This is a review of CPEC and CPEC-related news and analysis for the week of May 14-20, 2018.
- More Chinese investment coming to Gwadar. Senate chairman Muhammad Sadiq Sanjrani said that Chinese companies will invest PKR 37 billion (approximately $320 million) in the Gwadar port area, suggesting that some or all of the money will go into the port’s free zone industrial area. China has spent approximately $240 million on the Gwadar port so far.
- Gwadar-Kashgar oil pipeline could cost $10 billion. The Pakistan Army-run Frontier Works Organization expressed interest in constructing an oil pipeline from the Gwadar port to the western Chinese city of Kashgar. A report in Pakistan’s Express Tribune suggests that a feasibility or pre-feasibility study by PwC indicates that a 1 MBD pipeline would cost around $10 billion.
- Pakistan defers decision on tax exemptions for Gwadar port and industrial zone. Presently, the agreement with the Gwadar port operator, Chinese Overseas Ports Holding Company (COPHC), provides a 23-year tax holiday for the port’s operations, effective 2007 — the year COPHC’s predecessor, PSA International, assumed control of the port. Beijing would like the agreement retroactively dated to 2013, thereby lengthening the exemption period. It also is requesting an expansion of various tax exemptions (for example, on imported fuel), but these would require an amendment to Pakistan’s income tax ordinance.
Economy and Trade
- Pakistan Business Council CEO Ehsan Malik writes: Islamabad needs a better FTA with Beijing. Malik’s assessment and recommendations are largely sound. He identifiesfour criteria that the next phase of Sino-Pak FTA talks should meet: 1) Employment generation; 2) Increasing value-added exports; 3) Import substitution; 4) A net neutral impact on tax revenue. Malik also proposes that Pakistan: 1) Seek parity with ASEAN on tariffs for imports into China; 2) Combat under-invoicing of Chinese imports.
- Chinese scholars pen op-ed in Pakistani daily, arguing that China is not trying to colonize Pakistan. It’s a rather defensive article that challenges some of the hyperbolic claims made about CPEC, but fails to address legitimize grievances Pakistani citizens and businesses have vis-a-vis Beijing and Chinese project sponsors.
- Moody’s maintains B3 credit rating for Pakistan. The credit agency notes that Pakistan continues to face a high debt burden, fragile external payments position, and elevated political risk.
- Pakistan has added $9.2 billion in external debt in the first 10 months of FY 2017-18. Of that amount, $3.7 billion (40.3 percent) was loaned by Chinese banks. Pakistan’s external debt and liabilities totalled a record $91.8 billion by the end of March. And the public debt-to-GDP ratio is estimated to reach 70 percent by June.
- Vice chairman of China’s Central Military Commission visits Pakistan. General Zhang Youxia met with Pakistan’s Chief of Naval Staff Admiral Zafar Mahmood Abbasi in Islamabad and visited Pakistan Navy installations in Karachi. Zhang also met with Prime Minister Shahid Khaqan Abbasi and Chief of Army Staff General Qamar Javed Bajwa.
- World Bank to fund expressway linking Pakistan’s motorway to Afghanistan border. The four-lane Peshawar-Torkham expressway provides fast connectivity between the Torkham border crossing and Pakistan’s controlled-access motorway network, which stretches from Peshawar through Islamabad into Lahore. By 2020, the motorway will connect to Karachi, providing most of Pakistan’s ten largest cities with high-speed road access to the country’s two major ports. There are plans to develop an expressway connecting Kabul to the border with Pakistan via Jalalabad. Divided into two segments, this four-lane, controlled-access highway is currently at the feasibility study stage.
- Indian Navy “scales up” deployment near Gwadar, according to the news outlet DNA India. An unnamed Indian official says: “We have a ship permanently in the region for 15 days every two months. The mission-based deployment is near Chabahar Port to carry out surveillance in the region.”
- Indonesia verbally agrees to give India economic and military access to island near Strait of Malacca. An Indonesian maritime minister said that India will develop a deepwater port and economic zone on the island of Sabang — located in between India’s Andaman and Nicobar Islands and the mouth of the Malacca Strait. The port, which has a draft of 40 meters, is of questionable economic value. Indian Navy vessels, however, would be able to make visits to the port.