The secrecy surrounding CPEC has finally been broken by a team of researchers in the US who have laid bare a massive dataset of over 13,000 projects across 165 countries worth a staggering $843 billion. For ten years the team tracked China’s overseas deals in the Belt and Road Initiative. Pakistanis can now, thus, get a sense of the full scale of Chinese investment in their country. Senior research scientist Dr Ammar A Malik and Sheng Zhang are part of the team of researchers at AidData at the college of William and Mary in Virginia, US who have been tracking China’s activities for about the last decade. They wanted to see what kind of financing China is undertaking in the world. Why is it financing the projects, what are their details, how many of them are loans and how many are grants. Which sectors is China investing in? Which countries is it investing in?
“Our team’s purpose is to survey China’s global development financing and update the data every year so people can tell what kind of Chinese investment is coming into their country and which sectors is this money being put into,” Dr Ammar told SAMAA Digital in a video interview last week.
The full 100-page report was published on September 29, 2021 on the AidData website. It is the 2.0 version of its flagship Chinese Global Development Finance Dataset. The researchers provide granular details on exact locations, financing mechanisms, implementing partners, terms and conditions etc., in a “treasure trove of unprecedented information” to help analysts see through the “secrecy that has shrouded China’s overseas engagements”. A White Paper titled “Banking on the Belt and Road” provides original analysis on global trends, challenges and opportunities related to China’s dramatic expansion of overseas development financing.
How big is CPEC and what is it?
For the last few years, CPEC has been discussed a lot in Pakistan. So what is CPEC after all? In 2013, the Chinese government started its Belt & Road Initiative. CPEC is a part of that. It is a corridor between the two countries, to put it simply.
Pakistan has always been an important country for China. We’ve been hearing this since we were children. But when we look at the numbers we see that Pakistan is No 7 out of 140 countries in the Belt & Road Initiative projects.
“So if you look at it from any angle, you can clearly see that Pakistan is a friendly country for China,” Dr Ammar said. “China has pursued an overwhelming number of projects in Pakistan.” From 2000 to 2017, it started 227 projects in Pakistan and committed $34.4b in development finance. “People used to think that most of these projects were agricultural,” said Dr Ammar. “But our investigation shows that about 58% alone is energy, being invested in electricity. And 24% is transportation, highways, rail and very little money is being put into health and education.”
Within China’s Belt & Road Initiative that includes 165 countries, Pakistan’s energy portfolio of $19.9b ranks #2 in the world and #1 in Asia, representing 9.5% of total Chinese overseas energy investment
AidData: Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects
Why is China spending on the world?
For the last few years, at the international level, China and America have been at loggerheads. Both countries have been trying to expand their influence in the world. One major way to do this is to make projects available to poor and developing countries.
In 2000, the Chinese government announced a “going out” strategy. It started giving loans outside China. “In the last 18 years, according to our estimates,” says Dr Ammar, “China has invested $840 billion across the world in development projects alone—meaning projects which improve people’s lives, such as ones on power, water, schooling, health.”
This financing has gone up so much that it is roughly $85 billion from China every year, which is double what the US invests. “This means that through this China is trying to overtake the US in terms of influence,” he said. “Africa is included in this, Asia, Central Asia states and even South American countries.”
How is Pakistan getting CPEC money?
Pakistanis will be surprised perhaps to learn that 80% of Chinese spending is in the form of loans at or near commercial rates. Only 12% of the money China is giving Pakistan is in grants that do not need to be repaid. There are 71 projects worth $27.3 billion currently underway, making Pakistan China’s most active development finance recipient.
“What is significant is that most of this money is coming in the shape of loans,” says Dr Ammar. Some of the money is in the shape of grants. Grants is funding in which you are not expected to return the money. Pakistan has received over $4 billion in grants. So the rest, $27 billion to $28 billion are in loans.
In earlier decades Pakistan was used to American funding which tended to be in software sectors such as education, women’s literacy, human rights, governance. But China’s way of working is slightly different. It focuses on hard infrastructure and this money is not given in a fixed way: 80% of the money is in the shape of loans.
Even at the height of Pakistan’s crippling energy crisis during the mid-2010’s, only around 10% of US development assistance to Pakistan was in the energy sector
AidData: Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects
“The Government of Pakistan has to pay back these loans,” explained Dr Ammar. “For example, in the energy sector, about $20 billion is mostly in the shape of loans. Our government has, with the private sector, set up many companies and solved the problem of a power shortage. But alongside this, it has given China guarantees, that it will get returns at a special level. This means that in the coming years, the government will have to keep the electricity tariff above a certain level so it can pay back those loans. So we will see in the coming years that the government can face pressure to pay back these loans. This can be linked to inflation and it can affect our economic conditions.
How did CPEC unfold in Pakistan?
From 2000 to 2008, during Gen Pervez Musharraf’s time, about only $500 million annually came to Pakistan from China. That money was put in Gwadar and power plants.
During the PPP’s time, from 2009 to 2013, about $1.2 billion flowed in from China roughly each year. The focus then was mostly power plants and to some extent highways.
“But the real story of CPEC starts in Nawaz Sharif’s time from 2013 to 2017,” said Dr Ammar. “Five to six billion dollars’ worth of projects were put down in Pakistan. This was a significant increase for CPEC.” In this time, we see attention paid to electricity and transportation.
In transportation and storage, Pakistan’s $8.3b portfolio is highest in the world above Angola ($7.5b) and Sri Lanka ($7.2b), constituting a significant 6.5% of China’s entire global transportation and storage sector portfolio
AidData: Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects
“If you remember, before the 2013 elections Pakistan had a power crisis and it was a topic for the election campaigns. Nawaz Sharif promised to end it. He managed to a great extent end the load shedding. This is linked to a lot of projects China did from 2013 to 2017. Like with Hub Power Co they opened a new project.”
A lot of these are coal-fired power plants, which can have an adverse effect on the environment. Recently Chinese President Xi Jinping said at the UN that China would not build coal-fired power plants anywhere in the world because of the environmental damage. But in Pakistan, from 2013 to 2017 half of the capacity of power generation was from coal because these plants are quicker, cheaper to build, and Pakistan has expansive coal deposits.
Between 2014-2017, AidData found that 58.9% of energy spending and 0% of transport spending has gone to Sindh, followed by 10.6% and 72.5% in Punjab ,12.0% and 0% to AJK&GB, 9.6% and 6.1% to Balochistan
AidData: Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects
“But the one thing we should keep in mind is that the Government of Pakistan made these new companies through which China has started power plants but behind the scenes it has given loan repayment guarantees and a special rate of return,” said Dr Ammar. “We see that it was 16% in 1990 when Hub Power Co and independent power producers came up during Benazir’s time. This grew to 24% and now 30%. All of this is on Nepra’s website.”
Across the three key developmental sectors directly benefiting the socioeconomic wellbeing of citizens, i.e., education, health and social infrastructure, the average ranking is a paltry #30 and total allocation is only $142m, representing only 0.4% of total Chinese commitments tracked by AidData’s dataset in Pakistan
According to Dr Ammar, it is a good thing that the power crisis has been to a major extent been solved in Pakistan. “Our capacity to produce power has increased tremendously as well,” he added. “But we have to keep in mind that we have to give this money back to China in the future. This will happen when the government sells electricity to the people, gathers the revenue and slowly return the loans.”
How does China work with the Pakistan government?
Before CPEC we see that globally China would invest with governments that would guarantee that they would return the loans they were taking. But after CPEC and the BRI were launched, in the last five to six years we see this China engaging with private entities with governments backing the projects behind the scenes.
Perhaps an indicator of China’s strong strategic relationship with Pakistan, the $230m for New Gwadar International Airport construction and $210m for post-flood reconstruction of highways are the two largest grants China has made anywhere except North Korea
AidData: Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects
“For example, a lot of power plants set up in Pakistan had 75% investment from China and 25% from the Pakistani private sector,” said Dr Ammar. “But to make this project viable, the Government of Pakistan gives a guarantee that if any problems surface or the private sector consortium cannot give the money it will intervene and help return the loans.”
He went on the explain that Pakistan’s financial books don’t show these loans so far – some show, some don’t. “But the minute there is God forbid some problem they will become a liability and responsibility for Pakistan.”
CPEC grew fast after 2013, during Nawaz Sharif’s government. The two countries agreed on a JCC or Joint Cooperation Committee mechanism.
From Pakistan, the minister for planning, at the time Ahsan Iqbal, and from China the vice minister of national planning form a committee. The JCC meets every year, once in Beijing and once in Islamabad. The purpose was that both countries decide CPEC’s long term vision on a strategic level. Where does CPEC have to go in the next ten years? Pakistan presents its preferences to the Chinese to say which areas its wants projects in.
“I think this mechanism was very successful in the sense that at that time Pakistan’s main priority was to solve its power crisis,” said Dr Ammar. “China agreed at the JCC and made its banks and companies focus on this to invest in this sector to help Pakistan. I think China is doing the same with other countries as well. So the borrower tells China which sector they want more investment in.”
Are so many CPEC loans good for Pakistan?
Right now, Pakistan’s debt-to-GDP ratio or the size of our debt against our economy has reached about 92%, which is a “dangerous level,” says Dr Ammar. The fear is that going forward if the dollar rate goes up against the rupee, then the loans we took in dollars will balloon in rupee terms, he said.
If we have, for example, taken a $1,000 loan, it could be worth Rs17,000 right now but tomorrow it could be Rs25,000 or Rs30,000. Even then it would be our government’s responsibility to return these loans.
“So it is very important to be mindful of this and hopefully this situation will not develop,” he said. “We should, however, prepare for it.”
Why is China spending so much money on the world and in Pakistan?
A lot of people ask, why is China investing in Pakistan and other countries? There are lots of reasons for this. One common reason is that China needs minerals to increase its economic growth so it is going to countries where there is coal, fuel, copper, and other such natural resources.
But another big reason is that because China exports across the world and earns a lot of dollars it invests them in projects instead of keeping them or re-investing them in its economy. “Before 2008, a lot of this money went into American treasury bonds where they got a rate of return and their money was very safe and secure,” said Dr Ammar. “But from the 2008 global financial crisis, they understood that the rate of return on this kind of investment can be very low as well. After that we see that it decides to put the dollars China earns from doing business with the world in bankable projects. Projects which give a return.”
The average interest rate China is getting from the world in these projects is 4.2%, which is a good rate of return. China’s strategy is what we call “high risk, high return”. It is going to countries and putting money in projects where Citibank, or other banks or the American government doesn’t want to put money. The definite advantage for China is that it increases its influence in those countries, it is getting to help them, and they can use all those dollars to get a good rate of return.
How does China’s spending in Pakistan compare with American spending?
America has always spent a lot of money on Pakistan’s development. Not just from today, but the last 70 years. However, we have seen a big shift in the last ten years. For example, in 2002, China’s investment was 70% of what America was putting in Pakistan. But by 2010, we see it even out for both countries to be investing equally in Pakistan. But now, China is spending eight times more than the US in Pakistan. So Pakistan’s dependence on Chinese money for its economy growth has gone up.
“Naturally, this influences other geostrategic changes that are coming in the region,” said Dr Ammar. “Like in Afghanistan’s case you see Pakistan leaning towards China’s stance. You see America’s focus has moved more to India. We see evidence of this shift in our data.”
Should we trust this research by AidData at William & Mary?
A lot of people ask Dr Ammar and the team how they know so much about CPEC and BRI.
“The answer is that students come from across the world to this well-known university, William & Mary. A lot of research staff works here,” he said. “In addition to me, ten more people work on this research full time. And all of this data we gather and write reports on, we publish on our website.”
Their sources are official documents, media and social media reports which are all on the website. “If anyone has any criticism or data that we have not covered, we welcome it so we can update our information,” he said. “We see a lot of information because of electronic and social media. But very few people bring it in one format so it is useable.”
AidData takes the globally established standard of the Paris-based OECD that tracks the money going from rich to poor countries. China is not a part of OECD and has never recognized it. It likes to work in its own way. So AidData’s team takes all its information from the last ten years and reports it on the OECD format to see what money is going to what country in which sector.
“We think this is a public service,” said Dr Ammar. Chinese banks and organisations working on CPEC and the BRI often don’t have the full picture themselves. “So Chinese officials often contact us and ask us where we think the trend is going,” he said. “Aside from that, America and its allies are making really strong attempts this year to launch a really big initiative, Build Back Better World B3W. They want to know what mistakes China made in the last ten years, what did it learn?” So they reach out as well.
But most importantly, according to Dr Ammar, for a poor country like Pakistan, where the governments do not have the resources to ascertain these things, about their loans, and the effect this may have down the road, “we want to help them as well”.
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