Beijing Builds its Eurasian Transportation Network

China continues to make progress in building its Eurasian transportation networks with the aim of deepening its economic ties in Central and South Asia as well as providing a foundation for its regional security interests. Gwadar, a port town in western Pakistan close to Iran , looks to be a focal point for Chinese investment. On February 18, 2013, the previous operator, the Port of Singapore Authority (PSA), sold its shares to the state-run China Overseas Port Holding Company (COPHC), citing regional violence as making the port commercially unviable (South China Morning Post, August 8, 2012). Nonetheless, the Chinese government plans to connect its western provinces with Gwadar by rail, road and pipeline, which could also enable China to import energy products from Iran by land. The port transfer is however causing alarm. Chinese and Pakistani officials have downplayed the significance of the commercial transfer, but India and other regional actors suspect China will eventually use the facility in part to support its power projection activities in the Indian Ocean.

Meanwhile, China continues to expand the Karakoram Highway that links Pakistan to China’s westernmost province, Xinjiang. In addition, China and Iran are building a connecting railway and are helping Pakistan construct an energy pipeline that will link all three countries. This massive transportation infrastructure network of railway, highway and maritime shipping routes—which extends through Central Asia, the Indian Ocean, and other regions—will enhance economic ties between China and its western neighbors and provide the foundation for future Chinese strategic options in Eurasia and South Asia.

Gwadar Port

Pakistan always has been an important partner in China’s efforts to construct a “New Silk Road” through Eurasia. Chinese enterprises have contributed investment capital, technology, and labor to support Pakistan’s transportation infrastructure, including the construction of Gwadar. A warm-water, deep sea port, Gwadar could serve as a major trading hub. Strategically, it could serve as a means of allowing energy supplies from the Persian Gulf to go overland through Pakistan rather than by sea through the Straits of Malacca, circumventing any naval blockade or other interruption in maritime traffic between the Persian Gulf and China. A direct transportation corridor between Gwadar and Xinjiang also could boost the economy of that troubled province, which has a large population of Muslim minorities like the Uighurs.

Chinese media stresses that a greater Chinese role in Gwadar is a “win-win” outcome for Islamabad as well as Beijing (Xinhua, February 28). Pakistan could benefit significantly from the new Chinese management. Currently, Gwadar is underused due to its undeveloped supporting roads and infrastructure (Dawn [Pakistan], February 19). With the improved management and more investment expected from China, which already has financed a coastal highway between Gwadar and other Pakistani ports, Chinese analysts note Gwadar could more easily become a major regional commercial center. Importantly, this would generate revenue for Islamabad and jobs and commerce for Pakistan’s alienated Baluch minority, which has spawned insurgent movements (China Daily, February 1).

The port could be the beginning of a southern route for a new “Silk Road” through which China can more easily exchange goods with Central Asia and the Middle East.  During a recent visit to China, Pakistan’s Railways Minister Haji Ghulam Ahmed Bilour agreed with his then-counterpart Liu Zhijun to establish a consortium to build a 750-kilometer railway linking the two countries, from Havellian to the 4,730-meter-high Khunjerab Pass in Gilgit-Baltistan. The two countries are cooperating in modernizing existing Pakistan railway tracks to meet international standards (Asia Times, September 11, 2009). Next steps would entail extending the rail network to connect Iran, Central Asia, and Afghanistan, where Chinese companies have begun developing the country’s mineral resources.

Beyond Gwadar

Chinese assistance also has helped construct, maintain and modernize the Karakoram Highway—the main road between Pakistan and China. In addition, Chinese firms have made substantial investments in Pakistan’s defense industry, energy, engineering, information technology, mining, telecommunications as well as banking, transportation and other infrastructure sectors (Observer [Pakistan], May 15, 2011). Thousands of Chinese nationals—engineers, advisors, laborers and others—work in Pakistan. China particularly favors high-profile mega projects that boost China’s popularity in Pakistan. In addition to Karakorum Highway and Gwadar Port, these projects include the Taxila Heavy Mechanical Complex, Chashma Nuclear Power Plant (including another reactor deal just announced last month), Jinnah Sports Stadium and the Pakistan-China Friendship Centre. China’s focus on road construction, electric power generation, telecommunications and other infrastructure development reflects Beijing’s goal of using Pakistan as a key conduit linking China with Central Asia and the Middle East (“Thunder in Sino-Pakistani Relations,” China Brief, March 2, 2006).

Pakistan is potentially a natural energy corridor since it is located between China and Iran’s oil, depending on its stability. Iran and China are helping Pakistan construct a 785-kilometer pipeline to transport 21.5 million cubic meters of high-pressured gas a day from Iran to an area near Gwadar. Iran has already promised to provide Pakistan with all the financial and technical assistance, including equipment and compressors,  needed for the pipeline The estimated cost of the project on the Pakistani side is comes to $1.2 billion (Press TV, June 10, 2012). Once railways, roads, or other pipelines are built to connect Gwadar to China directly, China can import Iranian oil more cheaply and safely than through the Persian Gulf and the Strait of Malacca, through which more than 80 percent of China’s imported oil passes (Global Times, February 19). These supplies must reach China by passing through the Indian Ocean and the Strait of Hormuz, leaving them vulnerable in a crisis.

Strategic Options

Thus far, Chinese representatives have insisted they are motivated by commercial considerations in their investments in Pakistan. Foreign Ministry spokesman Hong Lei said many Chinese enterprises have long been active in Pakistan’s economy and that the increased Sino-Pakistani economic cooperation would help bolster regional stability and development (Xinhua, February 19). Chinese and Pakistani officials have insisted that other countries have no reason to worry about the ownership transfer and that China does not plan to establish a military facility at the port (China Daily, February 19; Dawn, February 19). For example, they deny they will construct a major military base at the Port. They also criticize “‘oversensitive’ India and the West, arguing that China neither wants to nor needs to ‘detour’ to the Indian Ocean to curb India” (People’s Daily Online, February 20). At the same time, however, Chinese writers complicate perceptions of China’s intentions by citing energy security considerations for wanting to strengthen China’s maritime presence in the Indian Ocean. The Chinese media note that more than two-thirds of the world’s petroleum trade traverses the Indian Ocean, on its way from the Middle East to the Pacific Ocean passing through the Gulfs of Aden, Oman, Bab el Mandeb as well as the Straits of Hormuz and Malacca (Global Times, February 19).

Indian Defense Minister A. K. Antony said that China’s assuming control of the port’s management was “a matter of concern” (South China Morning Post, February 19). The port’s location would allow a Chinese People’s Liberation Army (PLA) presence to monitor Indian naval activities and have the potential to enhance China’s military power projection capabilities in the region. Indian analysts believe that the PLA Navy (PLAN) eventually might use Gwadar as a logistics and support base, and perhaps even for home porting submarines and other ships, to support a PLAN presence in the Indian Ocean (South China Morning Post, June 3, 2011). Indian officials also have considered the continuing enhancement of the Karakoram Highway as another security problem since means China could use the conduit to transport heavy military equipment more easily to Pakistan in a crisis (Der Spiegel, July 17, 2012). More generally, some foreign analysts see China as constructing a “String of Pearls” or Chinese-funded ports spanning China’s sea lanes of communication from the Middle East. The perceived aim is to build a network of commercial transportation facilities and economic-political ties in the region that encircle India. The PLA also might be able to use these facilities to support operations in the Indian Ocean, the Middle East, eastern Africa and perhaps elsewhere (Energy Tribune, March 5; IDSA, June 8, 2010).

Commenting on such speculation, Chinese Ministry of National Defense spokesman Senior Colonel Geng Yansheng said “The so-called ‘string of pearls strategy’ is totally groundless” (China Military Online, March 4). Yet, even Chinese scholars note that Gwadar will bolster China’s naval presence in the region. Zhao Gancheng, researcher with Shanghai Institute of International Studies, said Gwadar could help Chinese fleets in the Indian Ocean make international waterways more secure, while Pei Yuanying, China’s former ambassador to India, said that the port could become a logistics support base for the Chinese fleet when it sails to the Suez Canal, the Mediterranean and the Gulf of Aden (People’s Daily Online, February 20). Furthermore, China’s transportation development program in Pakistan clearly helps Beijing gain strategic leverage over New Delhi by increasing China’s economic presence in peacetime and by the enhancing Beijing’s ability to project power in wartime (Observer India, March 4, 2010). Pakistan’s navy also intends eventually to use Gwadar port, which would hinders India’s ability to sever Pakistan’s maritime communications while alleviating the traffic congestion currently affecting Pakistan’s other two large ports (China Daily, April 26, 2012). Gwadar is less vulnerable to Indian interdiction than the Karachi and Bin Qasim ports, due to its being more than 450 kilometers away from Indian territory.

China did refuse an earlier, explicit request from Pakistan to construct to establish a naval base at Gwadar. After Prime Minister Syed Yusuf Raza Gilani’s returned from a four-day official visit to China in May 2011, Defense Minister Chaudhary Ahmed Mukhtar told the press that during the visit, “We have asked our Chinese brothers to please build a naval base at Gwadar” (Asia Times, October 26, 2011). Chinese representatives prudently declined at the time to establish a permanent naval facility, which would have been its first overseas military base and only would alarm India, the United States and other countries further. Hu Shisheng of the China Institutes of Contemporary International Relations explained China had to “strike a balance between [its] needs and what other countries in the region think. A rash decision is only going to backfire and negate the benefits a permanent base might bring” (South China Morning Post, June 3, 2011). Hu’s comments and others like them as well as the recent moves suggest that Beijing may be rethinking sixty-odd years of official policy claiming China would never establish overseas bases.

Iranian Connections          

Western concerns about a Chinese coastal presence are accentuated by Iranian media reports that Iran will construct a naval base on its territory near Gwadar to provide security for the eastern portion of its coast. China is now the largest single buyer of Iranian oil (Indian Express, February 18; Bloomberg, February 18).  Furthermore, China has been trying to integrate Iran better into its own transportation networks through Pakistan to speed the delivery of oil and other goods to China, ideally on inland ground routes less susceptible to maritime interdiction that also would be faster and cheaper than shipping cargo by sea. To this end, in February 2013, China’s State Council approved helping Iran construct a high-speed railway, estimated to cost at least $1 billion, and other reports suggest a possible extension that would add a direct rail line to Xinjiang (Bloomberg, February 18; Registan.net, July 26, 2012).

China and Iran previously have signed several railway deals. In February 2011, China agreed to help Iran’s state-run Construction and Development of Transportation Infrastructure Company with financing and technology transfers. The contract, estimated at 80.5 billion yuan ($13 billion), aimed to construct eight railway lines within Iran itself spanning over 5300 kilometers (Sydney Morning Herald, February 9, 2011). In September 2010, China’s then-Minister of Railways Liu Zhijun signed an agreement to build 580 kilometers of railway tracks running from Tehran through Hamadan, Malayer and Kermanshah to the Iraqi border town of Khosravi with an additional link from Arak to Malayer. This particular network eventually might offer onward connections via Iraq to the Syrian port of Latakia, giving China overland access to Europe and the Mediterranean (Railway Gazette, September 21, 2010). Events in Syria, however, may put into question any plans to develop this extension.

Conclusion

The same obstacles that hamper this nascent trans-Asian network have confounded other efforts to establish a trans-Eurasian rail network: the different rail gauges used by the countries; the need for transit permits and efficient customs procedures; and the unstable politics in Central Asia and Iran. A continuing lack of security means there would likely be lengthy delays at border crossings and customs posts the countries feared terrorist infiltration or the smuggling of narcotics and other contraband. The entire region is presently fraught with conflicts. Trains, pipelines, and other transportation networks would be exposed to danger in Afghanistan, Baluchistan, Kashmir, Xinjiang and other places. With a Chinese enterprise taking over the port, more Chinese citizens will likely be killed or kept hostage, especially if the locals see the Chinese presence as a form of foreign occupation in collusion with Islamabad. China increasingly has encountered these security viabilities as its global presence has grown, especially in the world’s hotspots. Nonetheless, the Chinese government has shown a willingness to accept short-term commercial risks in Iraq, Venezuela and elsewhere in return for potentially greater long-term economic and geopolitical gains (“Equity Oil and Political Risk,” China Brief, February 1; “Assessing China’s Response Options to Kidnappings Abroad,” China Brief, May 11, 2012).

Finally, pending resolution of the Iranian nuclear issue, the United States and other Western countries would try to block any international financing of projects that benefit Iran. Yet, the Western sanctions against Tehran, while essential and justifiable in themselves, have strengthened China-Iran commercial relations by denying Iranians alternative economic partner. Not only do the sanctions help Chinese companies by depriving them of competitors, but Chinese negotiators have exploited Iran’s position to demand better terms such as lower oil prices. The sanctions also promote the development of rail and other routes between the two countries as well as other joint infrastructure projects. Instead of running afoul of international banking sanctions, China can pay for its oil and other Iranian imports by financing major transportation and other infrastructure projects, helping both countries evade the economic sanctions against Iran while also advancing Beijing’s regional economic goals.

Over time, China’s infrastructure investments in South Asia and Iran will consolidate Beijing’s dominant economic position in Eurasia and lay the groundwork for a greater PLAN presence in the Persian Gulf and Indian Ocean. The port in Gwadar, the Karakoram Highway, and the proposed rail and pipeline links simultaneously advance both these interests. Among other benefits, these projects will help align Iran and Pakistan together to Beijing’s benefit.