A Conversation with Ambassador Alice Wells on the China-Pakistan Economic Corridor

Addressing the Woodrow Wilson International Centre for Scholars think tank on 21 November 2019, the Principal Deputy Assistant Secretary of State for South and Central Asia Alice Wells said that, India is the only major country in the world to have opposed the OBOR project on the grounds of territorial sovereignty. She further said that, struggling with debts, Sri Lanka formally handed over the southern sea port of Hambantota to China in 2017 on a 99-year lease. We share India’s concerns over projects that don’t have any economic basis and that leads to country ceding sovereignty, Wells said, adding, Sri Lanka is not the only country that effectively ceded sovereignty over a key asset.

As delivered.

Mr. Kugelman:  Good afternoon, everyone.  Thank you for coming today.  My name is Michael Kugelman.  I’m the Senior Associate for South Asia here at the Wilson Center. 

We are delighted to welcome to the Wilson Center Ambassador Alice Wells, the Principal Deputy Assistant Secretary of State for South and Central Asia at the U.S. Department of State.  Ambassador Wells is here to speak about China’s Belt and Road Initiative, or BRI, and particularly the Pakistan component of BRI, the China-Pakistan Economic Corridor or CPEC.

CPEC is significant for a number of reasons.  It involves two countries that figure prominently in U.S. strategic thinking.  It is one of the more operationalized components of the wider BRI enterprise with a number of new projects having been launched.  It is also a case of one of America’s top strategic rivals, expanding its investments and influence in a country where Washington is arguably less present and less popular.

At the same time, CEPC is also a high stakes risk for China and Pakistan given very real concerns about financing and transparency among other things.  It is not all that common for Senior U.S. Officials to speak publicly on BRI and CPEC so we’re really very fortunate this afternoon to have Ambassador Wells with us to give a U.S. perspective on CPEC, and we really are very much looking forward to hearing her out.

Just a very quick word about the Wilson Center.  The Wilson Center was chartered by Congress in 1968 as the official memorial to President Woodrow Wilson.  We are the nation’s key non-partisan policy forum for tackling global issues through independent research and open dialogue to inform actionable ideas for the policy community, and we seek to bridge the gap between policy and academia in honor of Woodrow Wilson, the only U.S. President to have held a PhD — a piece of trivia I’m sure that you all knew.

Finally, I wanted to thank the Wilson Center’s Kissinger Institute on the U.S. and China, our institutional cosponsor for today’s vent.

So now I will turn things over to my colleague and friend, Ambassador Bill Milam who will introduce Ambassador Wells and moderate this event.  Bill is a Senior Fellow here at the Wilson Center.  He’s a retired Senior U.S. Diplomat.  He was Ambassador to several countries including Pakistan.  So Bill, over to you.

Moderator:  Thank you, Michael.

This is a pleasure I’ve been waiting a long time to have, but I knew it was coming sooner or later.  It’s to introduce Alice Wells who is now I think the Principal Deputy Assistant Secretary but she’s in charge of the South Asia and Central Asia Bureau.  So I wanted to sort of make that clear.

I’ve known her since 1998, and after just a few minutes I thought, I’ll probably be introducing this lady sometime or other in front of a large audience.  Before taking over the South and Central Asia Bureau, she’s been an Ambassador to Jordan.  She’s had a number of jobs, I suppose you’ve got her biography so I don’t need to go over this very much, but she had a number of jobs in Washington.  And she was, when I first met her, the star of our political section in Islamabad, in the embassy in Islamabad in Pakistan. 

But I know you didn’t want to hear much from me.  Alice, take over.

Ambassador Wells:  I’m really grateful to have the opportunity to speak at the Woodrow Wilson Center, and I appreciate so much President Harmon’s leadership.  I’m certainly one of the many legions of national security professionals, both men and women, who’ve been inspired by her commitment to public service and to the security of our nation. 

I’m also, of course, very honored to be on the same stage as Ambassador Milam who was my boss and a tough boss I would add, but who helped me learn the trade.  I’m very grateful.

It was terrific to have Michael Kugelman bring me in because this is somebody whose writings enrich all of our understandings of the region.  So thank you.

I think that today there’s an important debate that’s putatively over models of development, but it’s really about sovereignty and the freedom that nations can expect and that their citizens can enjoy.  And America’s position really is unambiguous.  Good governance, long term capacity building, and market policies.  These are the factors that enable the private sector to flourish and that are essential for sustained development growth.  And whether it’s Europe, Japan, Asian Tigers, India, the U.S. approach to development has driven unprecedented economic expansion since the 2nd World War, lifting billions out of poverty.

And as Secretary Pompeo noted last month, the grounding or the foundation for that progress has really been a free and open international order that the United States helped create and that at its core consists of a transparent, competitive, market-driven system that’s mutually beneficial for all involved.

One of the greatest beneficiaries of that U.S.-led system of international rules and norms has undoubtedly been the Chinese people.

In 1978 Deng Xiaoping announced his open-door policy, encouraging foreign firms to come to China for trade and investment and implementing sweeping market-based reforms to attract foreign businesses.  And U.S., European and Japanese companies answered that call and played a central role in the Chinese people’s remarkable economic progress, bringing technology and expertise.  But perhaps most critically, they brought the rigors and demands of operating in a rules-based global economy.

As China’s largest investor, the United States has celebrated this remarkable result.  China’s extreme poverty fell from 88.3 percent in 1981 to probably under one percent today, lifting more than 850 million out of poverty.  And as the Secretary said, we Americans indeed have a long-cherished tradition of friendship with the Chinese people.  But as we all know, or as we all should know, the Chinese Communist Party is not the same as the Chinese people.

What we see today is the Chinese Communist Party promoting its own brand of development — the One Belt One Road Initiative — or what President Xi has called “a project of the century”.  Around the world, and certainly in my area of responsibility — South and Central Asia — we see Beijing pressing countries to sign OBOR MOUs emphasizing peace, cooperation, openness, inclusiveness, mutual learning, and win/win cooperation.  That sounds great.  And this vision is attractive for governments facing enormous development challenges and infrastructure needs.  And we in the United States must welcome and do welcome any investment and trade that promotes sustainable, responsible development and growth.

But after seeing OBOR in practice for the last few years, there are reasons to question the Chinese Communist Party’s largesse.  For example, China offers substantial financing, usually as loans, but Beijing is not a member of the Paris Club and has never supported globally recognized transparent lending practices.  According to an estimate released by the Kiel Institute, Communist China is the world’s largest official creditor, lending over $5 trillion worldwide, but China does not publish or even report overall figures on its official lending.  So neither rating agencies nor the Paris Club nor IMF are able to monitor those financial transactions.

Now Chinese Communist Party officials recognize they need to use the language of openness and accountability, but the fact remains that the People’s Republic stands outside of global efforts including those of the IMF and World Bank to improve transparency that enhances policy-making, prevents fiscal crises and deters corruption.  And this lack of transparency also hides risk to borrowing countries that already face substantial fiscal challenges, particularly since Chinese state companies undertaking OBOR projects have a clear incentive to inflate costs and encourage corruption.  Failure to repay those huge loans raises roadblocks to further development and leads to a surrender of strategic assets and it diminishes sovereignty.

I’d like to note a few real-world examples.  During his term the former Maldivian President Yameen’s administration awarded construction contracts to Chinese companies without transparent bidding and at inflated prices.  So, for example, the Maldives Airports Company, Ltd. awarded a 400 million, no-bid contract to China’s Beijing Urban Construction Group to build a new runway after they’d abruptly canceled an existing contract with an Indian company which, by the way, later sued and won $270 million in arbitration.  The result of this Chinese project and others is that the Maldives, a country of less than half a million people, now faces an enormous debt that constrains the next generation of Maldivians and half of this external debt is owed to Chinese lenders.

In Sri Lanka, even though multiple feasibility studies repeatedly rejected the commercial viability of a largescale port facility at Hambantota, Beijing went ahead and loaned the government over one billion dollars for the project.  The result: Sri Lanka struggled to service those loans and eventually handed over a 99-year lease on the port to Beijing in return for debt relief.

We also see in Sri Lanka a number of Chinese-financed projects sitting vacant and unused, including a $104 million telecommunications tower and a $209 million international airport in the south with zero regularly-scheduled flights.  Indeed, the Center for Global Development found in 2018 that eight OBOR recipient countries including Pakistan, Maldives, Tajikistan and Kyrgyzstan, were at high risk of debt stress due to Chinese financing.  In one instance because of the threat of drowning in unpayable debt, Burmese officials massively downscaled a deep-water port project in Rakhine State by over 80 percent — from $7.3 billion to $1.3 billion.  Alarmed by problematic Chinese practices elsewhere, Burmese leaders reversed course from a prior administration’s decision.

Now the flagship of OBOR is the China-Pakistan Economic Corridor or CPEC.  CPEC is the Chinese communist party’s largest OBOR Initiative, reflecting over $60 billion in regionally pledged commitment for projects in Pakistan.  The Chinese Ambassador to Pakistan, Yao Jing, has repeated the off-used characterization of CPEC as a game-changer for Pakistan.  In fact, the Ambassador has said that China wants to see its relationship with Pakistan serve as an example for its relations with other states.

Now that might in fact be the case, because just as in the Maldives and Sri Lanka, after four years of CPEC, people in Pakistan are beginning to ask tough questions about what kind of deals their prior government struck with Communist China and what Pakistan really gains.

It’s easy to understand why Pakistan’s previous government leapt at the opportunity to conclude a CPEC MOU.  Just like many other countries in the region, Pakistan has huge infrastructure and development needs and for many of my friends in the audience who have spent time in Pakistan, you’ve experienced first-hand those energy shortages.

Pakistan has a sovereign right to answer those questions for itself, but I want to make a few observations on cost, debt, transparency and jobs.

On cost.  According to Pakistani government statistics, for each megawatt generated by a completed CPEC thermal energy project, developers spent an estimated 1.5 million.  In comparison, the cost per megawatt of building non-CPEC thermal plants is half of that, or 750 million. 

Similarly, CPEC’s most expensive single project is upgrading the railway from Karachi to Peshawar.  When the project was initially announced, the price was set at $8.2 billion.  In October of 2018, Pakistan’s Railway Minister announced that they had negotiated the price down to $6.2 billion, a savings of $2 billion, and he explained, Pakistan’s a poor country, we can’t afford the huge burden of these loans.  But recent media reports claim the price has now risen to $9 billion.  So why doesn’t the Pakistan public know the price for CPEC’s most expensive project or how it’s being determined?

On debt.  What are the long-term effects in Pakistan of Chinese financing practices?  And what are the burdens that have fallen on the new government to manage, now with an estimated $15 billion in debt to the Chinese government and another $6.7 billion in Chinese commercial debt?  Because it’s clear, or it needs to be clear, that CPEC is not about aid.  This is almost always the form of loans or other forms of financing, often non-concessional, with sovereign guarantees, or guaranteed profits for Chinese state-owned enterprises that are repatriated to China.

Now together with non-CPEC Chinese debt payments, China’s going to take a growing toll on the Pakistan economy, especially when the bulk of payments start to come due in the next four to six years.  Even if loan payments are deferred, they’re going to hang over Pakistan’s economic development potential, hamstringing Prime Minister Khan’s reform agenda.

On transparency, the lack of transparency can increase CPEC costs and foster corruption resulting in an even heavier debt burden for Pakistan.

For example, last year a Pakistani Senate Committee Report expressed astonishment at what they called the controlled bidding process for construction on the recently inaugurated Sukkur to Multan Motorway.  According to the Committee, Beijing had allowed only three firms — all Chinese — to participate in that tender, while the entire project was financed by a Chinese loan with the risk entirely borne by the people of Pakistan.

Now given the lack of transparency, that road project has unsurprisingly been the subject of corruption allegations against officials from the previous government including accusations of cost inflation and misappropriation of funds.  Meanwhile the China State Construction Engineering Corporation which was awarded the contract claimed to be extremely shocked by what they characterized as groundless allegations of corruption, asserting that the company came to Pakistan in the spirit of win/win cooperation.  But importantly, in 2009, just a few years before this Pakistani contract, that same Chinese state firm was banned for six years from World Bank projects for what the Bank called engaging in collusive practices, in other words, corruption in bidding.  And this is just one example.

We know that Pakistan’s National Accountability Bureau has a number of CPEC-related investigations ongoing.

The new Pakistani government prioritizes rooting out corruption, but the recently announced CPEC authority has immunity from corruption prosecutions.  Again, those interested in Pakistan’s development are asking hard questions.

Lastly, on jobs.  We hear the familiar Chinese catch phrase win/win cooperation and mutual benefit.  But really, CPEC relies primarily on Chinese workers and supplies even amid rising unemployment in Pakistan.  And for these projects, Chinese companies are importing materials and equipment from China rather than giving that business to Pakistani companies which would actually create jobs for locals.

CPEC is even bringing in Chinese workers who earn money in Pakistan, take the wages back to China, leaving very little in the local economy.

Now China’s statistics on how many thousands of Chinese workers are in Pakistan are so inconsistent and so unreliable that we don’t actually know how many are there.  But this is all the more extraordinary because Pakistan has an abundance of young, eager and capable workers.  According to the UNDP, 64 percent of the population is younger than 30 years old.  They are Pakistan’s future and they’re hungry for opportunities.

So when we evaluate CPEC, I ask you to keep in mind this contradiction.  Communist China’s own economic rise began with profound reforms that improved the business environment and attracted foreign companies from places like the U.S., Europe and Japan.  And those U.S., European and Japanese firms trained local Chinese who in turn were able to build China into the industrial giant that it is today.

CPEC doesn’t give Pakistani young people, it doesn’t give Pakistani companies the same opportunities that the Chinese themselves enjoyed decades ago, and that’s one of the reasons why Pakistan’s trade relationship with the People’s Republic remains so lopsided.

In 2018, Pakistan’s exports to China constituted $1.8 billion while Pakistan’s imports from China totaled $14.5 billion. 

There is a different model.  The United States-Pakistan Business Development Partnership stands in contrast to CPEC.  U.S. businesses strive to contribute to sustainable economic growth and U.S. government grants — and I underscore grants — have developed Pakistan’s infrastructure and capacity in education, health, energy, agriculture and law enforcement.  Worldwide we see that U.S. companies bring more than just capital.  They bring values, processes, and expertise that build the capacity of local communities.

For example, in Kazakhstan, Chevron and ExxonMobil have worked to maximize the employment of local workers through development of national expertise.  Training, drilling, project management and cost engineering skill sets.  Indeed, both companies employ locals for over 80 percent of the Kazakhstan work force.  In Bangladesh, Chevron has a work force that’s over 95 percent Bangladeshi.  U.S. companies also bring superior quality and technology.  We often hear Pakistani leaders praise U.S. companies like Cargo and Corteva, that are passing critical technology and driving enormous productivity gains in Pakistan’s huge agricultural sector.

U.S. corporate social models are also outstanding vehicles that create jobs and opportunities for communities associated with these foreign investments.  So the U.S.-Pakistan Women’s Council, for instance, fosters cooperation between American and private sector, Pakistani private sector, to mentor women and girls.  An iconic American brand, KFC, supports the education of children with hearing disabilities and other underprivileged young people, partnering with schools throughout Pakistan.  Proctor & Gamble’s Children’s Safe Drinking Water Program has provided 875 million liters of clean drinking water to Pakistani communities in need.  And that’s the kind of private sector driven business model that we think Pakistan should continue to attract.

During Prime Minister Khan’s visit to the United States in July, President Trump was extremely enthusiastic about the potential for increasing and expanding our U.S.-Pakistan trade and investment relationship.  And both our governments are working very hard to find practical ways to do that.  We commend Pakistan for surging 28 slots on the World Bank’s 2020 Ease of Doing Business ranking and also being highlighted as one of the top ten reformers globally.  The World Bank report highlighted Pakistan’s ambitious reform strategy.

The U.S. Commerce Department has already stepped up its activity in Pakistan with 15 trade delegations planned for the next year.  And once the new expanded Development Finance Corporation or DFC is stood up, Pakistan is going to be a country of great interest.  The DFC will have more than double the investment cap than OPIC, increasing from 29 billion to 60 billion, enabling projects that have high standards and are financially sustainable over the long haul.  Because mind you, unlike Communist China, the United States doesn’t tell U.S. business where to go.  They go where they see the greatest opportunities for mutual benefit, and in that way true sustainable development is really a marathon and not a sprint.  It requires the development of effective regulatory framework, strong rule of law, fiscal health, and an enabling business climate.

I’d like to highlight just a few commercial connections underway that offer a sense of the direction that we envision.  The U.S. firm Accelerate is prepared to potentially invest more than $300 million to upgrade a floating storage regassification unit in Pakistan’s first LNG terminal.  ExxonMobil has been working to support Pakistan’s ambitious effort to access new LNG supplies.  Over the last five years PepsiCo has invested $800 million to expand its infrastructure and diversify products, and Coca-Cola has invested $500 million in the last couple of years, providing thousands of jobs for Pakistanis.  Uber Technologies entered the Pakistani market in 2016 and currently operates across nine cities, providing employment opportunities for thousands of Pakistanis.  And further, the United States government partners with Pakistan to adopt reforms, empower local communities and achieve self-reliance and prosperity.  And just to be crystal clear, the U.S.-Pakistan Development Partnership has primarily taken the form of grants — not loans.

One could cite a litany of examples of the impact of this development assistance.  We’ve added over 3500 megawatts to Pakistan’s power supply, benefiting more than 42 million Pakistanis as well as mobilizing more than 1.7 billion in private investment for energy projects in Pakistan, as well as helping Pakistan finance its first LNG terminal.  We’ve trained 45,000 teachers and school administrators reaching 1.8 million public school learners.  We’ve provided 19,000 scholarships to Pakistanis to attend higher education in Pakistan.  We’ve funded over 800 Pakistani students a year to study in the United States, including the world’s largest Fulbright program and an alumni network of over 29,000.  We’ve trained over 91,000 law enforcement officials since 2010, providing vehicles, communication and protective gear.  We’ve provided almost ten million women and children with health care services and built or renovated over 1800 kilometers of road; 2500 health, education and other facilities; and 1100 small water and power projects with programs benefiting over one million rural households.

Over the decades, we can take pride in the fact that the United States has helped establish some of Pakistan’s most prestigious educational institutions and centers including Lahore University of Management Sciences, the Institute for Business Administration, the Jinnah Postgraduate Medical Centre; the Center for Advanced Studies in Energy at the National University of Science and Technology. 

And lastly, the Commerce Department and USAID have provided key technical assistance to help Pakistan improve its business climate.  From intellectual property rights protections to streamlined electronic system for trade to reduced time for cross-border transit of goods. 

In closing, we understand the road to sustainable development and growth is not easy.  It can be difficult to marshal the finances and it must involve a lot of necessary but very painful reforms.  And that’s where OBOR really raises the greatest concerns.  We hope Pakistanis will ask Beijing the tough questions and insist on accountability, fairness and transparency.  Ask the Chinese government why it’s pursuing a development model in Pakistan that significantly deviates from what brought China its own economic success. 

In contrast to the Chinese Communist Party, the United States leads a vision for the Indo-Pacific region that is free and open.  That’s comprised of nations that are independent, strong and prosperous.  And as Vice President Pence stated, our relationships in the Indo-Pacific flow from a spirit of respect built on partnership and not domination.

For more than seven decades, U.S. economic and commercial engagement, security cooperation and development initiatives, have advanced freedom, openness and economic prosperity across the region, enabling nations like Pakistan to develop their own strengths.  And drawing on these pillars we really do look and seek to deepen our partnership with Pakistan and others in the region as we work together to realize a better vision for this region and for the world.

Thank you very much.

Moderator:  Thank you very much.  I learned a lot and I’d like to ask you a few questions.

Ambassador Wells:  I don’t have a choice.

Moderator:  Well, yeah you do.  There’s a door back there.  [Laughter]. 

By the way, you said the magic words, Paris Club.  Because I was a representative to the Paris Club for a long time, actually, in two different jobs, so that really alerted me as to really the depth of the problem.

But my question is why is it, I have several questions, but let me start with the one that came to me yesterday.  I was at another meeting, not this big a meeting.  There was a Pakistani of quite good repute who was taking about changes in Pakistan and how Pakistan was better.  And I asked him about CPEC.  He said first, right off the top.  He said it’s the best thing that ever happened to any country.  That’s a direct quote.  That’s an exact quote.

Secondly, he was talking in the lead-up to all of this as if the economy of Pakistan was leaping ahead because, and he didn’t mention CPEC being the cause but it sounded like things were much, much better.

For example, he said it now has surplus energy for the first time in a long, long time, it has surplus energy.  He said it was swarming with foreign investors — not necessarily from the U.S. but from Asia-Pacific regions.

So I wondered to myself, well, if that’s true, are the linkages developing that should develop to drive the economy?  Because as you mentioned, the debt thing is going to be serious, and in order to even come close to paying, keeping up with it, they’re going to need to grow at a lot faster rate than they have grown in the past decade, I think, and that they were programmed to grow in the future, particularly under an IMF program.

So why do you think, and I hear this from Pakistanis everywhere, CPEC is the be all and end all, and they don’t quite see all of the flaws you’ve pointed out, which I think I agree with totally.

Ambassador Wells:  I think there’s been a tendency to conflate CPEC with grant assistance rather than understanding it to be the loans, and loans not at concessional rates, that it is.  So when you break down individual projects, and again, I’m not questioning Pakistan’s need for infrastructure.  There is a crying need and remains a crying need for infrastructure.  And when CPEC was negotiated in 2015 the government faced a severe energy crisis and there as a priority placed on developing energy resources.

But I think what CPEC exemplifies is what happens when you delink investment and development from established best practices and infrastructure development.  Because if you don’t have the right policy framework, if you haven’t undertaken the necessary reforms, there are consequences to some of the development decisions.  Energy, coal, electricity production plants can be built, but if distribution is not simultaneously reformed you’re producing for a system that can’t carry the load and the government is still committed as a sovereign guarantee to pay for the cost of energy that can’t be accessed by consumers.

So it’s the conundrum of development.  You have to get all the pieces right.  Individual projects done quickly and one-off without the system that supports and integrates those infrastructure projects, they’re not going to be as successful.

I guess what I would point to is that Pakistan is now in an IMF program.  A large and reform-oriented IMF program that was precipitated in large part by the run on reserves and the lack of foreign currency reserves.

And there you see the double whammy of a CPEC project.  When, for instance, the Port Qasim electricity plant, I read in the report 99 percent of the inputs came from China.  So the fact that Pakistan has imported all of the inputs for these projects while repatriating profit to the Chinese peristatal has had an immediate impact.  So those statistics on only 1.8 billion in exports to China and 14-plus imports from China reveal the immediate cost of CPEC.

I think there’s — we want China to be a responsible supporter and funder of infrastructure.  The Indo-Pacific region alone requires 27 trillion in infrastructure investments by the year 2030.  No one country can do that.  We all need to help work to ensure that countries have meaningful choices for sustainable and quality infrastructure.

And I guess what I think we all need to question and where we all need to push is, why isn’t China adopting international standards?

Now the second Belt and Road Initiative, you saw President Xi under some pressure to demonstrate that they heard the criticism on quality and lack of standards, but we still haven’t seen Chinese commitments to increased standards, commitments to a green Belt and Road, implemented in practice.  There are just some simple things I would throw out.

Why not adopt Paris Club standards?  Why not increase your concessional loans as well as incorporate grants as part of your development assistance to lesser developed countries?  Why not abide by the infrastructure principles at the G20 of which China obviously is a member, has adopted?  Why not be transparent?  Report your official lending to other countries.

Right now neither the IMF nor any other multilateral organization truly knows the indebtedness of countries who are involved in these One Belt One Road projects, and that creates its own risks and can have its own knock-on effect.

So the simple request is be a global good citizen.  Be transparent.  Adopt the high standards that G20 nations should be promulgating.

Moderator:  Good.  I’m going to go to the audience in a few minutes, but I’m going to finish a couple of other questions first, if you don’t mind.

The second question I had leading from what you said is, I mean I think the incentives for China to change its habits are rather minimal right now, but maybe they’ll get better.  But wouldn’t it help if, and why is it that Pakistan and other countries have been so open to Chinese, these Chinese investments without really investigating them?

And the second part is, it seems to me like American investors and other Western investors, other Asia-Pacific investors for that matter, are missing a bet in Pakistan and other places.  But could that be because of Pakistan’s reputation as a dangerous country?  Could it be because they’ve been through how many IMF programs?  A dozen at least, and none of them have ever worked very well.  What do you think is holding the West back on trying to move in on that?

Ambassador Wells:  We lead with our private sector.  If you look at the companies who are already very active in Pakistan, they tend to be some of our largest and most well-known multinational companies who have a lot of experience dealing with risk and can deal with exposures and uncertainties of a Pakistani market.

But what’s going to attract additional private investment is going to be the hard reforms that have to be implemented to create rules of law, contract enforcement, dispute resolution, currency stabilization. 

I think there’s a tendency to believe that Special Economic Zones might be the cure to difficulties in attracting investors and I don’t think that’s our experience.  Our experience is demonstrating that the framework for doing transparent business and predictable business is available.

So it’s sometimes harder to work with the Western model.  I as an American Ambassador don’t walk in with a state-owned company and a financial package in hand.  Other countries can do that.

So I think what’s incumbent upon the United States and like-minded partners is that we work very hard to ensure that countries have meaningful alternatives.  And you’ve seen that launched under the Trump administration through the Indo-Pacific Strategy, for instance, where we are in the governance space and in the economic promotion and in particular in trying to enhance energy markets and digital connectivity and infrastructure development.  We’re providing more resources and more programs and technical assistance to countries, and at the same time working with countries like India, Australia and Japan with whom we share principles and I think you’re starting to see a difference.

I’m very proud, for instance, of our Millennium Challenge programs where in Nepal we are helping through over a 500- million-dollar grant to create hydro-electricity and better roads and hydro-electricity that’s going to end up in a transmission line between India and Nepal.  So enhancing regional connectivity, creating export markets, and it’s that kind of thoughtful development.

We have another MCC that we’re launching soon in Sri Lanka that will undertake the same kind of nitty-gritty reforms in land registration and motorway harmonization that will, we determine, you help unlock economic development.

So we have to do our work, and that involves working in closer partnership with our private sector, but we’re proud of the fact that already the United States has almost a trillion dollars in Foreign Direct Investment in the Indo-Pacific and over $1.5 trillion in bilateral trade.  So we’re very much a power in the Pacific.

Moderator:  And these days a billion is chump change, so I’m glad it’s a trillion.

One more question and then we’ll move to all the people out here.

This is a sort of, you mentioned a lot about the region, the South Asia region.  I went to another meeting yesterday about Nepal where it turns out Nepal is trying to have a federal system installed and while the Chinese are pouring money into the federal side without paying much attention to the other parts of the government.  I see in Bangladesh that the Chinese are reputed to be pouring money in and they offered I think use of some of the seaports there to the Chinese.  And I see Sri Lanka and others.  This economic diplomacy, basically this is what you were talking about in — [blank spot on recording].

For example, take Nepal, maybe it will, the federal system won’t work.  Maybe they’ll be bribed to go back to a central system which seems to me like China would like.  Who knows what will happen in Pakistan or Bangladesh?  Bangladesh is already about as authoritarian as you can get.

In any case, that’s me editorializing, not you.

Do you think my worries about this has any real meaning?  Is it worth worrying about?

Ambassador Wells:  China’s obviously very active globally.  Belt and Road is a global initiative for China.  And in the Indian Ocean region you have a strong Chinese presence and infrastructure projects.  But in a country like Bangladesh, don’t lose sight of the fact that we’re the largest single foreign direct investor.  We are Bangladesh’s largest export market.  We have, whether it’s through Chevron as the anchor to significant American investment, there’s intense interest in American companies in expanding their footprint in Bangladesh.  We can do so using the new tools of the Development Finance Corporation which are significantly more flexible than what was available under OPIC.  It allows us to have equity investment to work with other development partners.

So we’re actively trying to see how we can collaborate more closely with Japan and with Australia and India, which is also obviously a very active investor in Bangladesh.

So this is not, and sometimes it’s painted as if it’s a zero sum competition.  It’s not.  Again, $27 trillion in infrastructure need that will not be met by one country.  So how do we ensure that developing countries can access infrastructure investment that’s going to enhance their prosperity?

Our global good, what the United States created after World War II, was an economic system that really, truly lifted all boats.  We have a stake in seeing that system sustained.  It’s been good for private sector.  Our companies have done well.  We’ve benefited by being able to create jobs in the United States through our exports.  And the values that undergird our private sector model of growth are values that we’re proud of.  Free, open, sovereign.

Moderator:  That’s very well said.

I think we’ll now move to the audience if anybody has questions out there. 

Question:  Thank you so much.  My name is [Ariva Khalid].  I have been a member of the Parliament of Pakistan for ten years.  So thank you very much.  Your vision and your approach, I really appreciate the way you told everything very honestly, very straight forwardly.

We also have these concerns, what you said.  But my concern is, my question is very simple.  It’s just that, like I have seen the problem of electricity.  I’ve seen the energy crisis, the gas crisis, and I have myself lived there when we had no electricity for more than 12 hours and it’s not easy in a very hot country.

So you tell me a country which is, there are many people who are below poverty line.  So what do you think, I mean what would they do if there is an impression that oh, that’s a bad country to go and work, and once they bend towards China for whatever they offer, they have many questions.

This is my question, why America is not participating, even in CPEC?  They can also come and join hands in the companies and for the next phase, they can play their role which I think Pakistanis would really welcome.  That’s my question.  Thank you.

Ambassador Wells:  Thank you.

I agree, again, countries are driven because they need infrastructure and they have urgent needs for infrastructure, and you certainly saw that in Pakistan with the energy crisis.  That’s why America was involved in helping to support the 3200 megawatts that were added to the grid.  But ultimately the quickest fix isn’t necessarily going to be the wisest fix over the longer term.  Building energy, building electricity production plants without addressing distribution grids, without addressing the pricing structure and the subsidy structure, you know, leaves Pakistan with a circular debt that is very much the focus of this IMF program.  And so we would encourage that the right policy environment be developed and the right regulatory frameworks be introduced.  In which case you really unlock a multitude of investors who want to come to Pakistan.

Whether it’s the ExxonMobils or the Accelerate or others that have a track record already in Pakistan, there is intense interest in energy development throughout South Asia.

So don’t think that the private sector isn’t motivated to come, but they’re going to be looking for that commitment to overarching reform as well.

GE is a company that has been I think our most successful company in partnering in some CPEC projects in part because they bring to the table turbines for which there are few competitors.  And so they have found Chinese partners that they have worked together on projects that meet international standards, that are transparent, that uphold the principles that GE and American firms stand for.  And I always like to point out, in Nepal, for instance, there’s a U.S.-Chinese joint project to drill a tunnel.  We are perfectly capable of working together with Chinese companies in transparent projects, transparently, competitive bid that meet standards.  This is a question about standards.

I guess the one additional element I would put, or the one question that I would put on the table, is why is it that so little of Chinese development monies go through the Asian Infrastructure and Investment Bank, which has been implemented primarily by ADB, so multilateral standards.  And why has so much gone through One Belt One Road?  To me it’s pretty clear.  One is upholding harder standards, and the other is relying on local standards. 

So our goal is to see all major infrastructure developers ensuring that the world is able to advance in a way that the benefits are reaped by the citizens without the kind of environmental or ultimately white elephant projects that have been so notorious in some countries.

Question:  I’m Will Embry from DynCorp International.

Alice, how will CPEC and the Belt and Road Initiative impact Afghanistan’s effort to increase its economic ties in the region?

Ambassador Wells:  China has not been a real player in Afghanistan development.  China is not a provider of any significant grant assistance.  It has invested or it has laid claim to a copper mine, a significant cooper mine, but has never developed the copper mine.  Right now I would say I see opportunities for the United States and China to be important partners in reinforcing the need for a negotiated political settlement, and you see Ambassador Khalilzad regularly consulting with his Chinese counterpart among other regional actors, but I haven’t seen China take the steps that would make it a real contributor to Afghanistan’s stabilization, much less stitching it back into the Central Asia and the international community.

Most of the regional connectivity initiatives have come from the neighboring Central Asia states.  Whether it’s Turkmenistan, Uzbekistan, Tajikistan, all of whom are developing rail lines, electricity lines, cross-border trade.  Very positive developments that we’ve seen over the last two years in particular with the opening of Uzbekistan.

Question:  Is China helping them fund some of those projects that will connect them to Afghanistan?

Ambassador Wells:  Not to my knowledge.

Question:  My name’s Jon Danilowicz, I’m an associate with Bower Group Asia.

I have a question that pivots on, it’s related to CPEC but it’s about the other kind of major foreign investment that Pakistan’s been receiving recently which is from the Persian Gulf.  The LNG relationship is increasingly critical to the bilateral U.S.-Pakistani economic relationship.  However, American LNG firms, with the exception of Accelerate, kind of working on this FSRU front haven’t really been able to tap into the market for actual factual LNG because of the high presence of these long-term FSAs from the Gulf.

How can the United States more effectively argue to get U.S. LNG truly into Pakistan as a major source of energy as opposed to just a source of this importation infrastructure?

Ambassador Wells:  We stand ready to advocate on behalf of American companies and to seek the regulatory environment and the conditions that would allow them to compete fairly.  There are major companies currently exploring opportunities in Pakistan.  The role of the Gulf has been interesting over the last couple of years.  As Pakistan was entering its latest economic crisis we saw Saudi Arabia and Qatar inject infusions of capital into Pakistan which again had the effect of illustrating that this is not a problem money can solve.  It’s a problem that has to be solved by reform.  And whether it’s the energy pricing structures or regulations or currency management and Central Bank independence.  You know, it’s all of those very difficult but necessary reforms that are going to be the solution.

Moderator:  Alice, we started a little late.  Do you have a little time?  Or do you have to run off?

Ambassador Wells:  I have time.

Moderator:  Okay, I’m going to take several questions at one time.

Question:  [Karam Sajjad], 92 News from Pakistan.

The U.S. position, since the beginning of CPEC, U.S. position is of observers of the project.  One of Pakistan’s senators mentioned Pakistan is not only sharing the land but maritime road during the CPEC project.  My question is all this commotion which is coming from U.S. is now because, do you think U.S. is feeling threat in the Gulf of Oman, Arabian Ocean and Indian Ocean?  U.S. is having the threat of losing its primacy in that region?

Question:  May name is Micah Kyler.  I’m an intern at the Hudson Institute just across the street.

I wanted to ask what is keeping China from developing a more responsible model for its BRI projects?  Is it something that the communist party doesn’t want to give up because it benefits the country and they’re not concerned about other countries in the region?  What is the factor preventing them from developing a more responsible model?

Question:  My name is [Saldari Marantiq].  I’m a proud Pakistani-American.

My question, do you have any recommendations for the American Pakistanis like me to do something regarding what is happening in our part of the region?

Ambassador Wells:  Thank you.

I don’t think the United States is feeling threatened.  We’re very proud of the long history of military to military cooperation that we’ve enjoyed with Pakistan.  We continue to have increasingly constructive relations with Pakistan.  Pakistan has been a very important actor in anti-piracy effort where we’ve collaborated together in the Gulf, where Pakistan has had a liaison officer in Bahrain where the 5th Fleet is located.  And this administration is actually asking for more from neighboring countries to burden-share on whether it’s anti-piracy or Iran’s malicious efforts to complicate shipping through the Arabian Gulf.

So I actually don’t think that is a motivation at all, and I think that there is potential if Pakistan takes steps to move away and to restrict the ability of non-state sort of terrorist proxies, that the potential for our relationship to grow ever deeper is there.  You saw that in Prime Minister Kahn’s excellent visit to the United States this summer and the very warm and constructive meeting that he had with President Trump.

With motivations, like why isn’t China overnight more transparent.  I’m not a China expert, but probably my East Asia Pacific colleagues don’t welcome me opining, but obviously the program was designed in part to be able to export excess labor, excess capital, excess production facilities.  So China was trying to solve one of its own domestic problems and it solved its domestic problem sometimes at the expense of the receiving country.

There are over 95 state-owned enterprises that are part of this Belt and Road Initiative and that have been engaged in infrastructure projects overseas, Chinese state-owned enterprises.

And so I imagine there’s a degree of difficulty in coordination.

But I do think we have to be clear-eyed.  The rhetoric we’ve heard recently, including at the second Belt and Road Summit is much better.  If you read the rhetoric on green technology and a green One Belt One Road, that’s all positive.  But wait to see whether it’s implemented.  That’s where the truth is.  I would start again from the very basic building block that needs to occur in transparency.

So when you talk about why American firms haven’t been more active, because American firms half the time have no clue that a One Belt One Road project is being bid.  Or the bids are restricted only to Chinese companies.  Or the project information is not made available to the bidders in a transparent fashion.

So I would just keep circling back to transparency.  Ask for transparency.  Let’s normalize what China is doing and make them a good global citizen in the development space.

We’re very grateful for our diaspora communities.  Whether it’s Pakistan-American communities, Indian-American communities, I benefit because of the energy and the interest that you bring to relationships, to your advocacy and engagement with Congress, to your serving as sort of the tip of the sphere in humanitarian educational projects, people to people.  It’s a gift. 

So I would say stay active.  Keep being a bridge between Pakistan and here.  Let us know how we can support your own initiatives.  We look for ways to highlight and engage and work with members of the community.

Question:  Good afternoon.  This is [Javidia Tarin] and I’m coming from Baluchistan where the CPEC is happening and I’m running an independent think tank there which is Baluchistan Institute of Research and Development.  We closely work with the government of Baluchistan because I’m part of the task force as well.  And I’m a Fulbright Scholar, too because in 2013 and ’14 I got the Hubert H. Humphrey Fellowship and I studied from Arizona State University.  And the State Department honored me to come and speak with the alumni network as an alumni and to look at the current fellows.

The people in Baluchistan, they are really looking forward for CPEC.  They do think that this is a game-changer.  But as a citizen of Pakistan and Baluchistan, we do have a reservation when it comes to the legislation for the citizens because we want that to be the same as in you know, Gulf countries.  The Chinese are coming, we welcome that. 

The second thing is we have seen that, because I represent the civil society as well in my background as a journalist.  So we have seen that since last few years the NGO sector and civil society has not been provided a lot of opportunities so is there, because I met the World Bank President as well, and I requested him that in Pakistan we really need that support to empower civil society.  So that is also very important.  That is a request.  Thank you.

Question:  Thank you.  John [Saverly] from [Inaudible] TV News, Pakistan.

Pakistan right now is taking investment from all over the world, especially from America.  So is there any change in the travel advisory for the American investors or is Pakistan still a dangerous place?  Thank you.

Question:  I’m Allen [Cronstet], Congressional Research Service.

Ambassador Wells, that was a masterfully delivered speech and left me to wonder why you are not a Congressionally-confirmed Assistant Secretary.  That’s a comment.  [Laughter].

Moderator:  I’m glad it’s a comment.

Question:  My question though has to do with India.  Obviously India’s a major economy that has rejected participation in the BRI and looks to what is going on in Pakistan with CPEC as a potential entrenchment or a new level of entrenchment of China and Pakistan’s economy, also other South Asian projects that include building and in some cases running ports that have the potential for future military use.

Given the Indian concern about strategic encirclement I’m wondering if you can comment on the dynamics there and maybe as well how you engage with the New Delhi government in this context.  Thank you.

Ambassador Wells:  Thank you.  It’s great to have a Fulbrighter in the audience, and we’re really proud of the Fulbright program.  It’s our flagship, largest Fulbright program and it’s created I think a great community of Pakistanis and Americans who better understand one another.  So I’m delighted that you’re here.

Baluchistan is interesting because there have been tensions in Baluchistan and at various times protests over Gwadar Port development, and it really airs some of the tensions involved in these massive infrastructure projects when you don’t have the outreach to the local citizenry, you don’t have the corporate social responsibility that a lot of our major firms do in trying to build buy-in among the community and stakeholders and ensure that locals feel like they’re benefiting personally.   And many of the complications associated with Gwadar including now the very long-term lease that’s been given to the Chinese, the question of how profits are going to be distributed between Pakistan and China.  These are all very real questions that civil society media need and should shine a light on.

Where we draw the line, obviously, because we fully support that kind of questioning and that debate.  Where we’ve been crystal clear in drawing the line is that we don’t support violence.  And so you saw the United States designate the Baluchistan Liberation Army as a terrorist organization after they committed several attacks including against a Chinese associated with the One Belt One Road project.

I think Gwadar is sort of a classic example.  It also feeds into Indian anxieties because it’s not clear the commercial basis on which Gwadar is being developed.  And this has been a project very long in the making and not very evident to outsiders what’s the economic rationale that drives it.

I think India has been crystal clear from the outset that they saw the geopolitical nature of elements of the One Belt One Road.  We share India’s concerns over projects that don’t have an economic basis and that lead to countries ceding sovereignty. 

Sri Lanka’s not the only country that has ceded, effectively ceded sovereignty over a key asset.  You’ve had reports out of Tajikistan over land swaps in order to get out of excessive debt.  And this is a real issue.

All I can say is that however much you might dislike the World Bank or IMF, they don’t take 99-year leases or strip away the sovereignty of countries that they engage in.  So let’s be very clear-eyed about the terms that multilaterals bring to the table, versus the terms that are being imposed under some of these programs.

Where we’ve been able to work I think effectively with India in a new way is in that Quad format.  So literally, it’s very powerful to sit down with like-minded countries.  To sit down with Australia, Japan, India and us and to look at the world, and are we engaged enough, are we reinforcing one another’s activities, are there possibilities through the Millennium Challenge Corporation to do cross-border connectivity?

I’ve been involved with the Quad since we founded it about 2.5 years ago.  We just had our first Ministerial-level Quad.

So I see that as a real strong manifestation of our seriousness and being able to provide realistic alternatives for countries looking for infrastructure.

On the travel advisory, it’s something we evaluate every six months.  We want to see improvements in Pakistan’s security situation so that we can reflect that in a travel advisory.  Some of the steps I think  that are very important are Pakistan’s implementation, full implementation of the Financial Action Task Force requirement to counterterrorism financing, to prosecute and seize the assets of members of terrorist organizations.  And as Pakistan is taking these steps, it will be reflected I think in how, in both the safety and security situation and in our ability to look at the travel advisory in the future.

Moderator:  Alice, I think we’ve gone on for over an hour.  I think probably there are more questions, but I suspect you really have to go.  It sounds like your voice is giving out too.

Ambassador Wells:  You’ve been a great audience.  It’s wonderful to have an opportunity to talk to you. (State.gov)

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