Scrutinising Chinese investments and loans under CPEC

China has just concluded its second Belt and Road Forum in Beijing, reiterating its commitment to the ambitious project, and to reassure its multiple partners that this initiative is a win-win for all involved parties. However, despite Chinese attempts to assure the world, and its numerous partners that the Belt and Road Initiative (BRI) is both ‘green’ and ‘clean’, the way many of the BRI projects have unfolded in practice has caused consternation.

First, Sri Lanka, and now Kenya, have seen their strategic ports at risk of being taken over by China due to what has become known as debt-trap diplomacy. Malaysia and Sierra Leone are among a growing list of countries that have seen delays or even roll-backs on Chinese-led BRI projects.

At the recent, second round of the BRI moot, Prime Minister Imran Khan inked a host of new deals on the sidelines in Beijing, which aim to expand the scope of the China-Pakistan Economic Corridor (CPEC) beyond infrastructure development to increased Chinese investments in agriculture, trade, and social sector spending.

As Pakistan now enters the so-called second CPEC phase, there are some important factors which merit attention, going beyond allegations concerning which powerbroker in our country favours, or doesn’t favour, CPEC.

China has indeed become the conduit for significant financial inflow to Pakistan, but most of the provided funds are not in the form of grants, they are either investments or else loans. A bulk of the provided funding is also ‘tied’, whereby the incoming funds are used to hire Chinese firms, which use equipment bought in China to set up infrastructure in Pakistan. CPEC projects have thus done little to stimulate the local Pakistani economy.

Chinese funds pouring into Pakistan are part of a much bigger phenomenon. Besides the US, China is now the world's biggest international donor. Both these countries have handed out similar amounts of money in the last decade or so. While a quarter of the US aid represents grants, which are given as incentives to countries willing to undertake reforms favoured by US policymakers, China is less demanding when it comes to who can qualify for its aid. Chinese no-strings loans are impacting the entire global lending system by boosting competition for traditional lenders, forcing them to stop placing so many requirements on borrowing countries.

However, China also faces criticisms of its perceived disregard on social and environmental safeguards, on how its projects often perpetuate poverty. By providing loans to countries with less capacity to pay, China has been accused of only perpetuating poverty and exploiting these countries, either for their oil, natural resources or strategic geographical positions, for its own economic benefits and strategic interests.

According to AidData, infrastructure investments comprise 95 per cent of China’s financial diplomacy, which China uses to create market opportunities for Chinese firms and to win over natural resource ‘gatekeepers’. Beijing’s intense focus on courting political and business elites is something that Pakistan needs to be wary of given the propensity of elite capture of resources within our country. While scant information is available about CPEC projects in Pakistan. Empirical results indicate widespread local corruption around active Chinese project sites in Africa.

There is an abundance of information available about the successes and failures of western aid. When it comes to Chinese aid however, there are several areas that would benefit from additional research and data collection.

It would be useful for Pakistani researchers, analysts and even the media to attempt gathering and analyzing data pertaining to CPEC inflows. Doing so would not only help placate other lenders, such as the International Monetary Fund (IMF), but also help lessen corruption, avert debt-diplomacy, and ensure that the incoming CPEC investments and loans are in fact going to deliver their stated objectives.

Ali is a development anthropologist