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 Problems related to China-Pakistan
Economic Corridor (CPEC) (Part 1)
 Published on Published onJuly 6, 2017

Antonio Graceffo, PhD, China-MBA

 FollowFollow Antonio Graceffo, PhD, China-MBA

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Antonio Graceffo, PhD, China-MBA （安东尼博士）

School of Economics Shanghai University （上海大学经济学院）

Contact: Antonio_graceffo@hotmail.com

While CPEC has the potential to bring investment, improved infrastructure and increased
GDP to Pakistan, the project is also facing a number of difficulties. Some of the problems
associated with CPEC relate to the project’s impact on the local community. Voices in
Pakistan have expressed fears that CPEC may lead to widespread displacement of locals.
Farmers are particularly susceptible as the land they occupy could generate more profit if
converted to energy generation infrastructure or to make way for transportation lines. A
threat to farmland has deeper implications for the country’s long term survival as only a
small percentage of Pakistan’s land is cultivable. A loss farm land may lead to Pakistan
becoming dependent on food imports.[i]

Another problem associated with CPEC is the potential that Pakistan may not be able to
repay the loans from China. An IMF report on CPEC stated that there were several problems
relating to the business climate, governance and security need to be addressed in order for
CPEC to generate sufficient revenues to cover loan payments. If these problems are not
resolved, Pakistan may find itself unable to repay its debts.[ii]However, even if these
problems are resolved, Pakistan may still be unable to repay the loans from the increase in
GDP. Estimates of the total revenues generated by CPEC include money earned by Chinese
retailers along the New Silk Road, Chinese construction companies, finance companies,
telecom companies, energy companies, and most of this wealth will likely be repatriated to
China. As such, this money will not be available for Pakistan to service their debts which
begin in 2021. It is estimated that the profit repatriation plus debt service could reach about
0.4% of GDP per year.[iii]

The Express Tribune reported that Dr. Kaiser Bengali, former adviser to the Chief Minister
of Baluchistan, has questioned the socio-economic implications of CPEC, and raised a
number of issues which he feels need to be addressed in order to protect Pakistan’s economic
interests.[iv] These questions include areas which the government has more or less labeled
taboo, such as the protection of jobs and industries, CPEC’s impact on Pakistan’s balance of
payments, and Pakistan’s budgetary position. Being a representative of Baluchistan, an
extremely underdeveloped province, Dr. Bengali was also concerned about what (if any)
benefit Baluchistan would derive from the project.[v] GUJRAT, a combined chamber of
commerce representing three Pakistani regions, Gujrat, Gujranwala and Sialkot cities, have
expressed similar concerns about the establishment of Chinese industries and warehouses in
Pakistan."[vi]

Dr. Bengali has also raised concerns regarding the financing terms of CEPEC which have not
been made clear to the public. He also expressed worry that the construction projects would
damage, rather than help local industries. “China is bringing goods, machinery and labor for
the construction of CPEC projects. The hope that these construction activities would generate
economic activities is fading away.”[vii] Initially it was hoped that Chinese construction
contracts would generate jobs and that raw materials and supplies would be sourced locally.
Now, it seems that much of the labor and other materials are being brought from China, thus
reducing the benefit Pakistan derives from CPEC. Leaders of the domestic chambers of
commerce told Dawn news that they have asked the government to brief the business
community on the industrial activities of the Chinese. They said that they were worried that
Chinese industry could crowd out local industry, destroy Pakistan’s ability to export, and
leave Pakistan completely dependent on Chinese industry.[viii] These fears seem to be
founded as CPEC has already increased Pakistan’s trade deficit with China.[ix] In addition,
economists in Pakistan worry that the trade deficit will continue to increase and Pakistan will
become more and more dependent on China. Other voices in Pakistan are concerned that
Chinese infrastructure construction activities could cause scarcity and drive up the domestic
price of raw materials.[x] The Express Tribune warns that CPEC may also be detrimental to
the local manufacturing industry.

About the Author

Antonio Graceffo, PhD, China-MBA is the author of seven books about China and Southeast
Asia. He works as academic coordinator of business education at Torrens University,
Suzhou, China. Antonio holds a PhD from Shanghai University of Sport, where he wrote his
dissertation, in Chinese. In addition, Antonio received his China-MBA, from Shanghai
Jiaotong University, and is currently completing a second PhD at School of Economics
Shanghai University, specializing in China outbound investment and Trump-China Trade.

Linkedin: https://www.linkedin.com/in/antoniograceffo

Twitter: Brooklynmonk: http://twitter.com/Brooklynmonk

See Dr. Graceffo’s China Economic Research reports on Youtube

https://www.youtube.com/channel/UC5jUEi7svVkDgwbVI_J7EPA

[i] Deloitte, n.d. How will CPEC boost Pakistan economy? N.d.

https://www2.deloitte.com/content/dam/Deloitte/pk/Documents/risk/pak-china-eco-corridor-
deloittepk-noexp.pdf

[ii] Ishrat Husain, The economics of CPEC, January 03, 2017

http://www.dawn.com/news/1305992

[iii] Husain, K. 2016, IMF warns of looming CPEC bill, Dawn News, Dawn News, January
9, 2017

https://www.dawn.com/news/1290523
[iv] Rana, S. 2017, Senior economist raises several questions regarding CPEC

https://tribune.com.pk/story/1292975/analysis-senior-economist-raises-several-questions-
regarding-cpec/

[v] Rana, S. 2017, Senior economist raises several questions regarding CPEC

https://tribune.com.pk/story/1292975/analysis-senior-economist-raises-several-questions-
regarding-cpec/

[vi] The Newspaper’s Correspondent, 2017, Chambers voice concern at China’s plan to ‘set
up industry along CPEC route’

http://www.dawn.com/news/1305865/chambers-voice-concern-at-chinas-plan-to-set-up-
industry-along-cpec-route

[vii] Rana, S. 2017, Senior economist raises several questions regarding CPEC

https://tribune.com.pk/story/1292975/analysis-senior-economist-raises-several-questions-
regarding-cpec/

[viii] The Newspaper’s Correspondent, 2017, Chambers voice concern at China’s plan to ‘set
up industry along CPEC route’

http://www.dawn.com/news/1305865/chambers-voice-concern-at-chinas-plan-to-set-up-
industry-along-cpec-route

[ix] Rana, S. 2017, Senior economist raises several questions regarding CPEC

https://tribune.com.pk/story/1292975/analysis-senior-economist-raises-several-questions-
regarding-cpec/

[x] Husain, K. 2016, IMF warns of looming CPEC bill, Dawn News, Dawn News, January 9,
2017

https://www.dawn.com/news/1290523
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 1 CommentComments on Antonio Graceffo, PhD, China-MBA’S article
1moOpen options for Ashhar Aamir’s comment

Ashhar Aamir

Ashhar AamirStudent at New York University

you should give solutions also

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Antonio Graceffo, PhD, China-MBA

Director of global business education and research at Blue Mountain, Torrens University
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