I’d read that there are no free lunches. Now, I know that there are no free corridors too, especially if they’re built by a giant dragon that can engulf you if you come in its way.
Pakistan has two open secrets today- firstly, it is drowned in debt and secondly, China is its all-weather ally. So, China is always there to lend money to its friendly neighbor that is cash-strapped and how!
However, make no mistake- it’s not an act of charity on China’s part because it knows how to take advantage of a country in need of credit and leverage it to expand its dominance in the world.
The China-Pakistan Economic Corridor (CPEC) is another feather in China’s hegemonic hat. More importantly, it may act like a lifeboat for Pakistan temporarily but eventually, this boat will capsize.
What is CPEC?
The One Belt and One Road (OBOR) project was initiated in October 2013 by China to connect countries in Asia, Europe and Africa through Maritime Silk Road and Silk Road Economic Belt in order to implement infrastructure projects and boost trade in the participating countries.
The China-Pakistan Economic Corridor (CPEC) is part of the OBOR project. It was started in May 2015 when the amount of Chinese investment was supposed to be $45 billion in various infrastructure projects across Pakistan.
CPEC connects the Gwadar port in Pakistan to the northwestern Chinese city Kashgar. As of 2017, the CPEC project stands at $62 billion with 2030 being the deadline for completion of work.
Due to a flailing economy and crisis in the energy sector, Pakistan lapped up CPEC, which aimed to revamp the financial condition of the country through the construction of exclusive economic zones and infrastructure projects in energy production, highways, roads and railways.
Pakistan is expected to start repaying the debt it owes to Chinese banks and government by 2022 after the execution of certain projects but the odds of it not being able to do so are tremendously high.
The Chinese Debt-Trap Diplomacy
China saw robust growth in its economy because of rapid infrastructure-oriented development. It extrapolated this strategy to lure weak economies into its debt-trap by lending huge sums of money to the latter on high interest rates.
When the indebted country defaulted on the loan repayment, China acquired key assets and properties to further its geographical and financial interests.
This is known as debt-trap diplomacy.
It is alleged that China resorts to secret negotiations with the indebted country to ensure non-competitive pricing on infrastructure projects so that the bid is won by Chinese companies directly or indirectly linked to the Chinese government.
It’s a no-brainer that these companies quote prices higher than the market rate.
Apart from monetary investment, the debtor country also allows the flow of Chinese raw material and manpower into its market, leaving little room for growth in domestic employment opportunities.
Why Pakistan May Turn Into A Chinese Colony
The CPEC will give China unprecedented access to the Arabian Sea and the Indian Ocean through the Gwadar port.
Furthermore, Chinese government banks are shelling out billions of dollars in the form of loan to Chinese investors, who then invest this money in projects in Pakistan. As a result, they are bound to get dividends in dollars from Pakistan.
However, Pakistan’s foreign exchange reserves have plummeted to nearly $9 billion this year from $16.4 billion two years ago. The country’s central bank had to devalue the currency thrice since December.
Pakistan will have to repay the Chinese loans and also pay dividends in dollars to Chinese investors before it can even begin to think about reaping the benefits of the CPEC project.
If Pakistan fails to meet its debt obligations, China will seize control of its collateral, the details of which are not public yet. This is what China did with Sri Lanka and some other African countries in the past.
The dragon knows how to take back way more than what it gives and when it holds Pakistan by the scruff of its neck, there will be serious geopolitical repercussions for the latter’s South Asian neighbors, including India.
Image Credits: Google Images
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