China-Pakistan Economic Corridor (CPEC) By Maj Gen Rahul Kumar

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China-Pakistan Economic Corridor (CPEC)

By

Maj Gen Rahul Kumar

 

Introduction

CPEC is a massive bilateral project to improve infrastructure within Pakistan for better trade with China and to further integrate the countries of the region. It is a collection of infrastructure projects that are under construction throughout Pakistan  since 2013. Originally valued at $47 Billion, the value of CPEC projects is worth $62 Billion as of 2020. CPEC is intended to rapidly upgrade Pakistan’s required infrastructure and strengthen its economy by the construction of modern transportation networks, numerous energy projects, and special economic zones . A recent trend has been to set up SEZ in partnership with China. On 13 November 2016, CPEC became partly operational when Chinese cargo was transported overland to Gwadar Port  for onward maritime shipment to Africa and West Asia. In addition, some major power projects were commissioned by late 2017.

Highways and railways are to be built under the aegis of CPEC that will span the length and breadth of Pakistan. Inefficiencies stemming from Pakistan’s mostly dilapidated transportation network are estimated by the government to cause a loss of 3.55% of the country’s annual GDP. Modern transportation networks built under CPEC will link seaports in Gwadar and Karachi with Northern Pakistan as well as points further North in Western China and Central Asia. A 1,100-kilometre-long motorway will be built between the cities of Karachi and Lahore as part of CPEC, while the Karakoram Highway from Hasan Abdal to the Chinese border will be completely reconstructed and overhauled. The Karachi- Peshawar main railway line will also be upgraded

 

to allow for train travel at up to 160 km per hour by December 2019. Pakistan’s railway network will also be extended to eventually connect to China’s Southern Xinjiang Railway in Kashghar . The estimated $11 billion required to modernize transportation networks will be financed by subsidized concessionary loans. CPEC’s potential impact on Pakistan has been compared to that of the Marshall Plan  undertaken by the USA  in Post- World War-II Europe. Pakistani officials predict that CPEC will result in the creation of upwards of 2.3 million jobs between 2015 and 2030 and add 2 to 2.5 percentage points to the country’s annual economic growth.

Over $33 billion worth of energy infrastructure are to be constructed by private consortia to help alleviate Pakistan’s chronic energy shortages, which regularly amount to over 4,500MW, and have shed an estimated 2–2.5% off Pakistan’s annual gross domestic product Over 10,400 MW of energy generating capacity is to be brought online by the end of 2018, with the majority developed as part of CPEC’s fast-tracked “Early Harvest” projects. A network of pipelines to transport liquefied natural gas and oil will also be laid as part of the project, including a $2.5 billion pipeline between Gwadar and Nawabshah to eventually transport gas from Iran. Electricity from these projects will primarily be generated from fossil fuels, though hydroelectric and wind-power projects are also included, as is the construction of one of the world’s largest solar farms  (spread over 4500 acres,1000 MW energy).

Should the initial $46 billion worth of projects be implemented, the value of those projects would be roughly equivalent to all foreign direct investment in Pakistan since 1970 and would be equal to 17% of Pakistan’s 2015 gross domestic product. From the initial project, the scope has expanded from a net worth of $46 billion to $62 billion according to some sources CPEC is seen as the main plank of China’s paramount leader Xi Jinping’s Belt and road Initiative (BRI).  According to official statistics, 20% of CPEC is debt-based finance while 80% of CPEC projects  are investments in Joint Ventures (JV) between Pakistan and China with the project contributing to 40,000 jobs for local Pakistanis and 80,000 jobs for the Chinese. Official statistics suggested a return of US $6 billion to 8 billion from taxes per annum such as road and bridge tolls. The total CPEC loan is 6% of Pakistan’s GDP. Nevertheless, officials countered that 3.5% of Pakistani GDP per annum is lost due to poor transportation networks, which the CPEC investment aims to remedy leading to added benefits for any lag in Pakistan’s growth statistic. Economic analysts have stated tangible benefits of this initiative including an end to the major energy shortages in Pakistan which had previously crippled economic growth.  In this connection on 14 January 2020, Pakistan operationalized Gwadar Port for Afghan transit trade. According to critics including the United States and India, the project is a debt-trap However, the Pakistani government stated that most of the projects consist of equity finance such as joint ventures instead of debt finance, giving Pakistan alternative means of raising capital for the project.

The Corridor

The project was launched on April 20, 2015 when Chinese President Xi Jinping and Pakistani Prime Minister Nawaz Sharif signed 51 agreements and Memorandums of Understanding valued at $46 billion. The goal of CPEC is both to transform Pakistan’s economy-by modernizing its road, rail, air and energy transportation systems-and to connect the deep-sea Pakistani ports of Gwadar and Karachi to china’s Xinjiang province and beyond by overland routes (Xinjiang borders the countries Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India and the ancient Silk Road ran through its territory.) This would reduce the time and cost of transporting goods and energy such as natural gas to China by circumventing the Straits of Malacca and the South China Sea. The announcement of joint space and satellite initiatives between Pakistan and China spurred by CPEC, followed in 2016. CPEC is part of the larger BRI Initiative—to improve connectivity, trade, communication and cooperation between the countries of Eurasia announced by China in 2013.

CPEC runs through the entire length of Pakistan – through Pakistan-occupied Kashmir (PoK) and the southern state of Balochistan. It reduces the distance for Chinese goods bound for the US, Europe, Africa and the entire western world by a substantial 2,000 miles and vice versa by providing an alternate to the ‘Strait of Malacca’ route, through which most Chinese trade currently takes place.

CPEC has been compared to the Marshall Plan for the rebuilding of post—world war II Europe in its potential impact on the region, and numerous countries have shown interest in participating in the initiative. Incidentally, Pakistan has been able to organize nearly $2 bn to upgrade its  railway, running parallel to the 6-lane highway (under construction in CPEC ) from Kashghar in Xinjiang province in China to the Gwadar port in Pakistan. The Corridor is proposed to run through the entire length of Pakistan through POK, Gilgit Baltistan, FATA, Sind and Baluchistan.

The much-vaunted US$ 62 billion economic corridor in Pakistan that connects the Xinjiang region in western China with the southern Pakistan port of Gwadar is gradually rolling off operations, with the Chinese cargo being loaded onto the merchant vessels docked at the port.

With a whopping US$ 11 billion investment in rail and road infrastructure and US$ 33 billion in energy and power generation projects – largely financed by Chinese state-owned institutions – this project is being seen as one of the biggest investments made by China. It’s a project that could usher in a new era of economic development in Pakistan.

Benefits for Pakistan- following merit consideration in this regard:-

  1. Infrastructure development– 6- lane road from Kashghar in China to Gwadar in Pakistan. Untold benefits for Pakistan, when complete. Also, an ultra-modern rail link for passengers and goods, connecting Peshawar, Islamabad, Lahore and Karachi.
  2. Energy– Several projects in hydro and thermal power generation to tide over Pakistan`s perpetual power deficit. Also, world`s biggest solar energy farm producing 1000 MW electricity.
  3. Industrialization of all kinds–  Details not disclosed but easily imagined- a massive boost to economy to lift Pakistan out of its present $ 30 bn debt trap.
  4. Gwadar port– Upgradation of the deep seaport of Gwadar to take in super container and super tanker ships, (basically for China, understandably).This is meant to bypass the Malacca Strait route for Chinese goods to be exported to Africa, Europe and USA, saving 300 Kms.
  5. 5. Employment– CPEC is meant to be A win-win situation for both countries.40,000 jobs are proposed to be created for cash strapped Pakistan. 80,000 for China. Only time will tell. As of now very few jobs have been created for Pakistanis.
  6. POK– Pakistan has always been fearful that POK belongs to India and sooner or later, India will take it away. Now since the CPEC passes through POK, China has a stake and China will ensure its security. Perhaps that is why Nawaz Sharif walked away happy with the deal amongst other things.

Inhibitors to the success of the CPEC– Following aspects put a question mark on the success of the CEPC:-

  1. Since the control on the CEPC is with China through an independent authority (CPEC AUTHORITY), which has been empowered with CPEC AUTHORITY Ordinance 2019 giving the Chairman immunity and unbridled power, many people within Pakistan are questioning the economic benefits of the project. On the contrary rules of the agreement are such that it threatens the sovereignty of Pakistan on the project. Ironically when PM Imran Khan’s Party Tehreek-e-Insaaf Party was in opposition it opposed the project.
  2. China is giving loans and not grants and it is felt that in long run it would turn into a debt trap from which Pakistan may find very difficult to come out. Many people in Pakistan are apprehending that it may turn out to be Hambantota of Pakistan.
  3. Chinese companies are receiving tax breaks and as such have an undue advantage as against Pak companies.
  4. On going insurgency in Balochistan and disquiet in Gilgit Baltistan is putting a question mark on the success of the project.

What does China Get?

Everything. The winner takes it all. Nawaz Sharif never went to China on his own. He was lured by Xi Jinping and made to sign the 51 agreements under coercion. Firstly because of its dwindling economy and secondly its reputation as a terrorist state. Now China has ensured a global communication to militancy ridden West Pakistan containing Islamic terrorism.

Implications for India

There are five of them, which are as follows:-

1.         India’s Sovereignty- India has continuously opposed the project since it passes through the Pakistan-occupied Kashmiri territory of Gilgit-Baltistan – a claim opposed by Pakistan. The 1,300-km corridor is also perceived to be an alternative economic road link for the Kashmir Valley lying on the Indian side of the border. Most key players in the Indian state of Jammu and Kashmir, including previous CM Mehbooba Mufti, had expressed optimism about the project. There have been calls by local business and political leaders to declare Kashmir on both sides of the LoC a ‘Special Economic Zone’. However, a well-connected Gilgit-Baltistan that attracts industrial development and foreign investment, if CPEC proves a success, will further consolidate the region’s perception as internationally recognized Pakistani territory, diminishing India’s claim over the 73,000 sq Kms of land and home to over 1.8 million people.

2.         Chinese Control Over Trade Via Sea- Major US ports on the East Coast depend on the Panama Canal to trade with China. Once CPEC becomes fully functional, China will be in a position to offer a ‘shorter and more economical’ trade route (avoiding travel through the entire Western Hemisphere) to most North and Latin American enterprises. This will give China the power to dictate the terms by which the international movement of goods will take place between the Atlantic and the Pacific oceans. Located a mere 600 km from the Strait of Hormuz, Gwadar places China in close proximity to the Iran-controlled water channel, which supplies 35% of the world’s oil requirements. The 54-km wide Strait has been often used as a strategic weapon of self-defense by the Shi’ite nation, through a threat to choke international oil supplies. This means that the world will look to China to intermediate in the face of any future confrontation between Iran and the Jewish state of Israel or the possible threat of a seizure of the canal. India, with over 60% of its oil supplies passing through the Strait (mainly from Saudi Arabia, Iran and Iraq), will be no exception.

3.         Chinese String of Pearls-China has been increasing its presence in the Indian Ocean with the ‘String of Pearls’ ambition: A term coined by the Americans and often used by Indian defense analysts to refer to a Chinese game-plan of encircling India through a network of airfields and ports. With an existing presence in Chittagong port (Bangladesh), Hambantota port (Sri Lanka), Port Sudan (Sudan), Maldives, Somalia and Seychelles, a control of Gwadar port establishes complete dominance of the Indian ocean by the Communist nation. Though Pakistan has denied any current Chinese military presence in the country, China has often hinted at deploying its marine corps at the strategically important port. The possibility of China stationing its troops in the region to secure its investment in case of a possible terror attack in militancy infected Balochistan cannot be ruled out.

4.         Emergence of Pakistan as an Outsourcing Destination- Often referred to as the ‘Marshall Plan’ of China – named after a historic US plan to provide financial aid to western Europe in the aftermath of World War 2, which helped Europe rebuild itself – CPEC is poised to speed up Pakistan’s economic progress. Development of commercial towns adjoining the corridor and better rail and road connectivity enabling the movement of a skilled workforce from the hinterlands to the urban centres can help Pakistan emerge as a key destination for contract-manufacturing-outsourcing for the Western economies. This is more probable at a time when India is becoming costlier, and Bangladesh has performed poorly on quality and regulatory standards. With the logistics of cost and transit time coming down, Pakistani exports, especially from the MSMEs, will also gain an international market, posing serious competition to Indian OEMs and handicraft manufacturers that rely largely on overseas consumers. Pakistani exports, mainly in the textile and construction material industry, compete directly with those of India in the US and UAE – two of the top three trading partners of both countries. With the supply of raw material from China becoming easier, Pakistan will be suitably placed to become a regional market leader in these sectors – mainly at the cost of Indian export volumes.

5.         Stronger OBOR and Chinese Dominance in Trade Leadership- China’s one-belt-one-road (OBOR) project that focuses on the trade connectivity between China and the rest of Eurasia through a network of ports, roads and railways has been often seen as China’s plan to dominate the region politically. CPEC is one giant step in the same direction. The recent US withdrawal from the TPP (Trans-Pacific Partnership) has already left the member countries of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam looking to China for global leadership in trade. An uncertain EU after Britain’s withdrawal and a weakened NAFTA, the renegotiation of which seems certain in the Trump regime, will only help establish China’s superiority across the globe. A China that is more accepted and integrated with the rest of the global economy will have a better say in the UN and with individual nations, which may prove to be bad news for an India aspiring to acquire a permanent seat at the UN Security Council. Is the Make in India tiger ready for the Chinese dragon?

US Reaction- following aspects merit consideration:-

1.                   US feels that the development of the CPEC is against her regional strategic interests, because it disrupts fragile India- China relationship, which may not be in the interest of peace and tranquility in the region.

2.                  US also considers that development of the CPEC will embolden Pakistan to take a more strident approach against India, which keeping in view that both India and Pakistan are nuclear power, will impact the fine balance of power existing currently in the region.

3.                  Increasing Chinese influence in Pakistan is a cause of worry to the USA.

4.                  Therefore, there is a lobby in the USA which wants to engage with Pakistan to wear her away from China.

Conclusion

As far as Pakistan is concerned, while Pak perception is that they would economically be benefitted as well as will become better connected with China with attended benefits. Whether it will happen that way or it would degenerate into an economic slavery for Pakistan, only time will tell.  As far as China is concerned, they would be able to find a probable solution to their Malacca Dilemma. In an overall analysis it clearly emerges that the development of CPEC does not auger well for our country. Forget LAC.  China has now moved closer to our borders and there is a strong possibility that China will move in Gilgit Baltistan with attended probability of adverse operational situation emerging. India needs to show resilience and strategic acumen to thwart possibility of Sino Pak collusivity. For this efforts need to be made that this project does not reach logical conclusion because that will render Pak remaining weak militarily as well as economically and a weak Pakistan is in India’s interest.

References:

  1. Asad Umar, “Works on CPEC project to be accelerated” reported by Duniya News dated 15 June 2020.
  2. “A higher priority is needed” pub in Express Tribute,18 July 2020.
  3. CPEC challenge for India-China stand-off dated 9 Aug 2020.
  4. A game changer or subservience reported by Media News.
  5. Naynima Basu, “ Pakistan Struggles under the weight of CPEC but puts on brave face against US criticism”, pub in The Print dated 26 Nov 2019.