China-Pakistan Economic Corridor-its Ramifications

Introduction

First proposed by the Chinese Premier Li during his visit to Pakistan in May 2013, the proposed project of the China-Pakistan Economic Corridor will link Kashgar in Northwest China with Pakistan’s newly developed deep-sea Gwadar Port on the Arabian Sea coastline in Baluchistan. Three inter-connected routes, passing through various parts of Pakistan, have been marked to connect it with China.

Besides the above-mentioned road project, this USs 63 billion flagship project of China’s multi-billion Belt and Road Initiative (BRI) would be helping Pakistan in many sectors. These projects are in energy, information technology, commercial sea lanes, special economic zones, dry ports, and other infrastructure relating to rail and road development.

Gains for China

Although CPEC is beneficial for both countries, it is more beneficial for China for several reasons.

1. Mindful of the underdevelopment of its western provinces which are its soft belly, China wants its speedy modernization to bring them to par with more developed eastern provinces. For this purpose, China needs to connect them with its national railroad network on the one hand and their access to the Arabian Sea through Gwadar on the other. Strategically located near the Persian Gulf, Gwadar is close to the Strait of Hormuz, through which 40 per cent of the world’s oil passes. After development, it will be the largest deep seaport in the world.
2. For China, it is part of more ambitious plans to beef up the country’s global economic muscle as part of a broader policy — “One Belt, One Road” — which seeks to physically connect China to its markets in Asia, Africa, and Europe and beyond. Connecting China to its markets in Asia, Africa, Europe, and beyond, the New Silk Road will link China with Europe through Central Asia and the Maritime Silk Road thus ensuring a safe passage of China’s shipping through the Indian Ocean and the South China Sea. CPEC will be a crucial link in this multi-billion network.
3. Linking China with nearly half of the population of the world, CPEC will enable China’s naval warships and merchant ships to bypass Malacca Strait. Presently passing through the Strait of Malacca, Chinese cargo takes 45 days to reach destinations in Europe via the Middle East. Once the Gwadar port is fully functioning, this time will be reduced to less than half.
4. It will not only provide China easy, short, convenient, and extremely cost-effective access to the Indian Ocean to further her economic and trade interests but will be a force multiplier for her geopolitical ambitions Development of Gwadar seaport and improvement of the infrastructure in the hinterland would help China sustain its permanent naval presence in the Gulf of Oman and the Arabian Sea.
5. At the same time, the new silk roads are bound to intensify ongoing competition between India and China –and to a lesser extent between China and the US — to invest in and cultivate influence in the broader Central Asian region. Gwadar port is one of China’s String of Pearls planned by China in Central, South, and Southeast Asia to expand its political and economic influence and get these regions in its grip. The US has its pivot to Asia, to contain China’s economic and military expansion in the Asia-Pacific.

Pakistan’s Gains

Similarly, CPEC is a win-win game for Pakistan for the following reasons

1. CPEC has opened a vista of great opportunities for Pakistan and will greatly help in overcoming poverty, unemployment, and inequities of smaller provinces and help Pakistan in overcoming its resource constraints and thus getting rid of its economic stagnation.
2. Making China a real stakeholder in Pakistan’s stability and security, CPEC will not only expand the scope for sustainable and stable economic cooperation between the two countries but also be a cornerstone of their geostrategic framework. It will radically alter the regional dynamics of trade, development, and politics. Being an integral part of China’s ambitious Silk Road and Economic Belt initiative, it is endorsed by the SCO and will highlight Pakistan’s role as a vital regional hub in the economic development of Central Asian states which have a strong presence in the SCO.
3. The CPEC connects the whole region and gives Pakistan focal importance for world trade, it holds the promise to make Pakistan an economic power. The China-Pakistan Economic Corridor (CPEC) is not a network of roads and rail lines connecting the Chinese hinterland to the Middle East and Europe. The CPEC is a holistic, comprehensive package of competitive economic initiatives from China, just the energy projects once initiated will kick-start an industrial boom in Pakistan.
4. Linking all the provincial capitals, would further cement the socio-political integration of the country and improve the connectivity level of the regions. Besides solving the problems faced by the inhabitants of these far-flung areas of Pakistan due to inadequacy of transportation and communication, it will also diversify the sources of income for the people of hitherto neglected Gilgit-Baltistan.
5. The CPEC, passing through Khyber Pakhtunkhwa and Baluchistan can perform a critical function in conflict management in these areas. As poverty is one of the main drivers, if not the prime driver of militancy, development induced by CPEC will go a long way in minimizing it. The CPEC could revolutionize the existing socio-economic setting of Baluchistan by dramatically altering its communication & transport sector and revamping its infrastructure. Reinventing Pakistan as an energy corridor between South Asia, China, and Central Asia, the revival of the economy in the coming period will make Pakistan an attractive destination for foreign investors and will greatly help in removing socio-economic inequities of smaller provinces

Gwadar vs Chahbahar?

Both the ports are being developed for different reasons and in no way compete with each other. The development of Gwadar is the geopolitical and geostrategic necessity of Pakistan and China; Chahbahar is the economic necessity of Iran.

This sudden renewed interest of India in Chahbahar is a knee-jerk action in response to the Chinese taking over Gwadar and the announcement of the construction of China Pakistan Economic Corridor (CPEC) at a massive cost of more than US$ 60 Billion. Otherwise, India has been developing this port and the road connecting it to Afghanistan since the 1980s.

The development of Gwadar and the construction of CPEC are meant mainly for the transportation of Chinese imports and exports to and from the Middle East while Chahbahar will be catering to the Iranian merchandise. The market for afghan exportable surplus is China, Pakistan, and Iran while its imports will be handled at Chahbahar in addition to Karachi (and not Gwadar).

Measures

1. Pakistan should make all efforts to complete the various projects under CPEC on a priority basis and within time.

2. Reservations of stakeholders, particularly KPK and Baluchistan should be addressed

3. All out efforts should be made to include Iran and Afghanistan in this project to reap maximum benefits

4. Domestic investors should be encouraged to take part in these projects and all investments should not be done by the Chinese.

5. Similarly, a maximum number of Pakistani engineers and managers should be engaged in the execution of these projects instead of the present practice of mostly engaging Pakistani labour. For this government should start special programmes of skill formation

Is CPEC a Debt Trap?

According to the breakdown of Chinese investments in Pakistan, 22 early harvest projects under CPEC have been completed or are under construction, with a total investment of $18.9 billion. These projects aim at resolving two major bottlenecks hindering the economic development of Pakistan, including a lack of transportation infrastructure and an energy shortage. The financing details of 22 ongoing projects are as follows:

The Chinese government provided concessional loans of $5.874 billion for the Pakistan government’s major transportation infrastructure projects, with a composite interest rate of around two per centin a repayment period of 20–25 years. Meanwhile, the Pakistani government provides a sovereign guarantee for the above loans and will start the repayment in 2021.

The Chinese companies and their partners invested $12.8 billion in energy projects in Pakistan. Among them, Chinese companies provided $3 billion from their equity. The rest of the $9.8 billion is raised from commercial banks with an interest rate of about five per cent. The repayment period is 12–18 years.

All the CPEC energy projects are an investment in nature, which is purely independent business behaviour of these companies,” the document read. The companies are responsible for their own profits and losses and repayment of loans. The Pakistani government does not repay these loans under CPEC.

The business cooperation between the two sides is in full compliance with internationally accepted business practices. The Chinese government provides interest-free loans for Expressway East Bay in Gwadar. Moreover, the Chinese government provides grants for some livelihood projects,” the documents further clarify.

For the revival and up-gradation of Pakistan’s Railway track also called ML-I, the Pakistani government has provided funding for the feasibility study. Therefore, Pakistan will repay only $6.017 billion (Category 1 $5.874 billion and Category 3 $0.143 billion) and their interests to China.

Moreover, China and Pakistan are now discussing how to use the Chinese grant to implement new projects such as the new Gwadar International Airport, Gwadar Vocational Training Centre and Friendship Hospital, etc. Under the agreement, the Chinese side will provide more support to the people’s livelihood projects such as education, agriculture, poverty alleviation, healthcare, and vocational training.

Moreover, both sides have also signed a Memorandum of Understanding (MOU) on industrial cooperation and have agreed to jointly promote the construction of Special Economic Zones (SEZs). With this understanding, CPEC has entered a new phase of broadening and expansion in the next five years.

Conclusion

CPEC is a major and important economic cooperation project between China and Pakistan. All CPEC projects are based on the consensus of the two countries and fully comply with relevant laws and regulations. CPEC, as an important project for China-Pakistan cooperation, will not only help Pakistan to ease energy load shedding, improve infrastructure connectivity, and promote economic growth but also benefit the people of Pakistan and make an important contribution to the building of the China-Pakistan Community of Shared Future.