Understanding CPEC and Its Negative Impact on the People of Pakistan

Analysis

By Arun Anand

The China-Pakistan Economic Corridor (CPEC), integral to China’s Belt and Road Initiative (BRI), was heralded with promises of significant economic growth, infrastructure enhancement, and energy security for Pakistan. Since its inception in 2013, CPEC has drawn over $62 billion in investments, positioning it as a pivotal project for Pakistan's future. However, despite the official narrative emphasising the benefits, substantial negative repercussions have emerged, adversely affecting the Pakistani populace. This article critically examines the detrimental impacts of CPEC on Pakistan's economy, environment, local industries, regional inequalities, and socio-political dynamics. By presenting relevant data and statistics, it argues that the long-term costs may indeed eclipse the purported advantages.

Debt Trap and Economic Dependency on China

One of the most pressing negative consequences of CPEC for Pakistan is the escalating debt burden. Although the initial influx of Chinese investment has spurred infrastructure development, the conditions attached to these loans and the growing dependency on Chinese funding have resulted in a troubling increase in external debt. From 2013 to 2021, Pakistan's external debt more than doubled, rising from $60.9 billion to $116.3 billion. CPEC has been instrumental in this debt surge, with many infrastructure projects financed through loans from Chinese banks, often at relatively high interest rates. Consequently, Pakistan faces the daunting task of repaying these loans in foreign currency, exacerbating its financial vulnerabilities.

Table 1: Pakistan’s External Debt Growth (2013-2021)

Source: World Bank, Pakistan Economic Survey 2021-22, Ministry of Finance (Pakistan)

The rising debt burden is particularly alarming, considering Pakistan’s fragile economic situation. The World Bank reports that Pakistan’s external debt as a percentage of its GDP has surged from 23% in 2013 to 43% by 2021. This sharp increase has sparked fears of a potential "debt trap," akin to the predicament faced by countries like Sri Lanka, which also heavily engaged with Chinese investments. As the economy grapples with these mounting pressures, concerns grow regarding the sustainability of such financial practices and their long-term implications for national sovereignty and economic stability.

Balance of Payments Crisis

The China-Pakistan Economic Corridor (CPEC) has resulted in a notable impact on Pakistan's balance of payments. The inflow of Chinese loans, coupled with the import of Chinese machinery and materials, has led to a significant widening of the current account deficit. By 2021, Pakistan's current account deficit had escalated to $16 billion, amounting to nearly 4% of its GDP. This heavy reliance on Chinese imports, combined with the obligation for debt repayments, has heightened the country's balance of payments crisis, placing substantial pressure on Pakistan's foreign exchange reserves. As these financial pressures intensify, Pakistan's economic stability is at stake, prompting critical inquiries into the sustainability of such dependencies.

CPEC's energy projects, especially the heavy reliance on coal power plants, have sparked serious concerns regarding environmental degradation and public health. Despite initial commitments to transition towards renewable energy, much of CPEC's energy framework has been dominated by coal-based generation. Plants like the Sahiwal and Port Qasim Coal Power Plants have significantly exacerbated air pollution in their respective regions. The Pakistan Environmental Protection Agency (Pak-EPA) reports that air quality in Sahiwal has worsened since the coal plant's completion, with particulate matter (PM2.5) levels consistently surpassing safe limits established by the World Health Organization (WHO). This troubling trend highlights the urgent need for a reassessment of energy strategies to safeguard public health and the environment.

Table 2: Air Quality in Sahiwal (2015-2021)

Source: Pakistan Environmental Protection Agency (Pak-EPA), World Health Organization (WHO) reports on air quality, Pakistan Medical Association (PMA)

The rise in coal-based power generation has resulted in increased emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx), contributing to acid rain and respiratory diseases. A study by the Pakistan Medical Association (PMA) indicates that respiratory illnesses in the Sahiwal region have surged by 22% since 2017. Beyond air pollution, coal plants have also exacerbated water pollution through the disposal of toxic ash. The Port Qasim Coal Power Plant, for instance, has faced criticism for releasing coal ash into nearby water bodies, adversely affecting local fisheries and agriculture. In Balochistan, the Gwadar region is grappling with a severe water crisis, worsened by CPEC-related infrastructure development. The diversion of water resources for the Gwadar Port has left local communities with limited access to clean drinking water, fostering the spread of water-borne diseases and highlighting the urgent need for sustainable resource management.

The development of large-scale infrastructure projects under CPEC has resulted in the displacement of local populations and disrupted traditional livelihoods, particularly in rural and underdeveloped regions. In areas like Gwadar, local fishing communities have been forcibly relocated to accommodate the construction of ports and industrial zones. A report by Human Rights Watch (HRW) reveals that over 30,000 individuals in Gwadar have been displaced since 2015. These communities, which depend significantly on fishing for their sustenance, have been left without alternative income sources or adequate compensation. This upheaval not only threatens their economic stability but also undermines their cultural heritage and social fabric, raising critical concerns about the social implications of such rapid development.

Table 3: Displacement Due to CPEC Projects (2015-2021)

Source: Human Rights Watch (HRW) reports, local news media on displacements in Gwadar, Thar, and Hazara

The displacement of communities has not only disrupted the socio-economic fabric of these areas but has also fostered growing discontent among local populations. Protests and demonstrations against CPEC projects have emerged in Balochistan and Sindh, reflecting the frustration of marginalized groups who feel excluded from the initiative's benefits. While CPEC has indeed created job opportunities in sectors such as construction and energy, a significant portion of these jobs has been filled by Chinese workers. The Pakistan Economic Survey (2021-2022) states that over 40,000 Chinese workers are employed in CPEC projects, compared to just 75,000 Pakistani workers. This influx of foreign labour has bred resentment among local workers, who perceive themselves as being sidelined. Furthermore, reports of labour rights violations in CPEC projects highlight issues like poor working conditions, low wages, and insufficient safety measures. In 2019, Pakistani workers at Gwadar Port staged a strike, demanding improved pay and working conditions. These disputes raise critical questions about CPEC's long-term benefits for local communities, especially given the unequal distribution of projects across Pakistan, with provinces like Punjab and Sindh receiving the majority while Balochistan and Khyber Pakhtunkhwa (KPK) are left behind.

Concentration of Projects in Punjab and Sindh

Punjab and Sindh, as the more economically developed provinces, have garnered the majority of CPEC projects, especially concerning infrastructure and energy investments. The Ministry of Planning, Development, and Reform reports that over 60% of CPEC projects are concentrated in these two regions. This significant allocation raises concerns about regional disparities, as other provinces, particularly Balochistan and Khyber Pakhtunkhwa (KPK), remain largely underrepresented in this crucial development initiative. The uneven distribution of resources exacerbates existing inequalities and fuels feelings of neglect among communities in less developed areas, highlighting the need for a more balanced approach to development that ensures equitable benefits across the entire country.

Source: Ministry of Planning, Development, and Reform (Pakistan), CPEC official project reports

This uneven distribution has deepened existing regional disparities, with underdeveloped provinces like Balochistan receiving limited investments despite hosting critical infrastructure, such as Gwadar Port. The underrepresentation of these areas in CPEC projects has intensified local grievances, contributing to heightened political instability, particularly in Balochistan. Insurgent groups have increasingly targeted CPEC workers and infrastructure, reflecting the growing discontent among communities that feel overlooked and marginalized. This cycle of neglect and violence poses significant challenges to the sustainability of CPEC, as it threatens both the safety of workers and the overall integrity of the projects in the region.

CPEC has faced criticism for marginalising local businesses, particularly small and medium-sized enterprises (SMEs). The influx of Chinese goods and services has created challenges for local industries, especially in the manufacturing and construction sectors. The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) reports that many Pakistani SMEs have been compelled to shut down due to their inability to compete with cheaper Chinese imports. This dynamic not only undermines local entrepreneurship but also threatens the livelihoods of countless workers, raising concerns about the long-term viability of domestic industries in the face of overwhelming foreign competition. The situation calls for urgent policy interventions to support local businesses and promote sustainable economic growth.

Security Concerns and Increased Military Spending

The security situation in Pakistan, especially in regions like Balochistan and KPK, has worsened as a consequence of CPEC. Insurgent groups and separatist movements, such as the Balochistan Liberation Army (BLA), have specifically targeted CPEC infrastructure and Chinese workers, resulting in heightened violence and instability. This increase in attacks not only jeopardises the safety of workers but also threatens the overall viability of CPEC projects, further complicating an already fragile security landscape. As local grievances continue to fester, the potential for continued unrest poses significant challenges for the long-term success of this ambitious initiative.

To safeguard CPEC projects and personnel, the Pakistani government established a special security division comprising over 15,000 personnel. However, the financial burden of maintaining this security force has further strained Pakistan's already limited budget. According to the Pakistan Army, the cost of securing CPEC projects has escalated from $250 million in 2015 to over $500 million by 2021. Moreover, CPEC has ignited political and social discontent within Pakistan. Numerous political parties and civil society organisations have expressed concerns regarding the opacity of CPEC agreements and the growing influence of China over Pakistan's economic and political landscape. This increasing scrutiny highlights the need for greater transparency and accountability in managing such a pivotal initiative.

Public Opinion on CPEC

While CPEC has been touted as a symbol of progress, public opinion remains divided. A 2020 survey by Gallup Pakistan revealed that 61% of respondents held a positive view of CPEC, yet 23% voiced concerns about China's increasing control over Pakistan's resources and infrastructure. This mixed sentiment underscores the complexities surrounding CPEC, as many citizens appreciate the potential economic benefits while simultaneously fearing the implications of foreign dominance. As the debate continues, it is crucial for policymakers to address these concerns to foster broader public support and ensure that CPEC's advantages are equitably shared among all Pakistanis.

Table 5: Public Perception of CPEC (2020)

Source: Gallup Pakistan Survey (2020), reports on public perception of CPEC

This growing scepticism highlights fears regarding Pakistan's diminishing economic sovereignty, as well as the uneven distribution of CPEC's benefits across various regions and societal sectors. While CPEC has undoubtedly delivered some economic and infrastructure gains, the negative consequences on the economy, environment, local industries, and social fabric are substantial. The escalating debt burden, environmental degradation, regional inequalities, and socio-political unrest underscore the necessity for a more balanced and sustainable approach to CPEC. Pakistan must confront these challenges to ensure that the long-term costs do not outweigh the benefits. Achieving this requires enhanced transparency in CPEC agreements, a fairer distribution of resources among provinces, and a stronger emphasis on environmental sustainability and labor rights. By addressing these critical issues, Pakistan can ensure that CPEC genuinely benefits its citizens and fosters inclusive, sustainable development.

The writer is a senior journalist and has written more than a dozen books. His x handle is @ArunAnandLive