CPEC CRITICS AND REASONS

If you examine successful ports like Dubai and Singapore, they owned by their own states
and developed with long term strategies. But if you check CPEC deals they are negotiated
with careless manners and Pakistani leadership has shown immense immaturity, short-
sightedness, and lack of good judgement in signing off on CPEC. As time will tell, the CPEC
will soon become Atlass burden, a symbol for the world to see but for Pakistan to carry.
China will get lot of benefits from it as they will have one sided deal as Pakistan dont have
any choice as a broken economy. Here are some points.

Note : if you need references for these fact please refer my following answer and the
sources mentioned in these link are only from Pakistan.
Shyam Bhagat's answer to Is Pakistan becoming a Chinese colony?

1. Huge Loan - The CPEC is based on a $46 Billion loan (now it $55 Billion) that
Pakistan has taken from China under Sovereign Guarantee. From the original
allocation the $11-billion amount for infrastructure purposes is a Chinese loan
whereas the $35-billion investment for the power sector. Infrastructure
investments offered by China for CPEC is to be paid back as equity (ROE)
which is guaranteed at either 17% or 20%.

Check this example which shows actual malpractice in CPEC Projects. With a
substantial portion of the Chinese investments focused on power projects, the
viability of the projects has been closely examined, based on interest rates charged
by the China Development Bank and the China EXIM Bank. Official documents
have revealed that with an estimated debt-equity ratio of 80%-20%, and these
investments guaranteed a 17% to 20% rate of return in dollar terms on their equity
(only the equity portion, and not the entire project cost). China will recover its
investment in less than 26 months, and bleed Pakistan for the 25 year contract
period. Not only that, such hugely expensive electricity will cripple their economy,
making them a wheelchair case.

If you check some historical facts, Sri Lanka is one of the Prime Example. Unable
to repay its debts to China, Sri Lanka is handing over the power
plant, Hambantota port and possibly the airport to Chinese control in a
debt/equity swap. China would then achieve a major objective in its One Belt One
Road project, of having a strategic presence on Sri Lankan soil by professing to
offer economic aid with no strings attached. Thanks largely to such Chinese
aid, Sri Lanka now spends 90 per cent of all government revenues to
service debts.

In fact, the example of Venezuela, a politically and financially high-risk country

in which China has invested over $52 billion from 2008 up till 2014, the another
biggest Chinese investment in any single country so far, may hold some of the
answers. It created a win-win scenario for the Chinese government by marrying off
low-wage Chinese labour to long-term infrastructure projects in exchange for
secure and continuous supply of oil and commodities. All the Chinese loans to
Venezuela were commodities-backed, under which Venezuela was obliged to
keep supplying to China millions of barrels of oil to feed the Chinese
 economic boom.

As well as Pakistan has nearly (in 2017) $72 Billion debt all together which is
nearly 70% of their GDP which are not part of CPEC and Current Account
Deficit is now raised to 120%. Even currently Pakistan has raised loans at
8.75% interest rate from I.M.F. by mortgaging Motor Ways, Air Ports, Radio & TV
stations. To pay interest Pakistan is taking other loans to cover it and will reach
alarming levels of Bankruptcy.

Major details about this deal kept very secretive as Governor of State Bank
of Pakistan Ashraf Mahmood Wathra, in December 2015, had said: I dont
know out of the $46 billion, how much is debt, how much is equity and
how much is in kind.

Pakistan also has a history of fudging information and false propaganda. Recently,
it was announced with much fanfare that the IMF and World bank had declared
Mr Ishaq Dar as the best finance minister in the world. That was promptly
rubbished by the two institutions. Again, Pakistan had claimed GDP growth of
4.7%, after IMF corrections it was found to be closer to 3.1%.

With CPEC if you assume that the interest will be in the range of 7 % p.a, payable
in 25 to 40 years, it would and mean China will have to be paid back
approximately 7 to 8 billion dollars as EMI for next 43 years from
2018 onwards. Pakistan will never've in a position to pay back even the interest,
forget the principal amount.
2. One sided bids for Chinese Companies - The contracts for investments in
CPEC are all one sided, no bid contracts against Chinese companies. There
will be no Global Tenders and contracts are confined to Chinese companies with
Pakistani sub contractors are the only ones who are getting the after meal leftovers
that the Chinese would leave on their plates. There are also report that some of the
projects are awarded to black listed companies in China, and substandard
construction of Chinese Companies never sure the
quality. Khanpur and Nandipur hydroelectricity Power Plants are prime
examples.
3. Preference for Chinese Workforce - China is now having huge under-utilised
capacity of industrial production and workforce. In CPEC majority of workers,
goods & materials are all Chinese. China is constructing quarters for their
own work force in Pakistan. No assurances could be given that Pakistani labour
would be recruited to work. So the money China is investing comes back to China
and with interest.
4. No Toll for Chinese - Chinese trucks are exempted from paying toll tax. As
Pakistan has very less to export to China, Pakistan will get very less profit from
this arrangement. Under CPEC, Pakistan has to take care of maintenance and
security of the road. The expenses Govt. of Pakistan has to bear from its own
pocket. Pakistan plans to train 15,000 security personnel to protect Chinese
workers on the corridor. Presently, 8,000 Pakistani security officials are deployed
for the protection of over 8,100 Chinese workers in Pakistan. So Govt of Pakistan
has to do without a single penny worth benefit getting out of it.
5. CPEC is Plan B - In practical, Chinas major manufacturing is located in
her east, bordering the South China Sea. It is crazy enough to imagine Chinese
would like to ship goods through an at heavy risk CPEC, when they can ship
the same goods by sea for a fraction of the cost, the ports being next door
and the sea lanes much better secured.

The only province that can send freight down CPEC is the Xinjiang Province. The
population of that province is at this moment attacking the native Han Chinese
population and and want to secede from China. The Chinese PLA is fighting
running battle in the province and has been doing that for many years.
Therefore Xinjiang has very less manufacturing goods to ship to
anywhere make CPEC very under utilized.

In my view point that it is the alternate route like Plan B and it only works if Plan
A fails. I think it is unlikely situation. So it strategically good for China but from
view point of Pakistan i cant see any win win situation.
6. Security Conditions for FDI - Pakistan is facing lot of internal security
problems because of internal instability and terrorism, thats why Foreign Direct
Investment besides China is very low.
7. Impact on Pakistan Industry - China has an established track record of
arriving much like a horde of locusts and completely wiping out the local
indigenous industry. The floodgates to Pakistan have been opened to the Chinese
and it is just a matter of time before Cheap Chinese goods do the Walmart-
effect on Pakistani industry and destroy what is left of it.

Because of high taxation and high Electricity rates Industries in Pakistan

cannot compete with products of other countries. For example Cotton
Industries in Pakistan which has major share in its exports are shutting down
because they cannot compete with competing industries in China, India and
Bangladesh which are providing concessions to decrease their production cost.
Another big reason is China to whom Pakistan is providing favourable terms
like Free Trade and Low Tariff on products imported from China makes
them cheaper is the other major reason behind falling Industries in Pakistan.

Also Pakistan has much less to offer China for trade, on the flip
side Pakistani markets are flooded by Cheap Chinese goods which may
actually kill their traditional businesses.
8. Lack of resources to payback loans - Pakistani goods and services that they
can offer to the world are not growing. This is well evident by their trade deficient
where exports are much lower compared to their imports. Pakistans exports have
fallen by 15.4% in the last three years from $ 24.58 billion in 2012-13 to 20.8
billion in 2015-16 which is compared to $44.8 billion imports causing $24 billion
trade deficit which is very huge as 215% more than its exports.

In recent years Foreign Remittences are fell sharply as decline of manpower

because of weakened Oil Economy and ideological tussle with OPEC countries.
These incomes are vital for Pakistan Economy but they are now on downside. As
there is no major industrial growth, these loans are becoming major downsides for
Pakistani people.
 Pakistan also fudging information about increase in Foreign Exchange
Reserve which is actually happened because of borrowing from
loansfrom foreign commercial banks. Total foreign exchange reserves are $22
billion that include $4.8 billion of the commercial banks as well. And out of these
$4.8 billion, the government has borrowed $3.3 billion from the commercial
banks, called as forward buying from the market to be returned to them.

In Pakistan only 1% of the population is registered in the Tax System, and

the Government collects just 9% countries wealth in taxes, which is lowest
in the world. This is the major cause why Pakistan Government is highly depended
on debt.

As competing for military supremacy with with India, Pakistan is spending 7 to 8

billion dollars on its defence budget which also hurts the economy. Due to
the constant pressure of Pakistan Military institutions, the elected government are
not intervening on this amount. So after paying interests on loans and
defence budget, there is very less amount left for development work.
9. Environmental Destruction - Through CPEC China is installing Coal
Based Power Plants in Pakistan which has adverse effects on human
health, do major disregard for the environment and utter destruction of ecological
systems. In one side China is trying to close their own coal based power plants and
they are transferring same on the Pakistani sides. Though the Hydroelectricity is
cheaper but it need lot of time to build. To solve Power Generation problem as fast
as possible, Pakistan dont have any choice to accept Coal based plants which later
becomes major problems for Pakistani Environment.
10. Falling Education System - Pakistan is only spending 2% of its GDP on
Education and has a literacy rate of 58pc and these figures are very low for
any developing nation. Because of Islamic and Political Radicalisation in education
during Jia Ul Haq military rule, the routes of quality education are shattered. The
education administration is slack, corrupt and rather helpless against the student
community. There are no proper checks on the functioning of the educational
institutions and accountability is missing at all levels. The centuries old syllabus
and foreign adopted material is another reason for degradation of whole system.
Pakistani text books and syllabus still contain the old boring lessons that were
adopted by text book boards a few decade back. Not acquirement of knowledge but
easy questions papers and fake degrees are the aim of education for most Pakistani
people. Enrolment at primary level is very low in Pakistan and most of the
students, after passing primary classes, are dropped and adopt different low-grade
jobs like electrician, plumber, motor mechanic etc. Currently in Pakistan there are
more than 25 million of children between the ages of 5 to 16 who are not in schools
and around 70% of children out-of-school have never been to a school.

Without proper skilled workforce you dont have the capacity to run
and execute similar kind of project. Nandipur Hydro Power Plant is one of
the prime example where after lot of operational failures Pakistan handed over the
operations to Chinese Company.
11. Internal Instability - Pakistan has facing lot oppositions with its provinces like
Baluchistan, Sindh, and KPK. Baluchistan has history of number of uprisings for
 its Freedom Movement as it is lacking major share in development and
infrastructure. Sindh is the major economic powerhouse in Pakistan but it is
getting less amount of resources from Federal Government which is dominated by
Punjab Province. KPK and Gilgit Baltistan are also facing lack of infrastructure
problems. The dominated nature of Punjab province kept all its provinces its envy
and they never actually united as a nation which would make them
powerful. Failure of Kalabag Dam is a prime example of lack of unity in
Pakistans Provinces. The same thing is happening with CPEC, where every
state is fighting for getting maximum benefit.
12. Military Tussle with its neighbours - Pakistan is spending more than 3%
of GDP on its military. Pakistans military ambitions are mainly India centric
and to match the defence capabilities it has spend more on its Military than its
development works. It also has difference with Afghanistan as it supports
extremest elements who are destabilising Afghanistan. And as a Sunni background
and close relations with Saudi Arabia, Iran is also keeping distance from Pakistan
on key relations. Only China has maintained good friendship but Power is always
come with prosperous relations with neighbours. Without participation of
neighbouring countries CPEC will never be successful as expected.
13. Corruption - This is the number one reason of Pakistans Economic
Backwardness. From Military Establishments to small bodies in
Government everywhere corruption is massively involved in every
development activities. The Pakistani Generals and their politician underlings who
will squirrel away every dollar they could steal and invest it wisely in Dubai, UK,
USA and Panama. They should not surprise anyone it is a kind of selloff like
politicians did in Venezuela and Sri Lanka.
14. No other choice to protect from India. - Pakistan is having following the
Security State Policy and believe India as their number one existential
threat. As India is becomes Economic Powerhouse, India is also increasing
military capabilities. And in the military might, there is no comparison between
India and Pakistan. Defence spendings in India is $50 Billions in comparison
to Pakistans $8 Billion Military budget. To balance it Pakistan always take
help from other powerful nations. Like they took help from United States till 2008
till they started tilting towards India. They have no choice other than to involve
China though it will not benefit them in long term.
China cares only about itself no matter who it hurts. It's the same with CPEC. China will
take back its loan amount one way or another. It is very much possible that Pakistan will
end up giving control of the Gwadar Port to China. Their military's sovereignty is at
risk. China has already put up its naval ship and military in Pakistan to safeguard its
investment. Pakistan signed CPEC with good intentions but failed to get a fair deal.

Success of CPEC is also lies in hands of Chinese people because Pakistan sold your prospects
to them. So if Chinese people think they push Pakistan in loss making business
like Sri Lanka to gain full control, there is nothing Pakistan can do to stop
them. China also made similar offer CPEC like loan offer to India, but Indias
Politicians turned down their offer by taking wise decision instead of trusting Chinese
speculative intensions. With smarter decision India got similar investment on 1% interest
from Japan which shows their diplomatic correctness.
Pakistan cannot do anything as Chinese state owned army is in Pakistan, that means
Pakistan is already submitted to China. It is in favour of India as Chinese Regime is
neutralising Pakistan. Actions like arrest of Masood Azar and Chinese Navel presence in
Gwadar are indications that Pakistan is obeying Chinese Orders.

As well as China has to keep in mind that Pakistan is in the habit of dumping the
benefactors and working against their interests. Their duplicity are experienced and
suffered by US. China need to be cautious. The tail is capable of wagging the body.

differ

Well to a certain degree yes. You see pakistan is like a beautiful women that must sell itself
to the highest bidder. These are not my words but of pakistani army general named
Habibullah.(can't remember where i read it). Since it's existence Pakistan has been
dependent on other powers (usa,saudi arabia,china). One major reason for this is the
obession of Pakistan over kashmir. Instead of developing the country and spending it's
earnings on education, healthcare etc Pakistan is spending most of it's resources on the
army and non state actors in kashmir and Afghanistan. Now since usa is slowly backing
away from Pakistan, pakistan has increased its corporation with china resulting in
CEPEC.(which i guarantee won't make a difference in pakistan in the terms of betterment of
the country.)