NationalVolume 14 Issue # 04

Renegotiating the deal?

Though Pakistan has dismissed reports it is rethinking investments from China and could take a U-turn on the China Pakistan Economic Corridor (CPEC), yet the new government of Prime Minster Imran Khan wants to renegotiate the $62b project according to the country’s needs. The party believes the previous governments failed to protect Pakistan’s interests. It has openly expressed its concern about routes, loan rates and transparency of the project and believes changes are necessary for realizing its dream of a self-reliant Pakistan.


Besides a lack of a level playing field to Pakistani companies, there are also apprehensions among people of Sindh, Balochistan and Khyber Pakhtunkhwa that they have been neglected in the project and the former government of Prime Minister Nawaz Sharif had prioritized the Punjab. However, experts say the Pakistan Tehreek-i-Insaf (PTI) government should have talked to the Chinese government, instead of raising issues in the media, which are creating doubts on both sides. There is no doubt that the government is making serious efforts for building trust with China and has set up an internal Pakistan-China Cooperation Unit. In its manifesto, the PTI emphasized its desire to take friendship with China to new heights. However, the PTI government should use the option of bilateral negotiation on the terms and conditions of some previously undertaken projects which it deems necessary for changes and improvement.


The international media expressed its wishful thinking when it reported that Pakistan was planning to review or renegotiate agreements reached under China’s Belt and Road Initiative (BRI), joining a growing list of countries questioning the terms of their involvement in Beijing’s showpiece infrastructure investment plan. The Financial Times claimed Pakistan’s new government would review BRI investments and renegotiate a trade agreement signed more than a decade ago that it says unfairly benefits Chinese companies. “The previous government did a bad job negotiating with China on CPEC — they didn’t do their homework correctly and didn’t negotiate correctly so they gave away a lot,” it quoted Abdul Razak Dawood, the Pakistani member of cabinet responsible for commerce, textiles, industry and investment. “Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan; this is one of the things we’re looking at because it’s not fair that Pakistan companies should be disadvantaged,” he said. The report said that Beijing could be open to renegotiating its 2006 trade deal with Pakistan. But Islamabad’s second thoughts follow other recent setbacks for BRI, which is seen by many as a bid by China’s President Xi Jinping to extend Beijing’s influence throughout the world. Governments in Malaysia, Sri Lanka, Myanmar and elsewhere have already expressed reservations over the onerous terms of Chinese BRI lending and investment, it added.


The report said several other officials and advisers had concurred that extending the terms of CPEC loans and spreading projects out over a longer timeframe was the preferred option, rather than outright cancellation. Pakistan is in the middle of a financial crisis and must decide in the coming weeks whether to turn to the IMF for its 13th bailout in three decades, as pressure on the Pakistani rupee makes the burden of servicing foreign currency debt more onerous. Asad Umar, Pakistan’s new finance minister, said he was evaluating a plan that would allow Islamabad to avoid an IMF programme, which several people close to the government say would involve new loans from China and perhaps also from Saudi Arabia. Umar and Dawood both said Pakistan would be careful not to offend Beijing even as it takes a closer look at CPEC agreements signed over the past five years.


According to the Washington Post, a major rethink by Islamabad could lead to deals being downsized by billions of dollars — and cause an incalculable loss of face for Beijing — at a time when the BRI is already losing momentum. The South China Morning Post said West-dependent interests are leading the pushback against the CPEC. “Dawood’s interview drew a rare public response from the Chinese embassy in Islamabad. Although it accepted the government’s version of events and criticised the Financial Times, the Chinese ambassador to Islamabad visited the true arbiter of political power in Pakistan, Army Chief General Qamar Javed Bajwa. The accompanying official statement issued by the Pakistani military said Bajwa “reiterated that the CPEC is the economic future of Pakistan and its security shall never be compromised”. But it was obvious the Chinese diplomat had raised some tough questions about the contradictions between what was discussed by Foreign Minister Wang Yi and his Pakistani counterparts, and what Dawood was telling the media, it noted.


Some experts opine Dawood’s statement and its subsequent retraction should be viewed in the context of the talks held during a brief stopover in Islamabad by US Secretary of State Mike Pompeo, the day before Wang arrived. Pompeo had warned that the US would ensure tightened conditions in the event of a widely anticipated Pakistani application for an International Monetary Fund balance of payments bailout, so American taxpayers’ money did not end up paying off Islamabad’s CPEC debts. The CPEC has attained greater importance in the backdrop of Pompeo’s visit. The government wants to signal to the US that the CPEC is transparent. It also wants to signal to Beijing that its implementation will be carried out keeping the interest of local companies in mind. The presence of American and other Western corporate interests in Pakistan, and the need to accommodate Chinese business interests, means the government will continue to face internal pressure about right posturing on the CPEC from time to time, they say.


Critics say former Prime Minister Nawaz Sharif had ensured that Punjab and its business lobby, rather than Karachi, benefited most from the CPEC’s US$18 billion worth of early harvest phase energy and infrastructure projects. Chinese state firms were granted tax exemptions and generous guaranteed rates of return on the projects they undertook with export credits from Beijing’s banks. China’s economies of scale effectively excluded competition from Karachi-based companies. Nawaz Sharif ensured that Punjab-based businesses made a fortune by working as sub-contractors for Chinese project developers and providing them with cement and other building materials. Beijing’s priority for the next phase of CPEC, which runs until 2030, is the development of special economic zones, where Chinese industrial ventures would enjoy tax holidays, potentially at the cost of established businesses co-owned by Karachi’s businessmen and their multinational partners. The project remains in limbo as Imran Khan’s administration weighs its options, although it is likely to get the go-ahead because he wants to create millions of jobs for his youthful followers.