CPEC FAQ’s & Responses

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Q.1 Is CPEC becoming another East India Company?

  • Pakistan and China are all weather and time tested friends. CPEC is a fusion of Vision 2025 and China’s One-Belt One-Road philosophy. This is not the first time we are partnering in any front. We had been tied into strategic partnership for decades. CPEC brings forth a transformational paradigm, moving from geo-strategic to geo-economic partnership between the two countries. China’s huge investment in energy, infrastructure and suggested industrial sectors doesn’t provides any extra ordinary mileage to either of the partnering countries rather it offers win-win situation and equal opportunities to both China and Pakistan. Hence, no question to compare CPEC with East India Company. China is putting into lot of sincere efforts to help Pakistan to improve socio-economic indicators in Pakistan.
  • In 18th century, Indo-Pak GDP share was quite higher as compared to Britain’s share in global GDP. This was the main attraction to capture the higher share, however at this moment China is holding the largest share in global GDP, i.e. 18.3% (23T USD, PPP) Whereas, Pakistan is at 0.3 trillion USD GDP.
  • We might be able to better understand how China operates by looking towards its involvement in other regions, specifically Africa. While East India Company cemented its power in the sub-continent through brutal force and with no regard to the well-being of local population, China’s approach has been to expand its influence around the globe through economic prosperity rather than military might.

Q.2 Pakistan will get 9% of Gwadar Port’s Income. Is it a good deal?

  • Yes, it’s a reasonable deal for Pakistan through which we will get 9% of total revenue (not profit) of Gwadar port operations during the next 40 years of lease period and similar concessional agreement was done with Port of Singapore Authority (PSA) in 2007 on Built-Operate-Transfer (BOT) modality, however, PSA was not able to commercialize the port.
  • Right from the 1st consignment, the GPA of Pakistan will be getting 9% of the revenue from COPHCL, China for the port operations, whereas the expected breakeven for the COPHCL is around 7 years after which the Chinese portion of profit would surpass its investments.

Q.3 Are we expecting some industries to relocate from China to Pakistan in coming years?

  • 85 million job’s worth of work has been saturated in light engineering sector and is expected to be relocated in the regions where they can enjoy low CAPEX and OPEX. So, light engineering sector’s industries may be relocated from eastern/central China towards western China, Pakistan and other regional countries.
  • No obsolete and end of life plants would be allowed for relocation as per BOI package for priority SEZ’s 2017.

Q.4 What will be estimated annual growth and revenue to be accrued to Pakistan through various agreements made under the CPEC with project wise breakup?

  • Under CPEC, Pakistan and China have initiated projects of 17,045 MW of electricity, national level modernization of roads and rail infrastructure, new optical fibre connect with China, development and commercialization of Gwadar port and smart port city, 4 urban mass transit projects in major cities and 9 SEZs. Due to development initiatives of the government, economic growth rate 5.3% a decade high was achieved in 2017.
  • Concerning the real returns on CPEC we also need to look at other additional benefits, such as, a positive impact on GDP growth rate which is expected to rise to 7% by 2020 from 5.2% in 2017; industry relocation from other regions as well as the rapid growth in service industry catering to transit trade etc.
  • The annual revenue from toll collection is projected at around $5bn by 2022, which would counter the balance of payment issues in future (CE, PD&R).
  • 9% gross revenue of Gwadar port and 15% gross revenue of Free trade zone of Gwadar.
  • SEZs would be a major contributor to growth and revenue.

Q.5 Why do we need to develop new SEZs?

  • Yes, there is dire need to develop new SEZs to attract the FDI and local investments.
  • Successful SEZs usually develop on Ease of doing business (EODB) indicators e.g. one window operation, undisrupted cheap power, waste management plants, endowment based clusters etc. which are mandatory for any investor to do investment.
  • Pakistan has abundance of endowments but lack; investment, technology, enterprising and global orders, which could be addressed by attracting export focused global enterprises in the SEZs.

Q.6 China is dictating terms to Pakistan and the federal government is not consulting the provinces, is this correct?

  • No the given notion is not true.
  • China and Pakistan work jointly in cordial environment making an overall planning for a unified development of CPEC projects. In this regard, the Joint Cooperation Committee (JCC), 5 Joint Working Group (JWGs), Long Term Plan, Transport Monographic Study and respective MoUs are few examples of collective working.
  • All provinces have been consulted and invited to all meetings within Pakistan and abroad and the CMs participated in the JCCs for their recommendations and review of CPEC projects.
  • Even president FPCCI was part of 7th JCC.

Q.7 Due to rising trade deficit with China, Pakistan might become a colony/province of China, isn’t this worrisome?

  • China’s competitiveness in exports is universal and not idiosyncratic to Pakistan. Pakistan’s current trade deficit with China is around $11 billion. In comparison, India’s trade deficit with China stands at $47 billion. The US trade deficit with China is $347 billion. Based on these trade deficit numbers, is it appropriate to infer that the US or India are becoming colonies/provinces of China? Certainly not.
  • Similarly, it is ludicrous to make such claims about the Pakistan-China relationship. Both countries respect the sovereignty of each other since their foundation and CPEC is based on the shared vision of both countries: Vision 2025 and OBOR.
  • The CPEC SEZs have potential to attract FDI and enterprises which could substitute imports and promote exports and could overcome the trade deficit with China and the world at large.

Q.8 What is the anticipated time for completion of each SEZ?

  • Feasibility studies of all 9 SEZs are completed and handed over to Chinese side.
  • Few of the 9 SEZs are already under development and development on remaining SEZs would also commence very soon.

Q.9 How many Chinese are working on CPEC projects?

There are around 19,000 Chinese working in Pakistan, out of which around 9,500 are working on CPEC related projects, whereas remaining are mostly associated with companies and projects already working in Pakistan

Q.10 Why don’t the government extend equal incentives and facilities to existing industrial zones so as to keep them at par with the global competition?

  • Enterprises in these zones would have the edge of access to international markets as Government is mainly looking to relocate the international industries in proposed priority 9 SEZs. Government is also trying to encourage the international enterprises for forming joint ventures with local industries to support the existing industries. Now existing industries have to do their homework to identify their positioning in supply chain so as to take the advantage of being the first to develop the forward and backward linkages with the enterprises of 9 SEZs.
  • The industries in SEZs have the competitive advantage in terms of improved infrastructure and facilitation services but the spillover effect and the positive externalities will affect the existing industries positively in long run.

Q.11 Why CPEC Energy Projects mostly include coal power plant and what measures are taken to avoid pollution arising from these projects.

  • Pakistan was facing worst electricity shortage in 2013.
  • Coal is the quickest and relatively cheaper source and by now 40% of global electricity is generated through coal. Ours was 0% share and would be around 20% by next few years.
  • Use of Supper critical technology and other environmental safe guards are under adoption.

Q.12 Is Environmental Impact Assessment conducted prior to development of each project under the banner of CPEC?

Each project has to pass through Environmental Impact Assessment.

Q.13 Is there any quota for Chinese employees mandatory hiring in the projects related to CPEC?

  • There is no specific quota for Chinese employment in CPEC project and they would only be engaged on project need basis.
  • More than 78,000 jobs (direct) have been generated up till now (CE, PD&R).
  • 38,000 jobs have been generated in five NHA road projects alone, (36,000 Pakistani, 2,000 Chinese) and a accordingly a total of 120,000 families are associated with these projects (due to its indirect and induced spill over impact)
  • Based on the GDP rise projection, more than 800,000 new jobs are expected to be added in medium to long term.

Q.14 What are the financial obligations and terms of repayment?

It’s a mix of grant, long term government concessional loans, zero interest loans and simple partnership or investment mode.

Q.15 What tax concessions are being offered?

To attract the investors especially in SEZs some tax concessions are offered to the developers and enterprises in order to improve the industrial sector growth, exports and generate new employment which is much needed.

Q.16 Is Chabahar port a threat to Gwadar port or CPEC in general?

  • Gwadar is a natural deep sea port which can dock the large ships, whereas Chabahar’s depth is limited and can receive small ships.
  • Hence, Chabahar can be supported by Gwadar port and there is no competition rather complementation
  • Using Gwadar Port, ships can clearly avoid the detour of Strait of Hormuz.
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