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China-Pakistan Economic Corridor: Pakistan’s road of high hopes

Many believe the China-Pakistan Economic Corridor can change Pakistan’s destiny — a rosy future that its Army and government have accused India of trying to wreck. What is the economic dream about?

Prime Minister Nawaz Sharif and President Xi Jinping launch a CPEC project by video link from Islamabad on April 20, 2015. (Source: Press Information Department, Govt of Pakistan)

Last week, Pakistan Army Chief Gen Raheel Sharif said India had “openly challenged” the China-Pakistan Economic Corridor (CPEC) project, and that R&AW was “blatantly involved in destabilising Pakistan”. A day later, Pakistan Defence Secretary Lt Gen (retd) Alam Khattak told a Senate Standing Committee that R&AW had set up a “special cell” to target the CPEC. The project, a key part of which will pass through Gilgit-Baltistan in Pakistan Occupied Kashmir, is seen by many in Pakistan to have the potential of changing the country’s destiny — bringing unprecedented growth, jobs and prosperity.

So, what exactly is the CPEC project?

It refers to a clutch of major infrastructure works currently under way in Pakistan, intended to link Kashgar in China’s Xinjiang province to Gwadar deep sea port close to Pakistan’s border with Iran. Several other road, rail and power projects are associated with the corridor, and the project seeks to expand and upgrade infrastructure across the length and breadth of Pakistan, and to widen and deepen economic ties with its “all-weather friend”, China. Chinese firms will invest just under $ 46 billion in the project over six years — including $ 33.8 bn in energy projects and $ 11.8 bn in infrastructure, Reuters reported in November 2014, quoting an agreement signed by the two countries during a visit by Pakistan Prime Minister Nawaz Sharif to China earlier that month.

How does Pakistan stand to gain?

The CPEC can theoretically be a gamechanger for Pakistan. At a time when terrorism has severely affected Pakistan’s prospects of foreign investment, the $ 46 bn promised by China is three times the total FDI it has got in the last decade. The project is estimated to directly create some 700,000 jobs up to 2030, and speed up GDP growth significantly. Investors will be backed by Beijing and Chinese banks, and Pakistan will not pick up any more debt in the process. The bulk of the investment will be in energy. $ 15.5 bn worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts to the national grid, Dawn and Reuters reported, quoting officials. In all, Pakistan expects to add 16,000 MW by 2021, and reduce power shortage by 4,000-7,000 MW. The shortage of power has been a huge issue in Pakistan, including in elections, and has sparked violent protests.

The CPEC deal also includes $ 5.9 bn for road projects and $ 3.7 bn for railway projects, all to be developed by 2017. A $ 44 million optical fibre cable between China and Pakistan will be built too. Pakistani newspapers have been reporting great enthusiasm for the project, including domestic investment aligned to the CPEC’s goals.

Besides the potential for growth, power and jobs, Pakistan also expects the CPEC to bind it in an even tighter embrace with close friend China, giving it greater strategic leverage with both India and the United States in the Indian Ocean region.

And what’s in it for China?

Much more than what there is for Pakistan, many feel. The CPEC is part of China’s larger regional transnational ‘One Belt One Road’ (OBOR) initiative, whose two arms are the land-based New Silk Road and the 21st century Maritime Silk Road, using which Beijing aims to create a Silk Road Economic Belt sprawled over a large patch of Asia and eastern Europe, and crisscrossed by a web of transport, energy supply and telecommunications lines.

Gwadar lies close to the Strait of Hormuz, a key oil shipping lane. It could open up an energy and trade corridor from the Gulf across Pakistan to western China, that could also be used by the Chinese Navy. The CPEC will give China land access to the Indian Ocean, cutting the nearly 13,000 km sea voyage from Tianjin to the Persian Gulf through the Strait of Malacca and around India, to a mere 2,000 km road journey from Kashgar to Gwadar.

The development of Kashgar as a trade terminus will reduce the isolation of the restive Xinjiang province, deepen its engagement with the rest of China, and raise its potential for tourism and investment. Central Asian republics are keen to plug their infrastructure networks to the CPEC — this will allow them access to the Indian Ocean, while contributing to the OBOR initiative.

For Chinese companies, the massive scale of the CPEC provides investment opportunities for several years to come. As per the terms of the agreement, they will be able to operate the projects as profit-making entities, Reuters reported. The China Development Bank and the Industrial and Commercial Bank of China Ltd, one of China’s ‘Big Four’ state-owned commercial banks, will loan funds to the companies, who will invest in the projects as commercial ventures. Major Chinese companies investing in Pakistan’s energy sector will include China’s Three Gorges Corp., which built the world’s biggest hydro power scheme, and China Power International Development Ltd.

Are there any problems?

There is scepticism in some quarters over the extent of the real gains that would come Pakistan’s way. Voices in Balochistan — where Gwadar is — have been demanding that Chinese investors spell out exactly how they would be benefitted. Both Balochistan and Khyber Pakhtunkhwa have complained that power projects that ought to be theirs have gone to Punjab. The western arm of the CPEC, important for the development of Balochistan and KP, remains uncertain. And yet, cooperation among the provinces — traditionally not one of Pakistan’s strong points — is key to the success of the CPEC.

The unpredictable security situation remains a huge concern, especially in KP and Balochistan. A major terrorist attack on a CPEC project will be a setback, and Pakistan has deployed 15,000 special security forces for Chinese nationals and companies along the corridor. There is some concern about the Uighur militants in Xinjiang as well.

How has India reacted?

External Affairs Minister Sushma Swaraj told Parliament in December 2014 that “Government is aware that China is involved in the construction of or assistance to infrastructure projects… including… hydroelectric & nuclear projects, highways, motorways, export processing zones and economic corridors in Pakistan. Government has seen reports with regard to China and Pakistan being involved in infrastructure building activities in Pakistan Occupied Kashmir, including construction of China-Pakistan Economic Corridor. Government has conveyed its concerns to China about their activities…, and asked them to cease such activities.”

In April 2015, however, TCA Raghavan, High Commissioner to Pakistan, was quoted by PTI as saying, “India has no worry over the construction of Pakistan-China Economic Corridor as an economically strong Pakistan would bring stability in the region.”

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