month Libor and include Sinosure, which is the fee for reinsurance of all loans that Chinese banks require all foreign borrowers to have.

Then there is the equity portion. Most of the projects coming in as direct investment have a debt-to-equity ratio of around 80:20, or in some cases 75:25. And in most cases, return on equity (ROE) is guaranteed at either 17pc or 20pc.

So let’s do a little math here. If $19bn are coming in as investment on commercial terms, and 80pc of that is debt with the remaining as equity, what is the size of the outflow as debt service and return on equity that we can discern?

My math tells me that the debt service outflows will be about $1bn and the return on equity will be $646 million if it is kept at 17pc. Add to that $1.9bn as repayment of principal. That means an annual net outflow of $3.546bn per year once commercial operations begin.

https://www.youtube.com/watch?v=sETjvQhLofs
https://www.dawn.com/news/1316211
22 Feb 2017:

LAHORE: The Punjab government on Tuesday launched a probe into the collapse of structure of recently completed 4.8MW hydropower project at the Upper Chenab Canal in Sheikhupura district. The project is being executed by Chinese firm under supervision of the energy department.

Officials say the inquiry team has been tasked with looking into all aspects of the construction work.

https://www.dawn.com/news/1317736
1 March 2017:

The committee was informed that only Chinese industrialists would be allowed to set up their industries in the proposed economic zones along the corridor.

“Then where will be the benefit for Pakistan. Will the Chinese give us some share in their profit or pay taxes?” the chairman asked.

He said the government had failed to apprise the committee whether Pakistanis would be in the loop or out of it.

https://www.dawn.com/news/1319301/cpec-enclaves
9 March 2017:
A SMALL line in a news story a few days ago caught my eye. The setting was a hearing in the Senate Standing Committee on Planning and Development at which high officials from the Planning Commission were answering questions about the China-Pakistan Economic Corridor (CPEC). The line that caused me to do a double take was this one: “The committee was informed that only Chinese industrialists would be allowed to set up their industries in the proposed economic zones along the corridor.”


https://www.dawn.com/news/1321119/ 
17 March 2017: 
Over a 30-year repayment period, these figures, which do not differ wildly from one another, put the cost of CPEC at around 4.5 to five per cent per year. This means Pakistan will have to repay the $50bn plus interest at around $3bn to $3.5bn a year for the period. 
Experts are right in asking whether the projected growth in economic activity as a result of CPEC generate enough national wealth for the country to service and repay annually for 30 years what seems not an insignificant amount of money, totalling about $90bn.


https://www.dawn.com/news/1322243/ 
23 March 2017:  

I gave the example of Sri Lanka, where things went wrong in a couple of large projects and their debts proved too burdensome for that country’s economy to manage. The penalty that Sri Lanka had to pay was land, swapped along with operational control of the port, in exchange for the debt that they could no longer service.

Since then I have learned that such examples are numerous. Tajikistan gorged itself on Chinese investment with much fanfare more than a decade ago. There too the arrival of the Chinese was hailed as a ‘game changer’ when the enterprise got under way. By 2009 or so, they had difficulty meeting their debt-service obligations. So they asked for some relief from the burdensome terms.

And you know what they had to give up in exchange for this relief? Land.

In 2011, the government of Tajikistan announced that they had just concluded a deal with the government of China, ceding control of 1,100 square kilometres of mountainous land to the Chinese under the garb of settling a centuries-old border dispute. The agreement had been reached in 1999, but finalised precisely at a time when Tajikistan’s debt difficulties began. The territory represents one per cent of the country’s total land area.

At the time, more than a third of the country’s total external debt was owed to China. By 2010, the year before the land deal, some 82,000 Chinese were working in Tajikistan, up from less than half that in 2007. The land that was ceded is now being tilled by Chinese farmers.

..
Nothing summons up the animal instincts of our economy quite like land does, and now that a party as large as the Chinese government is poised to enter that field, extreme care must be taken. Let nothing be agreed to in the dark.

https://www.dawn.com/news/1322215
23 March 2017:

ISLAMABAD: Soon after Prime Minister Nawaz Sharif’s meeting with a high-profile Chinese delegation, a special ministerial committee went into an emergency huddle to seek review of multi-year tariff announced by the power regulator for K-Electric (KE) to avoid flight of prospective Chinese investment.

The delegation led by Wang Binghua, chairman of State Power Investment Corporation of China — the parent company of KE’s new buyer Shanghai Electric — called on the prime minister on Wednesday.

“They (Chinese) told the prime minister that the tariff model announced early this week by the National Electric Power Regulatory Authority (Nepra) did not provide incentive for fresh investment and hence unacceptable,” a participant of the meeting told Dawn. “They think the new tariff model has evaporated profitability.”

http://mobile.reuters.com/article/idUSKBN1710CJ
30 March 2017:

Kamal Amjad Mian thought China's decision to invest $36 billion (28.84 billion pounds) in the Pakistani power sector would benefit his electricity cable business, and, anticipating increased demand, his family spent nearly $30 million on a second plant to double output.

But Mian's Fast Cables and some other Pakistani manufacturers have yet to reap rewards from Beijing's huge "One Belt, One Road" (OBOR) project, a modern-day "Silk Road" network of trade routes across land and sea.

Power stations built as part of the China-Pakistan Economic Corridor (CPEC), a $57 billion project involving energy, road and rail infrastructure, are being kitted out with Chinese cables exempt from import duty and sales tax.

Such exemptions, more generous for CPEC projects than others, threaten to undermine local industry, according to Mian, one of a growing number of executives now questioning an initiative long portrayed as the key to Pakistan's prosperity.

"The government, instead of giving us a level playing field, gave them an advantage," Mian said in the eastern city of Lahore.

A Water and Power Ministry official, who declined to be named because he was not authorized to speak to the media, said "there were question marks about whether the local cable industry could fulfill the demands under CPEC and we worried it would slow down projects."

Beijing's CPEC splurge and a drop in Islamist militant violence have reinvigorated Pakistan's sluggish economy, driving growth to about 5 percent for the first time since 2008.

The public and political parties broadly support Chinese investment, while cement and steel companies who bagged early CPEC contracts are embarking on aggressive expansion.

Executives also say Chinese investors are poised for an acquisitions spree in Pakistan.

https://www.dawn.com/news/1320670
25 April 2017:
News about a research report put out by Topline Securities, which claimed that Pakistan will repay $90 billion on CPEC investments of $50bn, sparked a new round of anxiety-laden commentary on social media and television. The report itself is sound, and the figure of $3bn per year as repayment obligations is similar to what others have calculated. My own calculation on CPEC repayments, published in this column a few weeks earlier, gave me a figure of $3.5bn, while former State Bank governor Dr Ishrat Husain calculated $3bn.


https://www.ft.com/content/3ae64c9a-ffd8-11e6-96f8-3700c5664d30 
25 April 2017: 
China has increased its economic sway in Pakistan during the past year, providing more than $1bn in loans to help its neighbour stave off a currency crisis.
State-backed Chinese banks have twice come to the rescue of the nuclear-armed state, officials have told the Financial Times, with $900m in 2016 and $300m in the first three months of this year. The loans demonstrate the perilous fragility of Pakistan’s stocks of foreign currency, depleted in recent months by rising imports and falls in exports and remittances from Pakistanis abroad. China’s financial help also underlines an increasingly close relationship at a time of strains between Pakistan and the US. Beijing is preparing to invest at least $52bn in Pakistan to build a highway, energy pipelines, power-generation facilities and industrial parks from the western port of Gwadar on the Gulf to the Chinese border to the north. But despite its expected benefits, the China-Pakistan Economic Corridor infrastructure project is set to further deplete the foreign currency stocks, needed to pay contractors and suppliers. Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago. This has forced the country to seek emergency loans from outside sources to repay older loans made in foreign currencies.

https://www.dawn.com/news/1330070 

30 April 2017: THERE is a fear lurking in the shadows of CPEC that a time will soon come when the Chinese will start dictating terms and priorities rather than negotiating them. As an increasing number of Chinese enterprises acquire stakes in Pakistan’s economy, and as the government takes out more and more loans from Chinese state-owned banks for balance of payments support, the space to negotiate and protect our own interests diminishes. Perhaps we have seen a glimpse of what this entails in the recent discussions around the financing arrangements for the $8bn project for the Peshawar-Karachi railway line, when the Chinese insisted they would not share the project with the Asian Development Bank and wanted to implement it on their own. According to Ahsan Iqbal, the minister for planning and development, who oversaw the negotiations, the Chinese “strongly argued that two-sourced financing would create problems and the project would suffer”. So the government gave in to the ‘strongly argued’ position.

If the merits of single-source financing for this project had been evident, it would not have been double-sourced to begin with — and would certainly not have to be ‘strongly argued’ by anyone. Whatever the merits of the two options, the fact that the Chinese were able to push for full control of the project, and prevail, shows that the power of the government to stand its own ground in any engagement is weakening.

https://www.dawn.com/news/1362377 
8 Oct 2017:

The influx of cheap imports from China has left an adverse impact on the local industry as small and medium-sized enterprises (SMEs) are losing ground to products from Asia’s largest economy, according to a recent report published on the website of the State Bank of Pakistan (SBP).

Written by two SBP officials, the report titled “Dynamics of Pakistan’s Trade Balance with China” says the bilateral trade balance remains skewed towards China. Pakistan’s volume of bilateral trade expanded and reached $13.8 billion in 2015-16, up from $2.2bn in 2004-05. However, Pakistan’s exports to China increased from $0.4bn in 2004-05 to $1.7bn in 2015-16.

“Imports from China grew exponentially – increased from $1.8bn in 2004-05 to $13.9bn in July-May 2016-17,” said the report.

As per the Tariff Reduction Modality of China, some of the Pakistani products having relatively greater export potential were facing high tariff rates and receiving no concession on China’s offer list, said the report.