CPEC is China-Pakistan corruption corridor. This challenges Indian security in new ways

India has always factored in a possible Chinese front in war with Pakistan. Now the second front will also have to be considered in the punishment strategy.

Pakistani Prime Minister Imran Khan with Chinese President Xi Jinping | File photo: @ForeignOfficePk | Twitter

A committee in Pakistan recently presented a sensational 278-page inquiry report to the Imran Khan government about the country’s power sector, where Chinese companies are heavily involved. It exposed a sordid tale of corruption, collusion and, of course, politics. That explains why the inquiry committee included the Inter-Services Intelligence, or the ISI, and why the report will never be made public.

From power companies to airport construction to highways and safe city projects, Pakistan is now an ‘interest’ to Beijing at several levels, including personal profit, company profile and state power. There’s money to be made, and intelligence to be had, both into India and US activities in Afghanistan and Iran. The relationship, which was already close, has come a long way since the Kargil conflict, when China was Pakistan’s creditor for a mere PKR 818 million, to the last financial year, when Pakistan owed China some PKR 506,062 million (RE 2019), not including the ‘concessions’ that are built into the negotiations. Overall, Pakistan owes $6.7 billion in commercial loans to China, more than what it owes the International Monetary Fund (IMF). This has ramifications for India from Handwara to Pangong.

A deep, dark shadow of China-Pakistan friendship

Consider the facts. According to the inquiry report, a massive project, involving transmission line, which is a flagship project of the China-Pakistan Economic Corridor (CPEC), has been estimated as being 234 per cent more expensive than a similar one in India, which used better technology. Other examples refer to two coal-based power plants, where the Chinese were able to extract more than $2.5 billion by over-invoicing the plant and equipment.

Pakistan’s National Electric Power Regulatory Authority (NEPRA) was involved at every stage. Worse, two of the Pakistan Prime Minister Imran Khan’s aides, Razak Dawood and Nadeem Babar, are among those who are said to have benefitted from this massive scam. The latter, for instance, is a major shareholder in an independent power producer Orient Power, which is also the biggest defaulter on payments to the state. He has been appointed special assistant to Imran Khan on petroleum, and was earlier chairman of the Energy Task Force that involved key decision-making, apart from appointing members to the boards of various power companies.

Apparently, the Pakistan-China friendship, which is called ‘higher than the mountains’, also has a deep, dark shadow.

Chinese power in Pakistan

There have been other instances of Chinese contractors buying up the top echelons of power in Pakistan, including the Pakistani Army. For instance, the building of a new international Airport at Islamabad was contracted to the China Construction Third Engineering Bureau Co. Ltd, in a $2.6 billion project. This was the largest overseas contract won by the Chinese company. Even before the airport was inaugurated, parts of the building collapsed raising questions as to its value. Then came the investigations, which revealed embezzlement by 13 retired army and air force officers, including a Lieutenant General and an Air Marshal.

More recently, the Pakistan Army’s Frontier Works Organisation reversed an earlier decision not to give the Diamer Bhasha dam to a Chinese company, after it demanded ownership of the dam, and rights over a second such project.  Imran Khan then tried to crowd fund the construction of the dam, which has obviously fallen short. Awarded in May 2020, the project will see 70 per cent of Chinese loans. That means more Chinese labour being brought into an area where Chinese ingress has steadily increased due to the building of the Karakoram Highway. The new terms of engagement, like interest on loans for a project of $2.8 billion, are, as always, shrouded in mystery.

Other massive Chinese projects like the Safe Cities Project have also come under disrepute in Islamabad. It was found that surveillance cameras installed by Huawei in the Rs 13 billion project for the city were of poor quality. By the time the project was ready to be handed over, it was pronounced as ‘nearly out of order’. A review by a Senate Standing Committee directed that a technical evaluation of the project be carried out before taking it over from the Chinese. Senators also observed that the cost of the project was unreasonably high and that there was no doubt that the Chinese had overcharged the state. Similar projects in Karachi and Peshawar have also languished.

CPEC and corruption

There are a number of  other questionable ‘awards’ by Pakistan under the CPEC like a 23-year tax exemption for all projects in the Gwadar ‘Free Zone’. But corruption charges have come to a halt for two reasons. One, China threatened to halt funding for road projects like the Karakoram Highway, after persistent reports of graft. Second, the media is now so muzzled in Pakistan, the earlier courageous reporting has virtually come to a halt.

While much of South Asia can hardly balk at corruption, the point here is that these CPEC projects are government-to-government deals, with a World Bank report noting that corruption is built into these negotiations. Tenders are placed for any three Chinese-only companies. Contracts allow these corporations to fix the extent of local sourcing, with interviewees noting that there was little local benefit since these contractors preferred to import almost everything, including labour. ‘Pre-bid meetings’ often resulted in a dilution of the original clauses. For instance, liquidated damages for delay were reduced from 10 per cent to 5 per cent and the clause for bonus on early completion also changed.

Many Chinese contractors operating in Pakistan, like China Harbour Engineering Company, which has projects in Gwadar and Karachi, have been barred by the World Bank for unsavoury practices. In Malaysia  for instance, the company was accused of offering to inflate project costs to bail out the state development funds.

A Chinese company is China’s company

Again, these practices are not unknown in much of South Asian contracting either. But here’s the thing. There is now no longer a ‘private company’ left in China. Since 2012, President Xi Jinping’s policies have led to a resurgence in state intervention, including the National Intelligence Law 2017 that obliges them to ‘support, assist and cooperate’ with state intelligence. Article Two of the law requires intelligence work to operate across the realm of ‘comprehensive national security’, which includes just about everything, including cultural and political aspects, open source intelligence, all of which must be aimed at protecting ‘national interest’.

Huawei is cited by the US as a case in point. But the law covers all corporations. And finally, all of these major companies are tied through complicated ways to state bodies, which in turn are controlled by top echelons of the Communist Party itself.

In that process, key decision-makers in Pakistan have become richer, translating into Chinese influence on a major scale.

Beijing, therefore, has new reasons to protect Pakistan. The fact that the first clashes in Pangong occurred three days after the Handwara attack, and one day after the Army Chief M.M. Naravane threatened retaliation, may be a coincidence. India has always factored in a possible Chinese front in a war with Pakistan. Now it may be that the second front has to be considered in a punishment strategy. Beijing, however, needs to understand that two, or more, can play at that game. Chinese chequers are not exactly a favourite anywhere in the world right now, barring among Pakistan’s elite. And that’s not saying much.

The author is former director, National Security Council Secretariat. Views are personal.