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Economy

What Can Pakistan Learn from Malaysia about CPEC?

May 15 , 2019

In August 2017, then Prime Minister of Malaysia Najib Razak called the East Coast Rail Link (ECRL) a game changer for Malaysia. He made this statement during the groundbreaking ceremony of the $16 billion project, which was to be constructed by China's state-owned China Communications Construction Company (CCCC) by 2024.

In May 2018, the 92-year-old veteran politician Mahathir Mohamad won a surprise election to become Malaysian Prime Minister. In July 2018, CCCC was asked by the Malaysian government to stop work on the ECRL. In August, Mohamad officially announced that he was suspending the ECRL project on the grounds that it was unaffordable for Malaysia. This was a major setback for China, as one of the major projects of the Belt and Road Initiative (BRI) in South East Asia was suspended by the host country.

Mohamad was smart to suspend the project and not completely cancel it. He criticized the ECRL project for being unfair for Malaysia, yet kept the back channel open for negotiations with China. Under pressure to protect a negative trend in BRI host countries, China succumbed to Malaysian pressure and agreed to revise the cost of the ECRL project. Consequently, the cost of the rail project was cut down from $16 billion to $10.7 billion. This was the first time that a BRI host country had successfully pressured Beijing to revise the terms of a project.

Lessons for Pakistan

Just like Malaysia, Pakistan is also a host country for the BRI. The China-Pakistan Economic Corridor (CPEC) project in Pakistan is a flagship project of the BRI. Inaugurated in April 2015, CPEC has also been criticized for not being in the interest of Pakistan. In fact, the new government of Pakistan announced a revision of CPEC projects in September 2018. Later on, the government backtracked from this statement after pressure from China. Apparently, Pakistan’s current government wants to revise the CPEC projects but China is applying pressure not to. However, the Malaysian example of ECRL has set a precedent, allowing Pakistan to suspend the unfair projects in CPEC and ask China to revise the terms.

Moreover, the Gwadar deep sea port is the starting point of the economic corridor to be built under CPEC. The Gwadar Port has been under the jurisdiction of the China Overseas Port Holding Company (COPHC) for 40 years. The agreement stipulates that this company would get 91 percent of the port’s revenue, whereas the government of Pakistan would only get the remaining 9 percent. The revelation of the terms of this project created an uproar in Pakistan’s southern part of Balochistan. The local politicians severely criticized the agreement and termed it selling out Gwadar to China. This inherently unfair agreement has already been signed, but Pakistan can ask China to revise it by taking a stand like Malaysia did. Pakistan can cite the local pressure in Gwadar to suspend the project and resume it only when China agrees to reduce its share from revenue of the port.

Furthermore, Pakistan is not making public the CPEC agreements, ostensibly at the behest of China. Despite several calls from journalists and civil society, CPEC projects in Pakistan remain shrouded in mystery. It’s alleged that these agreements are kept secret, because these involve predatory Chinese for Pakistan. In April, three U.S. Congressmen used the pretext of the mystery of CPEC agreements to ask the International Monetary Fund (IMF) not to provide loans to the struggling economy of Pakistan. Consequently, the IMF loans to Pakistan have been delayed. This means that Pakistan is paying the price for holding information on CPEC at China’s behest. By taking inspiration from Malaysia, Pakistan can challenge China on this issue and it can make the agreements public. This will not only result in gaining the confidence of the public, but Pakistan can also get loans from the IMF.

BRI Projects can be overpriced

Arguably Mahathir’s biggest success was proving that BRI projects can be overpriced, and costs can be rationalized by pressuring China. The cost of constructing one kilometer of the rail line was $23.2 million as per the 2017 agreement. However, China brought the cost down to $16.7 million, a reduction of 28 percent, due to Mahathir’s pressure tactics.

This case blasted the myth that BRI projects are always negotiated fairly by China. In fact, this proves that BRI projects can be significantly overpriced, with plenty of room for bringing down the price. This marks a dangerous trend for China, if other BRI host countries follow the path of Malaysia. Pakistan has also signed ML-1 Railway line project with China at a cost of $8 billion. Potentially this project could also be overpriced and Pakistan can attempt to rationalize its costs using ECRL as a precedent.

Can Pakistan follow the lead of Malaysia?

It would be really difficult for the government of Pakistan to follow the lead of the Malaysian government in terms of pressuring China to revising BRI projects. First of all, Pakistan has been in a strategic partnership with China for the last six decades. Pakistan is a much closer ally of China, as compared with Malaysia. China has supported Pakistan in the arena of strategic weapons and diplomacy at the UN, among others. Hence, Pakistan can’t afford to earn the wrath of China by asking to revise CPEC projects, even if they are not in its interest.

Secondly, Pakistan’s leader Imran Khan is weaker domestically in Pakistan, compared to Mahathir in Malaysia. As a result, he can’t afford to take a strong stance on CPEC even if he wants to. This was proved by the speech of Khan at the Second Belt and Road Forum in Beijing during the last week of April. He termed CPEC a transformation of Pakistani society.

Lastly, Pakistan has to move forward with CPEC projects, as both countries agreed in 2015. In the future, China might give concessions to Pakistan on CPEC agreements if there is too much public outcry. However, it will be really difficult for Pakistan to tactfully pressure China to renegotiate the terms of CPEC projects like Malaysia did. 

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