XI reasons not to lose sleep over CPEC/OBOR

Thanks to our famous DD newsreader, by now the whole world knows how to pronounce Chinese President Xi Jinping’s name! So here’s our top 11 reasons not to lose sleep over CPEC, OBOR, BARF, BRF, SRI or whatever its most recent name is.

  1. There’s a lot of marketing hype that would put a dotcom bubble company to shame! Words like “game changer”, “new dawn” are used with such regularity, they have almost become pedestrian. Riding on the bandwagon, projects that have nothing to do with belts or roads or China are getting tagged with the label hoping there will be some lucrative contracts or deals (mostly for Chinese companies, of course) or lemons would magically transform into hot potatoes. One example is the Singapore-KL High speed rail project. This not only predates the OBOR initiative, it is mostly bilateral and nothing to with China.
  2. US/Europe sending delegations doesn’t mean a thing. Greece, Germany and other European nations, apart from Australia, reportedly refused to sign the official declarations because there were no assurances of “transparency” in deals – code word for “let me have my share of the meat”. EU that has nothing to lose in territory & is strategically in deep trouble anyway, simply wants its companies allowed to grab some of the contracts. It is not an endorsement of the OBOR or any specific projects. Obviously China’s ideas are something else.
  3. A lot of the connection is already there and hasn’t change any game for anyone. They get a fresh coat of “OBOR” paint for propaganda purposes. For example the much ballyhooed London-China direct train service. This too predates the OBOR by years. Here is a nice article in SCMP that debunks much of the hype about its “game changing” potential. A container ship can carry nearly 300 train loads! To replace that (that is, just one ship) trains have to run every 90m in both directions, something the infrastructure can hardly handle! On top of that it is twice as expensive if not more! Interestingly, this also means China doesn’t really need Gwadar to import or export from EU as it makes zero sense sending goods partly by train or truck & then ship them again when the train goes all the way!
  4. Just look at the rogues gallery of leaders that signed up! Clearly no globally respected, truly democratic & sensible leader has bet his reputation on CPEC/OBOR/BRF. Duterte of Philippines whose foul mouth and anti-US sentiments are well known, Najib Razak of Malaysia reeling from corruption allegations following the IMDB scandal, Hun Sen the long ruling dictator of Cambodia, Jihadi terrorist Pakistani generals and their puppets in the civilian government, Mahinda Rajapakse regime facing human rights questions in Lanka & ignored by the West, Thug-ocracy of Chavez/Maduro in Venezuela…the list goes on. Most of them, if not all, have practically no options worth considering and this pushes them into the laps of Xi Jinping who can pretty much dictate any terms he wants to! Sadly the people in these countries will pay, not the leaders or their cronies.
  5. Projects not bankable! Many of the projects have not taken off all this while because they were not bankable in the first place! That is, no one wants to invest or lend to them. This is precisely what motivates smaller nations and those with dubious records to rush to China. After all, Tata or Birla don’t go to the pawn broker for money. This also means, once they are constructed the chances are they will become white elephants that someone finally has to pay for. That is more likely than not the hapless tax payers of these countries who had zero say on them to start with. Sri Lanka’s Hambantota is a good example. There are more, including a refinery in Kyrgyzstan. Here a refinery was built without tying up oil supplies!
  6. China is simply looking for insurance policies not live alternatives. After all, if Malacca straits are not blockaded by war it makes zero sense shipping from Gwadar via Xinjiang across thousands of miles to China’s industrial heartland which lies in the East! By the way Xinjiang already has good connectivity to Central Asia through numerous initiatives of the past and doesn’t need Gwadar for transit. Nor have they changed any “game” for the nations involved. Myanmar’s new pipeline to Yunnan at least makes some geographical sense, even that has viability concerns!
  7. The doors will not close just because we don’t sign up on Day 1. These veiled threats have been issued both by China’s official media and by its friends in India. Sign NOW or you’ll be a loser forever! But then that is not how world of commerce and diplomacy works. China will be (and is most certainly not) a complete idiot to punish India or burn bridges with a nation against which it is running a huge trade surplus (About $4b a month, that is a lot more than CPEC which is a 10+ year project). India can wait, haggle, raise the price and finally settle for something that makes sense to its own interests as it is not a banana republic run by a tinpot dictator or loose mouthed loonie without any other sensible options on the table.
  8. China is already supplying to India, giving loans, investing! And in billions! CPEC or BRF notwithstanding! This is apart from the trade figures we cited above. But then these projects are going through proper bidding, on commercially sensible terms, and in mutual interest, not grabbed by diktats at crazy predatory prices. Alibaba, Dalian Wanda, Didi Taxi, Haier, Huawei and so many others are investing where it makes sense to them. And they will continue to do so. We don’t need government to government deals certainly not for power, roads etc. May be railways – yes given their long gestation, but here again our needs are vastly different from, say, Philippines or Indonesia who have very little internal expertise, technology, project management skills or funds.
  9. China is not the only game in town. We can and should team up with the Europeans, Japan and many others for select projects where there’s commercial and strategic synergy, bidding is transparent and transactions commercially viable and most importantly, beneficial to the host nation. China has already lost a lot of credibility in a wide range of markets thanks to the greed, corruption, insensitivity and bad quality of its businesses. We don’t have to rush to import more of the same.
  10. China’s credit squeeze is hurting many of the promised investments. This will eventually hurt many so-called OBOR/BRF projects that have nothing to do with the core strategic aims of China and are renamed simply to ride on the marketing hype. The Bandar Malaysia project (see our separate article on that topic) is one. So it is not a smooth pathway to investment nirvana for the receiving nation.
  11. We are big enough to do it ourselves. Need we say more on this? Ironically many of our champion non-aligned, anti-colonial, anti-imperialist, anti-globalisation anti-big business left “progressive intellectuals” have become de-facto marketing agents of China pushing OBOR/BRF with all the naive enthusiasm as a housewife that signed up for latest pyramid marketing miracle drug or slimming plan to hit the town!. Shame on them. https://twitter.com/mkvenu1/status/863330735377141760

So let us stop whining, worrying, biting our nails off and wallowing in defeatist rhetoric.

Comments are welcome!




Malaysia cancels Chinese project – Bandar Malaysia

Indian media covers CPEC a lot but happenings in other parts of the world that are equally important receive scant coverage. How many of us know that unlike CPEC which is mostly talk (and some coal fired power plants on one sided terms that no sensible nation would accept) China has already invested US$35b between 2010 and 2016 in Malaysia.

Malaysian Government decision to scrap the sale of Bandar Malaysia site to a consortium that included a Chinese government entity is one such event has has passed unnoticed by Indian media.

About Bandar Malaysia

The Sungai Besi airport, about 7km from KL city center is an old one – this is where Tunku Abdul Rahman landed from London, bringing news of Malaysia’s independence in 1956. It was used by Malaysia’s Air Force and for some VIP flights and is largely unused.  The site was sold in 2011 to the infamous 1MDB to become “Bandar Malaysia”, a city within city incorporating various developments and drive Kuala Lumpur area’s future growth. When 1MDB collapsed (a hugely entertaining story in of itself) the land was taken over by Ministry of Finance as part of “restructuring”, rather rescue.

The area of land involved is about 190Ha.

In late 2015, 60% ownership of the land parcel was sold again by MoF to IWH / CREC consortium for RM7.4b. IWH owned by ethnic Chinese tycoon Lim Kang Hoo who also runs the Danga Bay Waterfront city (4300acre) in Johor in the south, close to Singapore. CREC is PRC goverment owned China Railway Engg Corpn. CREC also threw in a sweetener, promising to build a RM8b Regional HQ in the site.

As with CPEC various grandiose plans were bandied about (one was a “digital” FTZ), along with talks of changing face of Malaysian growth, enormous local employment opportunities etc.

Subsequent developments have made the site worth a lot more – the Singapore – KL High Speed Rail (HSR) project terminates in Bandar Malaysia. This plus the new MRT line under construction that will link Putrajaya (in the south) to Sungai Buloh via KL city is also likely to boost land values. In fact the original RM12b valuation, it is reported, will be well above RM20b now.

Malaysia wakes up?

As with most other deals of this sort in Malaysia, it is not clear how this particular consortium was chosen for the award. Supposedly at government levels without any bidding. But at that time it was justified since 1MDB collapse was hurting Malaysia badly and no one else was willing to come to its rescue other than the Chinese.

This is where the unknown unknowns come in. Because it was a rescue operation, it is not clear what was promised to the Chinese in return. Reports indicate the Singapore-KL High Speed Rail project is one such quid pro quo. That’s worth a lot – US$23 billions by some estimates. Now Japan is rumoured to be the front runner.

JV with Chinese characteristics

PRC has its own way of doing things in such “joint ventures”. It controls the entire supply chain and brings its own labour even for unskilled jobs. Supply of materials too is from Chinese entities. As Singapore’s Straits Times reported, even the canteen staff in Xiamen Uni campus in Malaysia are from China! While this may be perfectly acceptable to the mard-e-momeens of Pakistan thanks to its irrational anti-India hatred and army de-facto rule, Malaysia is a different case.

Although it was desperation (caused by the 1MDB collapse) that threw Najib into the arms of the Chinese, (a theme that should be familiar to Pakistanis re CPEC) he is smart enough and Malaysian politics unstable enough for things to change when circumstances change. Under the table promises are also harder to enforce.

There have been murmurs of dissent and complaints from local industrialists over lack of goodies from the gravy train to local tycoons, who, ironically are almost all ethnic Chinese. In fact there have even been reports that Chinese citizens will be allowed to settle in Malaysia in real estate projects such as Danga Bay, because there are not enough locals to fill those apartments! Such reports have been denied but allegations are not just by the fringe, and have been made by Mahatir Mohammad, Malaysia’s ex-PM.  Since ethnic issues are never too far below the surface in Malaysia, this can be troublesome for the ruling elite to explain.

What next?

Going by reports, it seems Najib cleverly grabbed the chance to get away from a bad deal using non payment as a convenient excuse. The Chinese quid pro quo demands (termed in one report as a “shopping list”) was just too much for Malaysia to pay. Now he can re-sell the same land to another consortium for even bigger amount (should one be willing) and start all over again!

However, it is not clear how PRC will react to this since it seems its capital control restrictions on overseas investments have a role to play. If it is so, it may bite the bullet, even if the bullet train project is not for it to take a bite on. In fact, China has been rolling back or pulling out of numerous Malaysian (and other international) projects because of its internal issues, capital flight, dubious viability and other concerns. The fact that it is still “investing” in CPEC goes to show the juiciness of those contracts, thanks to Pakistani surrender. After all who else can give 15-30% assured returns on equity, 7%+ interest rates on loans and ability to sell third rate products (anyway in surplus) at super premium prices without any competitive bidding?!

Or it may react with under the table pressure and squeeze Malaysia to give up something else in return for the 1MDB rescue act. The fact that such murky deals always involve murky pay offs may give it additional leverage given the political situation in Malaysia.

All this gives us enough indications on how CPEC itself will proceed. Given Pakistan’s utter helplessness and abject surrender thanks to its own visceral hatred for India, the scale of loot is likely to be worse. If the aam Abdul in Pakistan wakes up one day just like Najib did, there could be interesting repercussions!










Malaysia, Philippines and CPEC

Game changer?

As we all know, Pakistan has been promoting CPEC as a “game-changer” both to aam Abduls of Pakistan itself and to outsiders. This project is supposed to lift Pakistan straight out of stone age into WESTERN LEVELS OF prosperity.

As we have pointed out earlier, thanks to the India-card which Pakistanis have printed out and supplied in abundance, China is able to pretty much ask for whatever it wants, commercially, strategically and militarily. High interest rates, sweeter than honey terms, taller than mountain debt, deeper than ocean opacity, you name it they can get it for CPEC.

Now Pakistan is facing even more competition, from two unlikely new corners – Malaysia and Philippines. What that means is the terms have to become even sweeter before Uncle Xi is going to cough up any more Yuan.

Malaysia, IMDB and China factor

The Malaysian PM, Najib Razak is under considerable pressure not just domestically but even from US, Switzerland and other countries for the vast IMDB scam. You can google for more and enjoy all the juicy details but to cut the long story short, billions of state funds have found their way into personal accounts of the powered elite and their cronies.

As US and others turn on the screws, Najib has responded with typical (and familiar) anti-Western rhetoric and jumped on the Chinese bandwagon.

Interestingly, the response from Najib is quite similar to that of the Pakistani PM. Encourage fanaticism and Islamic extremism, approach “friends” in Middle east for certificates of conduct and bailouts, and last but not the least, court the Chinese ignoring all risks and commercial common sense.

And the Chinese are responding – big time. On top of various other projects and investments, the Iskandar project in the southern state of Johor alone is worth almost $100b – that is twice the size of CPEC.

And all said and done, investing in Malaysia is a lot more secure than Pakistan with more prospects of returns and less of bomb blasts and jihadi terror although Najib’s Malaysia is rapidly moving in the “right” Wahabi direction. Chinese feel at home there thanks to the fact that more than 25% of Malaysians are ethnic Chinese which ensure steady supply of food & entertainment, language convenience, business contacts and cultural familiarity. Plus Singapore which is 80% Chinese and stable, prosperous, is close by and is a key target market.

If you were a  Chinese businessman with $1b to invest, you will be mad to choose Pakistan over Malaysia. Unless you get taller than mountain..well you heard that line earlier 😉

DUTERTE falls at XI’s feet

As if Malaysia’s sudden pivot is not enough, the recent ascent of Duterte in Philippines has given China yet another opportunity to pump funds and buy goodwill.

In addition to shooting off his mouth against the USA on every occasion, Duterte has also made it very clear he looks to China to fund infrastructure and supply arms and boost growth.  It doesn’t matter whether he will succeed or not. He is going to be around for another six years barring disasters, and he is going to make things even more difficult for Pakistan.

Why? Again given limited investment funds, China will look for quality targets not jihadi fanatic cesspool like Pakistan. Yes, it will throw some money at Pakistan too, to keep them on the hook but there is no reason to do so without squeezing out special terms and conditions.

Philippines too shares many of the advantages of Malaysia. Its ethnic Chinese population is more integrated with the mainstream in terms of language,script and religion (unlike the Malaysian Chinese) but it has numerous Chinese tycoons with close links to China who control almost all of Philippines’ business and trade. It has skilled manpower and English speaking populace (another key advantage over Malaysia and Thailand) which has filled numerous call centers and BPOs and is already a decent sized manufacturing base for  hi-tech including Intel chips and solar panels. Duterte himself is a half Chinese.

As if these two were not enough, other despots and undemocratic regimes are also courting China. For their own good reasons and mainly because they can’t get along with the West which asks too many inconvenient questions. Cambodia is one with its strongman Hun Sen a big time friend of China and its “investments”.

If I were Narendra Modi, India should demand a commission from China for CPEC as they are able to get excellent terms thanks to our “threat”.


CPEC power projects

This article is right now a “stub” i.e., being developed. But we are posting it online as it is being written so any comments can be incorporated.

This article is part of our CPEC watch series.

As you may be aware, bulk of the CPEC dollars go into energy sector projects. Of the $50b or so earmarked for CPEC, $30b is for such projects. Bulk of this money goes into coal based thermal power projects.

Ignoring the small ones, here is a quick summary of the major projects.

NameCost ($b)MWTariff (c/Kwh)Remarks
Port Qasim2.0813208.12LIBOR + 4.5% rate for this & most other projects listed here! Plus 7% insurance on interest!
Thar 12.013208-8.5Some reports say PKR 8 which is slightly less.
34% ROI guaranteed!
Thar 21.16608-8.5Plus mine $800m
Sahiwal1.813208.3627% ROI Guarantee!
Suki Kinari Hydro
Karot Hydro

Update Jan 2017: As per this article, some of the projects (actually amounting to 50% of generation capacity) would be delayed by at least a year. A new list of projects as of date will be made presumably in February.

How does Pakistan benefit?

Reading the mainstream Pakistani press or listening to its politicians and Generals, you can conclude CPEC is the magic bullet that will transform Pakistan into another Switzerland or Singapore or may be both. The Pakistani intellectual class has been raising some hard questions, although quietly. The religious right is so far sold on the benefits though that could change fairly quickly.

We can look at 3 possibilities:

  1. Energy projects are simply a way for China to dump its excess capacity and grab juicy contracts for its manufacturing sector floundering on reduced domestic demand and worsening international market. It is using the carrot of CPEC to extract this benefit from the Pakistani Generals.
  2. Pakistan is throwing this as a sweetener willingly to be eligible for the strategic (and military) benefits that accrue from the CPEC’s non-energy part. This essentially means tying up China and its powerful military-economic complex to secure Pakistan’s interests particularly vis-a-vis India. That is why they are not de-linked from CPEC nor are subject to any competitive bidding or transparent procurement norms.
  3. It is China that is throwing money at Pakistan by funding all these energy projects, so that Pakistan can be persuaded to literally hand over the CPEC route to China. After all, why should the Abdul on the streets of Pakistan care if China benefits from a shorter route to the Gulf?

Of the 3, we can straightaway rule out (3). While it is hard to compare projects across time and geography, that too with numerous variables such as coal linkages, ports and rail handling infrastructure etc., simple back of envelope calculations show these projects are nearly twice as expensive as comparable NTPC (India) ones. (Note: We would be happy to stand corrected if this is wrong).

The tariffs too are much higher (8-11 US cents) whereas NTPC has been having trouble selling power even at 7c (INR 4.3) and falling, since prices are even lower in the open market in India (INR 3.5)!  Recent solar bids are also lower than this price!.

Therefore one can venture to say Pakistanis are royally screwed, even without counting the extra security and other invisible costs. Remember, these costs are in dollars and will keep fluctuating (mostly increasing) with time. Even if these worst case theories are wrong, it would indeed be quite safe to conclude that China is not at least throwing its hard earned money at Pakistan.

(1) and (2) hardly make any difference in terms of actual cost to Pakistan, only its acceptability, although Pakistani aam Abduls have been sold on theory (3) and the fact that China has been so kind and benevolent. The question then boils down to the benefit that come with such costs.

It is interesting to note that while the rest of CPEC will take a long time to come to fruition, the energy aspects are being fast tracked with supposedly quick win benefits for Pakistan. The general elections due in 2018 in Pakistan obviously has a significance too.

Note also that some of these projects pre-date the CPEC or even the OBOR and have been grand-fathered in to make the CPEC sound bigger and ride on the publicity bandwagon.