Corridor Calculus

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Corridor Calculus : China Pakistan Economic Corridor & China's Comprador Investment Model in Pakistan 252 to markets — pretty much the same reason for which colonial powers build railroads. But in recent years two things have happened: one, with commodity prices and demand crashing, the expensive projects have stalled; and two, with the Chinese economy slowing down, it has had an impact on the Latin American economies whose fortunes had become 253 linked a little too closely with China. The old adage of the world catching a cold when America sneezes, applies as much to China these days, and the devastating impact of the slowdown in China is being felt in many Latin 254 American countries. Although the Latin American countries did benefit from the roads, railroads and other infrastructure projects that China built, they have also paid a fairly high price for these projects. In other words, the problem isn't so much that money was sunk into useless projects but more that the price at which this money came. And this raises questions about the Chinese model of foreign investment, questions that would also apply in the case of Pakistan. Given the hype in Pakistan that CPEC will change the destiny of the country, it would perhaps be instructive to know how much the massive Chinese investments in Latin American countries changed their destiny. For instance, the Chinese have pumped in over $50 billion in Venezuela, and yet it has hardly made any difference either to that country's economy or in the lives of its people. For that matter, the Chinese experience in Venezuela — 255 billions of dollars stuck in loans and inadequate returns on investment — should serve as a wake-up call for China on what, where and who it should invest in. A financial analyst based in London has said that the economics underpinning Chinese investment and political strategy in Asia, Africa and Latin America is now increasingly coming under scrutiny. While the Chinese are worried over the repayment capacity of the Latin American countries, 252 Simon Romero, 'China's ambitious rail projects crash into harsh realities in Latin America', New York Times 03/10/2015, accessed at http://www.nytimes.com/2015/10/04/world/americas/chinas-ambitious-rail-projects-crash-into-harsh-realities-inlatin-america.html 253 Ibid. 254 Keith Bradsher, 'China falters, and the global economy is forced to adapt', New York Times 26/08/2015, accessed at http://www.nytimes.com/2015/08/27/business/international/china-falters-and-the-global-economy-is-forced-toadapt.html?_r=0 255 Mark Hanrahan, 'China's multi-billion dollar loans to Venezuela face uncertain future as oil prices slump: report', International Business Times 19/06/2015, accessed at http://www.ibtimes.com/chinas-multi-billion-dollar-loans-venezuelaface-uncertain-future-oil-prices-slump-1974614 60
Corridor Calculus : China Pakistan Economic Corridor & China's Comprador Investment Model in Pakistan the latter are asking how long they will allow the former to export its surpluses and debt to them. What the Chinese have also done is used their money as leverage with some Latin American petroleum companies to gain deep-sea drilling technology as well as ride piggy back on them partly as equity holders and partly as sub-contractors to grab a share in oil concessions in Africa, in particular Nigeria. The big question the analyst asks is “what after the Chinese finish building their roads, rails and ports wherever these are being built? Can China go on subsidising their State Owned Enterprises (SOEs) and shovelling their domestic savings and their foreign exchange reserves in building infrastructure projects in high-risk 256 countries in Asia, Africa and Latin America?” Other analysts elsewhere have also been asking questions about how efficacious OBOR will be in achieving its domestic and global objectives, both in the realm of economics as well as in the field of strategy. One obvious problem is, of course, the fact that most of the countries that are to be part of OBOR are 'politically volatile and economically vulnerable' and the returns from investment there will be very iffy. Another problem is that most of the foreign investment is made by SOEs and tends to give low returns because costs, risks and benefits haven't been carefully calculated. In other words, the benefits (in terms of taking care of the problem of overcapacity) may be too short-sighted, and in terms of returns too long- 257 sighted. There is also the whole issue of countries welcoming the Chinese investment when it is being made, but when the pay-back time comes, many of them may balk at the price they have to pay; this, in turn, may fuel resentment and ill-will against China, including against the overbearing attitude of the Chinese managers and workers, thereby defeating the geostrategic purpose for which hundreds of billions of dollars were invested in 258 the first place. Many Chinese analysts have themselves listed out all the pitfalls and problems, both geo-political and strategic nature as well as of the economic type that will confront the OBOR. These include territorial disputes with countries that lie along the Maritime Silk Road, the threat 256 Interview with an independent consultant based in London, September 2015 257 Op. cit. (The Diplomat) 258 Op. cit. (CSIS) 61
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