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CPEC as digital Silk Road

In the backdrop of the 4th World Internet Conference held in China envisioning Digital Silk Road along Belt and Road Initiative (BRI) routes, China Pakistan Economic Corridor (CPEC) is making its inroads to emerge as high tech digital corridor.

As BRI aims to lay down the network of highways, railways, seaways, airways, bridges and ports, the Digital Silk Road along the CPEC route will develop cyber-ways and internet highway infrastructure for Information & communication Technology (ICT) at the cost of $ 44 million. By constructing  digital infrastructure in cyberspace, CPEC will not only be connected to China but also will link up to 65 countries located on the Silk Road Economic Belt, spreading across Central Asia and Europe, and the 21st Century Maritime Silk Road, running through Southeast Asia, Africa and Europe.

CPEC gears up to go digital with the projects of fibre optic cable, a new submarine landing station for internet traffic flow, and digital TV for all.

With laying down digital fiber optic cabal, according to the Long Term Plan negotiated by Beijing and Islamabad, CPEC will become the part of digital information society collaborating telecommunication, internet technology infrastructure, e-commerce, pool resources, smart cities, e-services, e-businesses and e-markets.

China has underscored the need for Digital Silk Road in its March 2015 White Paper that illustrated BRI’s digital vision. It took stock of laying down cross-border optical cables and expansion of communications networks to create an ‘Information Silk Road’. In the recent Belt and Road Forum held in May 2017, joint communiqué called for digital connectivity for BRI countries including Pakistan in a bid to revamp e-commerce, digital economy, smart cities and science and technology parks’ under bilateral, triangular, regional and multilateral cooperation frameworks.

Guo Huadong, an academician at the Institute of Remote Sensing and Digital Earth at the Chinese Academy of Sciences, touted Information Silk Road as a digital version of the Belt and Road Initiative.

In my perspective, Pakistan is all set to benefit this e-initiative programmed to be implemented in phases. Digital Silk Road will strive to establish supportive infrastructure, employment of personnel, and striking partnership deals among countries within the framework of the Belt and Road Initiative. It will construct data collection and sharing mechanisms in the cyberworld to achieve sustainable development goals. Exploiting satellite technology to monitor weather, land use practices, urban settlements and natural resources management, CPEC will be well equipped to cope with social, economic and environmental challenges, such as ecological disasters like droughts and floods.

As BRI aims to lay down the network of highways, railways, seaways, airways, bridges and ports, the Digital Silk Road along the CPEC route will develop cyber-ways and internet highway infrastructure

 

In pursuing the project of Digital Silk Road, some progress is already in sight along the BRI countries. In Africa, Chinese telecommunications giant Huawei has joined the ExIm Bank of China to impart technical expertise and invest $1 billion to hike internet connectivity in Cameroon, Kenya, Zimbabwe, Togo, and Niger. In Uganda, Huawei rolled out its ‘Seeds for the Future’ program to send talented college students to China for ICT training.

In Bangladesh, the Xi Jinping administration vowed to invest in the Sarker-3 project to initiate a public network linking government agencies and the MoTN project to improve telecommunications affordability and density. Huawei, the biggest telecommunications and network equipment and services providers in China, has also joined the game, generating around 55 percent of total revenue from its overseas businesses. Companies like Huawei have set sights on CPEC to roar its e-business.

Meanwhile, China and Russia have teamed up to build overland cable links between Asia and Europe, including the world’s longest Trans-Europe Asia cable link. Other projects include the Europe-Russia-Mongolia-China network, the Trans Eurasian Information Superhighway and the Diverse Route for European and Asian Markets.

CPEC’s digital silk road will also develop a ‘space-based Silk Road’ by deepening cooperation in satellite services with BRI countries. A space policy paper prepared by the State Council Information Office in 2016 denotes how China envisions setting up Space Information Corridor along the BRI routes especially CPEC in the next five years. Beidou satellite network, providing digital information for the roads, railways, ports and industrial parks, may come into action on a limited scale in other Belt and Road countries by 2018.

Alibaba’s founder Jack Ma during an International Economic Forum in Russia asserted that ‘the most important region for his company is OBOR places like CPEC. In 2016, Alibaba acquired Lazada, a big e-commerce firm in Southeast Asia. Earlier in 2017, the company teamed up with the Malaysian government to create the first Digital Free Trade Zone (DFTZ) by 2019. Mr Ma mentioned on a Forum “we should transfer the silk road to an e-road’. Bearing in mind China-Pakistan Economic Corridor (CPEC), flagship project of BRI, Alibaba signed a MoU with Pakistan to potentially lead to an investment of approximately $400 million in Pakistan’s e-commerce sector.

I believe that the physical and digital highways laced with technologies on CPEC may be capitalized to optimum level only if public and private sectors are trained on how to operate online.

Source: Daily Times, 7th Dec 2017.

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CPEC fears and my response

Humble Reply to Shahjahan Chaudhary on his piece regarding CPEC Fears.

Game Changer

1. 91% of the income from Gwadar Port goes to the Chinese and 9% to Pakistan.

Reply: First of all, the contract was signed with the Port of Singapore Authority in 2007. The same contract was transferred to the Chinese. Secondly, can you kindly point out what’s wrong with this model especially when all the liabilities and investments lie at their end? We don’t up with any loans on Pakistan’s balance sheet.

Let me remind you, in past 7 decades, not only our government has failed to develop the port but also ignored the importance of its geostrategic location; and currently, our country doesn’t have the resources to develop it even if they want to for next 3 decades or so. Every Pakistani still gets to use the port and enjoy the benefits from its development. The port is a window to the economic activity it will generate in the country through becoming a safe transit route for China.

2. Chinese companies get preferential treatment and tax exemptions (making it impossible for local companies to compete and opens the Pakistani market for a commercial invasion)

Reply: The statement is completely misleading. Only CPEC projects get tax exemptions, mainly in the power sector, because we are in dire need to mitigate the losses due to the energy crisis in Pakistan. Moreover, tax exemption also drives down the cost of building these strategic projects, which results in lower tariffs and repayments.

(Impossible is a strong word. Construction companies in Pakistan are working at their full capacity, turning down projects due to output issues. Commercial Invasion? I think mentioning special economic zones would be more relevant since the argument of building infrastructure has no correlation with the commercial viability of businesses.)

3. Money for the road network comes from Pakistan (so we’re paying for the roads China will use to export stuff to us and the world)

Ans: Let me break the statement into 2 parts:

1) The Road; 2) The Money

1) The Road: The roads built under CPEC will be the property of National Highway Authority and will generate revenue through the toll tax. Moreover, as a Pakistani, will you want strategic roads in the country to be the property of a foreign country?

2) The Money: These projects are being built on Engineering-Procurement-Construction+Finance (EPC+F) Model. Finance comes from China and our government takes it as a concessionary loan. Same as ADB model. But the difference is that Chinese companies are mandated to complete these grand projects within 24-36 months. There needs to be open bidding for these projects, but then again, it will push the timeline of the CPEC to 30 years instead of 15 years.

4. Of the original $50b, over $30b was loans to build power plants for which we’ll pay a) interest to Chinese banks b) exorbitant profits to Chinese companies who will build and supply to these plants c) guaranteed profits to the Chinese companies that will operate and own these plants d) backed by sovereign guarantee

Ans: This figure is completely incorrect. All the power projects under CPEC are BOOT (Build-Operate-Own-Transfer) basis which means that investment, loans, and liabilities are all the investor problems. Our problem is to pay for the electricity they produce. No loan has been acquired so far by the government of Pakistan for energy projects.

a) We have nothing to do with the interest rates.

b) Getting a payback for what you invested is a very fair request so don’t know what’s wrong with it?

c) Guaranteed profits because we have PKR 800 billion in circular debt? Why would anyone even want to invest? Would you?

d) Same as above.

5. We’re making commitments to buy electricity at over 8 cents from coal-based plants and India is buying solar electricity at 4 cents (solar price is crashing every year). This will make our manufacturing uncompetitive for the next 15 years or longer.

Ans: We have a flaw in this argument. First, we are comparing apples to oranges. The feed-in tariff for coal power plants is around PKR 8/Kwhr in India as well. Although it’s a lengthy discussion,

Why can’t we opt for Solar? That’s because of the energy mix. India produces 59% of electricity from Coal while Pakistan, prior to CPEC, only 2%. Then, another issue: Solar produces well in the afternoon but doesn’t at night. You need to be over-dependent on reliable energy outputs in order to shift to renewable. I won’t get involved in grid problems but that’s one of the issues as well why Pakistan cannot opt for aggressive solar issues. On the price front, the tariff for solar in Pakistan dropped by more than 60% in past 4 years; in fact, it’s the projects are awarded through open bidding.

Apart from that, cost of producing electricity on generators ranges from PKR 70-90/Kwhr.

6. Meanwhile, the government falsely thinks tax revenue growth is economic growth. Excessive taxation is crushing the local industry and businesses and the government claims a “victory” every time it borrows more money

Ans: That’s a governance and leadership problem, not a CPEC one. If you want to bash the government, you will find me as one of the front-runners.

7. The Chinese are rational profit-minded businessmen…they have zero incentive to think about our future prosperity. Would they rather bolster our economy or own us?

Ans: Too descriptive in nature. But let’s say, we have strategic interests aligned to an extent that they are willing to risk phenomenal amount of money in a country which is not very famous in the international arena. Owning us? I don’t think that would be possible. Bolster our economy? Why not, if it is in great benefit of China?

Shahjahan Chaudhary: So why is the CPEC “game changer” being sold to us with such force? As a state, we are feeling threatened by multiple regional and global forces. The Chinese investment is an insurance policy.

Ans: Isn’t an insurance policy a core agenda from the inception of our existence? We are exhausting 70% budget on the military after the debt is serviced. Why would we not want an insurance policy? Combine that with economic uplift and we land on the term “Game-Changer”

I personally think it’s a game-changer. We are bound by our own fears and fail to realize the scale of what’s coming.

Shahjahan Chaudhary: We’re giving them what they want (profits), in return for what we want (security and survival).

Ans: The problem is that we can’t give them profits. They are betting on us that we can. There is a difference.

Shahjahan Chaudhary:

What’s the problem?

That the “game changer” is a mirage. Let’s be honest about CPEC. It won’t bring us prosperity. It’s a debt trap we’re willing to get into because we’re desperate. Once we see it for what it is, we’ll know what to do: tighten our belts, work hard, train our people and export more.

Ans: I would rather rephrase this: The CPEC is a game-changer, an opportunity for everyone. If we sit at home and expect China to knock at our doors, that won’t happen. What will happen is that the opportunities in Pakistan would become more and more difficult to come by as the markets become more competitive in future. So let’s focus on how to engage with the opportunities emerging from CPEC right now and position ourselves to live the CPEC dream.

Personal Note: I am not happy with the government performance as well but that doesn’t make the CPEC evil in nature. Let’s not run away from our problems and blame China for it. Let’s talk about circular debt, youth platforms, private-public linkages, education, technical training, awareness, research, Gwadar facility centres etc.

Yours truly,

Hamza Orakzai

The writer is the former Head of Operation, Pakistan-China Institute; Australian Awards Fellow 2017 at Australia National University; currently serving as the Chief Executive Officer of Obortunity.

Follow him @ Facebook | Twitter | LinkedIn by clicking on the respective links.

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