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IS CPEC FINANCIALLY VIABLE?

How CPEC is actually a loss making initiative and what are China’s hidden agendas behind pushing the same:

CPEC has been projected in Pakistan as a magic wand to resolve all the issues in that country as it would bring much needed foreign investment, business, and prosperity. Over 30 news channels of Pakistan have been assuring their audience that a golden age is just around the corner. In short, everyone in Pakistan – media, military, politicians, non-state actors ( Hafiz Sayeed) are in love with CPEC.

But few sane minds are raising their voice in Pakistan about the economic viability of CPEC. Before we delve into the financial viability of the CPEC let’s check out the detailed analysis of the time and space aspects.

Calculating Container Shipping Time

Let’s assume that a driver drives for 12 hours per day. It would take him 91.57 hours to reach Kashgar from Gwadar, which would be equal to 7.7 days or 8.7 days taking pit stops into account.

Let’s assume that it takes only a day to transfer cargo from a Pakistani to a Chinese truck at Kashghar. That truck would take 170 Hours to reach Shanghai from Kashghar i.e. 14 days of driving (assuming two days for pit stops it would take16 days).

Now if we assume that Gwadar is as efficient as the port of Karachi, it would take 6 days to clear import formalities.

Thus the total time it would need to transport goods from Dubai to Shanghai via Gwadar would be 37 days compared to 15 days it would take to reach Dubai from Shanghai by sea via the Malacca Strait.

Calculations tell us that shipping through Gwadar port is costlier and more time consuming than transporting through seas, and the distance between Pakistani cities and Chinese cities is as much as the distance between Pakistani cities and major European cities. Thus, if there is no land route trade happening between Europe and Pakistan, then certainly no trade will happen between China and Pakistan on a large scale. In trade one always prefers cheaper and quicker is always preferred, which is not the case for transporting through Gwadar and Kashghar by road.

Cost comparison for the viability of CPEC

  • Distance between Shanghai and Kashgar = 5121 Km
  • Distance between Kashghar and Gwadar = 2747 Km
  • Average Trucking cost per Ton per Km in China = 7 cents.
  • Average Trucking cost per Ton per Km in Pakistan = 3 cents.

This is the most conservative calculation not taking into account Hazard premium that the nature of Terrain imposes on Pakistan (Karakoram Highway is rated world’s fourth most dangerous highway. There’s a hazard premium that China has to pay for transporting goods through Takla Makan Desert, Kulun Shan mountains range, and Altai Shan mountain range).

But still, let us calculate the cost of transporting a Ton of goods from Shanghai to Gwadar.

  • Cost incurred in Chinese territory = 0.07 X 5121 =$358.47
  • Cost incurred in Pakistani territory = 0.03 X 2747 =$82.41
  • So total cost from Shanghai to Gwadar for a ton of goods by road = $440.88 or approx Rs 50,000 PKR per ton.
  • (Since Pakistan doesn’t export high value goods but mainly low value textiles, the cost of transportation itself will far more than the cost of production! Thus Pak exports to China via the CPEC will be a non starter!)

Now let the destination port be Dubai.

  • Cost of Transporting 1 ton via sea from Dubai to Shanghai via Malacca = $28.93
  • Cost of Transporting 1 Ton via sea from Karachi to Dubai = $5.787

Therefore, total cost of Shipping a Ton from Shanghai to Dubai via Gwadar = $446.67.

But the total cost of Shipping directly by sea from Shanghai to Dubai via Malacca Strait = $28.93 which is 16 times less than that of Transporting via Gwadar!!!

Thus the total cost of Transport from Gwadar to the Chinese border is more than what would be required for Transport from Dubai to Shanghai by sea!

And then, what none of the Pakistani ‘experts’ ever discuss is the fact that the  CPEC will be non-functional for 4-5 months a year when the 15,500 ft Khunjerab Pass is closed due to adverse weather conditions.

Under the protocol agreement signed by Pakistan and Chinese authorities, the border is usually closed on Nov 30 and reopened on April 1 every year which could be extended depending on the weather conditions. Therefore, there would be no trade along the CPEC during this period resulting in a massive loss of revenue.

So why is China pushing the multi-billion dollar CPEC?

The truth is that the CPEC is basically meant as an alternative route to China in case of any disruption in the Strait of Malacca. Despite increased imports through Russia and Kazakhstan, China remains heavily dependent on Middle Eastern oil, with up to 80 percent of its energy supply passing through the Malacca Straits.

However, more importantly, Gwadar is being developed by the Chinese to establish a PLA base there and the CPEC is being built basically for its logistics support.

A Chinese naval base at Gwadar will enable them to dominate the Strait of Hormuz as well as the Indian Ocean region.

For Pakistan, it would be an insurance policy against any Indian naval attack on its facilities due to the Chinese naval presence at Gwadar.

 mohdtahirshafi@gmail.com

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