In the eyes of CPEC officials, this project is the open opportunity to enhance trade as it will promote bilateral connectivity but it is also very necessary to know that is there any hidden threat in this open opportunity? There are many concerns regarding this project which should be consider, there are so many questions which are still unanswered.

1. 1
Mehran University of Engineering and Technology
Jamshoro, Sindh Pakistan.
Assignment of Strategic Financial Management
Submitted By:
MAHGUL KHAN ID: 18S-MBA-BS25
VARDA SHAIKH ID: 18S-MBA-BS19
Topic:
The Dark Side of CPEC
Submitted To:
Dr. Shah Muhammad Kamran; Assistant Professor
Subject:
Strategic Financial Management (SFM)
Mehran University Institute of Science, Technology and
Development (MUISTD)
2018

2. 2
TABLE OF CONTENTS
Serial
No Title of Headings
Page
No
1. Introduction 3
2 CPEC; Is there cause for alarm
4
3
The CPEC secret
 CPEC hidden security cost
5
4
The economics of CPEC
 The loss of local businesses will weaken the economy of Pakistan
 China is playing the ‘Game of Gains’
6
5
CPEC; a game changer for Pakistan, but disastrous for Gilgit-Baltistan
 Environmentally
 Economically
7
6 CPEC is making Pakistan more indebted towards China
8
7
Socio-cultural impact of CPEC
 The invasion of Chinese culture in Pakistan
9
8 End note 10
9 Bibliography 11

3. 3
1. Introduction:
CPEC (china Pakistan economic corridor) is a framework of regional connectivity
between china and Pakistan but it will have impact on neighbor countries as well like
Iran, Afghanistan and India etc. The total committed amount under CPEC is $50 billion,
which is divided into two broad categories $35 billion is allocated for energy projects and
$15 billion is for infrastructure, gawadar development, industrial zones and mass transit
schemes. The entire portfolio is started in 2013 and is expected to complete by 2030.
The given figures estimate additional burden of loan on Pakistan which is nearly
impossible to repay on time because if we have look on the past records of the loan pay
back of Pakistan, it’s not appear promising with the other countries. So, if Pakistan would
not repay then what will be the consequences we are going to face in the coming future.
There are two sides to every story and same is happening in this case. So many articles
has been written and shown positive side of it, many conferences has been conducted in
the favor of CPEC but only few are concerned about its second side.
In the eyes of CPEC officials, this project is the open opportunity to enhance trade as it
will promote bilateral connectivity but it is also very necessary to know that is there any
hidden threat in this open opportunity? There are many concerns regarding this project
which should be consider, there are so many questions which are still unanswered.

4. 4
2. CPEC; Is there cause for alarm:
Many articles of newspapers were written on CPEC that it is another east India company
but according to khurram Husain, who is a writer of Dawn newspaper, wrote an article
that comparison is false and entirely unhelpful. There are two reasons behind this. First,
the East India Company had an element of force that something totally absent in the
present case. Second, the East India company gradually not only acquired governance
responsibilities but also taking on the administration of land revenue and justice,
education and the maintenance of an armed force as well. This indicates that CPEC is
moving in an entirely different direction. According to him, there is only one area where
the comparison might work is in the extraction of a surplus from Pakistan and
transmitting it to China. But that surplus is not being extracted through the use of any
kind of force or from land revenue but it is being extracted through purely from debt
servicing and the repatriation of profit.
According to the research report by Topline Securities, that claimed that Pakistan will
repay $90 billion on CPEC investments of $50bn. The report figured out the amount of
$3bn per year as repayment obligations. While former State Bank governor Dr Ishrat
Husain also calculated the same amount of $3bn. All these figures are rough calculations
produced by independent observers. The State Bank has officially disclosed nothing
about the projected burden on the foreign exchange reserves due to CPEC outflows, on
contrary IMF has given a rough estimation that the total could add up to 0.4pc of GDP
per year. It shows that the government is not sharing the requisite project details, nor it is
saying anything meaningful about how it has calculated the repayment obligations
connected with the project.
Pakistan policymakers claim that with more power being available, closed textile mills
would reopen and export to china and other countries would pick up but what worries
textile entrepreneurs in Pakistan is that some of these new units are also producing
textile. Analysts say it seems that Chinese will further strengthen their hold on the high
end of the international textile markets instead of aiding the ailing Pakistani textile sector.

5. 5
3. The CPEC secret:
 CPEC hidden security cost:
In 2015, the day after Chinese president Xi Jinping visited to Pakistan, the press released
about announcing the creation of ‘Special Security Division for Pak-China Economic
Projects’, which would consist of nine army battalions and six wings of civil armed forces, to
be commanded by major general. The force was created for the protection of Chinese
investments and personnel in the Pakistan.
As the figures are mentioned in the section of introduction, that out of $50 billion, $35 billion
is for energy projects and $15 billion is for infrastructure so, where’s the fund for the security
cost? This is the hidden cost which has been unseen from the public. Now the question raises
that who is going to pay? The answer is “The Public”. Yes, the burden is shifted to our
shoulders, costs that were not originally part of the tariffs granted to CPEC, are being passed
to consumers.
In 2017, the NEPRA (National Electric Power Regulatory Authority) allowed power
producers to charge consumers through electricity bills for 20-30 years on account of security
cost. NEPRA responded by saying this cost would be met from public funds in any case. This
shows that the protection of consumer interest, which ought to be NEPRA’s priority, has now
been sacrificed at bureaucratic self interest. Security expenditure has been growing at an
alarming rate over the past couple of years that means the burden of electricity bills on us
will also increase over time. What needs to be done is greater transparency is needed in
financing CPEC projects; otherwise hidden costs of all sorts will start getting bundled.

6. 6
4. The economics of CPEC:
 The loss of local businesses will weaken the economy of Pakistan: Chinese economy experts
claim that Beijing’s goal through CPEC is to improve the agricultural sector of certain
western provinces of china. Pakistan will become a market for agricultural production from
western china and this will adversely impact on local producers. To operate their own farms,
Chinese enterprises will take the hold from seeds provision to fertilizers and pesticides.
Chinese logistic companies will take the hold of transportation system for the agrarian
purpose to facilitate fruits, vegetables and grain farms as the things decided.
Hence the Chinese companies will take the lead in each field. The plan has already
demonstrated what Chinese intentions and their priorities are with this project. Chinese
enterprises have already taken their place in Pakistani market, for example haier in household
appliances, china mobile and huawei in telecommunications and china metallurgical group
corporation in mining and minerals and so on.
 China is playing the ‘Game of Gains’: In CPEC majority of workers and goods are all
Chinese. They are bringing their workforce and materials in Pakistan. No assurance could be
given that Pakistani labor would be recruited to work. So, the money china is investing in
CPEC will go back to china but with the huge interest, which Pakistan will pay.

7. 7
5. CPEC; a game changer for Pakistan, but disastrous for Gilgit-Baltistan.
 Environmentally: China Pakistan economic corridor (CPEC) has generated the wave of
excitement in Pakistan as a whole, but in Gilgit-Baltistan that is already disputed region
whose inhabitants have environmental, demographic and secretion concerns.According to a
report published by Germany's Deutsche Welle broadcasting web site, local activist over
there fear these projects would not only damage ecological system, encourage land grabbing,
shift demographic but also threaten their unique culture.
According to Farman Ali, who is a political activist from upper Hunza in Gilgit- Baltistan,
told THE ECONOMIC TIMES, “the chines are known for implementing on project without
caring much about environmental issues”. He also mentioned that over 70,000 trucks will
pass through this region on daily basis that will cause the emitting of large amount of carbon.
The government will also lay railway tracks in this mountainous area by building a number
of tunnels that will likely cause landslides and might disturb the region’s ecological balance.
 Economically: It is claimed by Islamabad that the project would create employment
opportunity for some 1.8 billion people in Gilgit-Baltistan. According to Amir Hussain who
is political analyst from the lower Hunza part of the region, Chinese bring their own
manpower wherever they go. Most probably for CPEC, they will bring seven billion workers
to Pakistan and around 400,000 of them will be working in Gilgit- Baltistan. This raise the
question that how will the locals get job? Apart from job sector, the local over there are
losing their livelihood because of project. Shop owners and small manufacturers are suffering
as a result of the Chinese goods flooding the market. Moreover, the government has also
cancelled the licenses for local miners because mining in those areas is being handed over to
the Chinese.

8. 8
6. CPEC is making Pakistan more indebted towards China.
CPEC will connect Western China with the India Ocean that could certainly benefit
Pakistan in helping the country make a big step forward from an emerging to a mature
economy but it could hurt Pakistan too. Like adding to Pakistan’s corruption, which
keeps pushing the cost of the project higher by the day, making Pakistan more indebted to
China. Rising indebtedness comes at a time when country is already living beyond its
means.
In an interview with the Financial Time, Abdul Razak Dawood , an advisor to Imran
Khan on trade and investment, said that the previous government had done a “bad job”
negotiating on China over CPEC. They did not do their homework correctly and did not
negotiate correctly so they gave away a lot. Chinese companies received tax breaks,
many breaks and have an undue advantage in Pakistan.
Pakistan is among eight countries with worrying level of debt with china. Pakistan will
have to payback $100 billion to china by 2024 of total investment of $18.5 billion, which
China has invested on account of bank loans in 19 early harvest project under CPEC.
Although CPEC has the potential to transform the Pakistan economy, but this
transformation would come at heavy price of making Pakistan a colony of china. Pilling
up loans from China is a big gamble for Pakistan economy.

9. 9
7. Socio-cultural impact of CPEC:
 The invasion of Chinese culture in Pakistan: The CPEC routes will not only provide means
for carrying of goods and other materials but will also transfer social customs, languages and
beliefs among the nations. CPEC is the part of OBOR (one belt, one road) which is also
known as SRB (Silk Road economic belt). Silk Road is an ancient network of trade routes
that connects east and west. In past it was not only the major source of trading but also the
source of the exchange of religions and cultures. Even Buddhism itself reached china through
Silk Road. The present era Silk Road is the revival of the ancient Silk Road. Now let’s see
how Chinese culture will transfer its customs and norms in Pakistan through SRB. The
following points will reveal the invasion of Chinese culture in Pakistan.
 We all are familiar with the ‘shan masala’ ad, aired in 2015, in which a Chinese woman
bringing food to a Pakistani home which is indicating the entrance of china in Pakistan.
 A Chinese actor Kent S Leung has made appearance in the Pakistani movie ‘chalay thay
saath’ in the year of 2017.
 Chinese content is also being aired on national TV channel. A Chinese drama ‘Beijing
youth’ is aired on PTV in early 2018. This drama is exhibiting unethical values in
Pakistani youth but there’s nobody to be held accountable for.
There’s no harm in adopting valuable ethics but we as a nation has to understand the fact
that progress lies in adopting and preserving one’s own culture rather than following
others.

10. 10
8. End Note:
More or less all will say CPEC is a game-changer, but some will ask for whom? Others
will flag that CPEC is the largest foreign investment into Pakistan, but many will
question whether the country will be able to bear the debt burden resulting from it, some
will talk up how the various sub-routes could lift under-developed cities and towns, but
others will question whether these sub-routes will even materialize as China is really only
interested in the direct route from Kashgar to Gwadar.
Patterns of Chinese investment in South Asia- Pakistan, Bangladesh, Sri Lanka and
Nepal- all of which are part of BRI depict Chinese propensity to control the domestic
markets and the natural resources of the South Asian nations.

11. 11
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