CSS Forums - Speed breakers and a long corridor

Inordinate delay in the crucial 10th meeting of the Joint Cooperation Committee (JCC) of the China-Pakistan Economic Corridor (CPEC) means that progress on bilateral industrial cooperation and the $6.8 billion railway project connecting Peshawar with Karachi would most likely remain in limbo in 2021. Since JCC has the mandate to make decisions on the inclusion of any new project into the ambit of the CPEC framework besides tracking progress on the execution of ongoing projects under the multi-billion-dollar corridor initiative, other transport infrastructure schemes Islamabad has proposed for inclusion in the CPEC framework may also hit an indefinite delay.

There are a number of reasons for the frequent postponement of the JCC meeting since April last year. Officially, the Covid-19 health crisis is blamed for the delay but there have been credible reports that Islamabad and Beijing have strong differences of opinion on several issues ranging from the framework suggested for industrial cooperation and the terms of Chinese financing for the ML-1 (Main Line-1) project. The International Monetary Fund (IMF) pressure on Pakistan is another factor said to be responsible for the slowdown of work on the CPEC schemes. Officials say JCC is “unlikely to take place in the next 2-3 months as a lot of work still needs to be completed and disagreements between the two sides hammered out”.

Both the countries have repeatedly been iterating that CPEC has moved into the second phase, which is much ‘broader and deeper’ than the first phase with industrial cooperation being a significant part of it along with an emphasis on agricultural cooperation. However, progress on the initiative has decelerated since the removal of the Nawaz Sharif government in 2017. Many attribute the slowdown to the ruling PTI’s ‘lack of interest’. Some media reports suggest that the Board of Investment (BoI) blames China for the delay. For example, a BoI official was quoted recently to have accused China of delaying the finalisation of the framework on industrial cooperation.

Under industrial cooperation, Pakistan wants to develop nine prioritised special economic zones (SEZs) but the pace of work remains very slow. So far, Pakistan has started work on three industrial zones — Rashakai in Khyber Pakhtunkhwa, Allama Iqbal Industrial City in Punjab, and Dhabeji in Sindh. According to Mian Kashif Ashfaque, the chairman of the Faisalabad Industrial Estate Development and Management Company (FIEDMC), which is developing the SEZ near Faisalabad, 32 Chinese firms have so far invested in industries ranging from ceramic tiles to chemicals. “But these companies have not ‘relocated’ under the CPEC framework; they have invested directly (to take advantage of the Pakistani market and growing local demand for their products). We have now set aside almost 1,000 acres of land exclusively for the Chinese companies which will relocate here as part of the industrial cooperation plan under the corridor initiative.”

Another report suggests that China has sought additional guarantees before sanctioning a $6bn loan for the ML-1 project owing to the weakening financial position of Pakistan and also proposed a mix of commercial and concessional loans against Islamabad’s desire for cheaper financing. Additionally, it has been reported that China wants new guarantees for ML-1 loan after Islamabad’s decision to seek debt relief from the G-20 countries. The G-20 nations have also imposed a condition that the poor countries would not secure expensive commercial loans, except those allowed under the IMF-World Bank framework.

The size of CPEC related Chinese investments so far is said to be between $25.5bn and $29bn. However, many observers argue that the corridor initiative will in its second phase focus less on new loans for infrastructure and more on other areas. The new Chinese ambassador to Pakistan has also emphasised on cooperation in industrial development, agriculture, science and technology, information and livelihood. “The window of new Chinese investments and loans for infrastructure schemes has closed now with the execution of the early harvest energy and transport projects; the second phase of CPEC is all about cooperation between the private sectors of the two countries,” a planning ministry official concluded.

Published in Dawn, The Business and Finance Weekly, January 4th, 2021