The China lending4 min read

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It was in 1968 that the bilateral relationship between China and Pakistan suddenly came under intense global speculation. Both the countries, particularly Pakistan, could not allow such a situation to persist indefinitely. A visit by the then foreign minister of Pakistan, Mian Arshad Hussain, to People’s Republic of China put to “eternal sleep” all rumours that had claimed that the relationship between the two countries is now increasingly dogged by strains. The Chinese leadership referred to those rumours during their “frank and intimate” talk with him and affirmed that they had paid no heed to them. Upon his return to the country, the foreign minister was quoted as saying that such rumours would not be revived again because China-Pakistan relationship is “based on principles, not expediency”. It must be remembered that in those days, the pre-Dacca fall Pakistan was stronger than China – economically. Fifty years later, however, China is world’s second largest economy while Pakistan is one of the major recipients of loans: China Pakistan Economic Corridor (CPEC) is a strong case in point.

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It is heartening to note that the PTI government has decided to inject a big dose of transparency into CPEC and the concomitant China lending. Briefing Senate Standing Committee on Planning, Development and Reform, top planning ministry officials have said that Pakistan has obtained a total of $ 6 billion concessional loans from China at an interest rate of 2.29 percent with a seven-year grace period and a 25-year repayment period for infrastructure projects under the China Pakistan Economic Corridor (CPEC). According to a Business Recorder news item, the committee discussed the latest situation and implementation status of CPEC projects. Project director/CPEC coordinator/focal person CPEC, Hassan Daud Butt, has been reported as saying that Pakistan has acquired a $6 billion loan for infrastructure projects and the grace period of 90 percent of the projects is ongoing. According to him, there is total of $ 36 billion investment made by China’s companies on 22 development projects, including 15 energy projects. However, the CPEC project director told the committee that Pakistan has not received $8.13 billion loans for railways project ML-1 so far. The total portfolio of CPEC projects is $47.967 billion including $34.18 billion of energy projects (IPP financing mode), $4.18 billion concessional loan for transport and infrastructure projects, $8.212 billion loan for rail network – ML-1 (GCL under discussion), $780.6 million for Gwadar Port (grant/GCL/interest free loan) and $48 million (GCl/grant) for other projects including Gwadar City Master Plan. The member finance of Planning Commission has, however, reportedly told the committee that non-provision of funds by the federal government from PSDP and delay by China in the approval of project is affecting work on the Western Route (the real CPEC) of CPEC. The government is not providing Rs 25 billion allocated in the PSDP to pay off for the CPEC projects.

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The foregoing gives a near complete picture of the subject under discussion. It shows, among other things, that Chinese lending to Pakistan is without any political strings attached. President Xi Jinping has pledged a similar kind of infrastructure development loan for the African countries as well. At the start of the Forum on China-Africa Cooperation (FOCAC), President Xi announced $60 billion in funds for eight initiatives over the next three years, in areas ranging from industrial promotion, infrastructure construction and scholarships for young Africans. Be that as it may, the rate of interest, could have been lower than the one agreed to by the previous Pakistani governments. Moreover, China was expected to be more generous towards its most trusted ally by stipulating repayment and grace periods of bigger durations keeping in view the woeful state of country’s economy that is characterized by, among other things, the compelling challenge of woeful external account. It is quite likely that Beijing lending will not bury Islamabad under a debt in amounts beyond any of its government’s ability to repay. It is quite interesting to note that President Xi has said that Africa’s least developed, heavily indebted and poor countries will be exempt from debt they have incurred in the form of interest-free loans due to mature by the end of 2018. Will a similar example of Chinese largesse be witnessed in the case of Pakistan as well? After all, China-Pakistan friendship is “based on principles, not expediency”.

(This news/article originally appeared in Business Recorder on September 7th, 2018)

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