China-Pak Economic Corridor embroiled in funding dispute

at 12:36 pm

New Delhi (NVI): Is the ambitious China-Pakistan Economic Corridor (CPEC) project getting derailed?

An impression in this regard is gaining traction because of serious differences that have reportedly cropped up between China and Pakistan related to the funding of the Belt and Road Initiative (BRI), which is part of the CPEC.

The CPEC is a project aimed at connecting China’s Xinjiang with Gwadar Port in Balochistan in Pakistan through a network of highways and railways along with infrastructure development for energy resources. This project is being portrayed as a signature of the ‘all-weather friendship’ between the two countries.

However, according to reports, sharp disagreements have cropped up between the two countries over the funding of Main Line 1 (ML-1) railway project and special economic zones.

ML-1 is the largest CPEC project of the tune of $6.8 billion. Of this amount, China is expected to lend $6 billion, which Pakistan wants to borrow at a concessional interest rate of less than 3%, according to Nikkei Asia report from Islamabad.

This could significantly increase the aggregate interest rate that Pakistan will face, the report quoted unnamed officials of Pakistan’s Planning Commission.

Some Pakistani media reports say Pakistan wants to borrow the amount at 1%. This is not acceptable to China which has offered a mix of concessionary and commercial loans for the project.

According to a report in Pakistan’s Express Tribune in November last year, China also wanted additional guarantees for sanctioning the $6-billion loan due to Pakistan considering its failing economy.

These differences are causing delay of the annual bilateral summit of the Joint Cooperation Committee (JCC), which is CPEC’s principal decision-making body, the Nikkei report said.

The JCC is jointly chaired by Pakistan’s Minister for Planning, Development and Special Initiatives and China’s Vice Chairman of National Development and Reform Commission.

The first JCC meeting was held in August 2013 and the last in November 2019. The 10th JCC was scheduled for early last year but has not taken place yet.

Pakistan’s Minister for Planning, Development and Special Initiatives Asad Umar had told local media in November last year that the 10th JCC would be held in December.

However, the Nikkei report, quoting unnamed officials of the Planning Commission of Pakistan, said the meeting will not take place for at least three months – by far the largest gap.

The other major disagreement between China and Pakistan, which is delaying the JCC meeting, relates to SEZs.

According to the plan, Chinese companies are producing goods in Pakistan and start exporting from there in the second phase of CPEC scheduled for 2020 to 2025.

As of now, the industrial cooperation framework for the SEZs is confined to an MoU without finalisation of detailed modalities like tax exemptions and requirements for employing local labour. These need to be agreed upon by China for confirmation at the JCC.

The Board of Investment of Pakistan submitted the draft agreement for the industrial cooperation framework to the Chinese government last month and is still awaiting a response, the Nikkei reported.

In December 2020, during a meeting of the Joint Working Group on Industrial Cooperation under CPEC, Asim Ayub, the project director for industrial cooperation at the Board of Investment, pressed for early signing of the industrial cooperation framework agreement.

So clearly, China is acting tough despite proclaiming to be the ‘best friend’ of Pakistan.