China-Pakistan Economic Corridor: Road to Riches?

On April 20, Sino-Pakistan relations took a great leap forward as Chinese President Xi Jinping unveiled plans for investment of $46 billion in the Pakistani leg of the China-Pakistan Economic Corridor (CPEC) (Xinhua, April 22). CPEC is an important component of China’s ambitious ‘One Belt, One Road’ initiative; the 3,000 kilometer (km)-long corridor will link China’s “Maritime Silk Road Economic Belt” with the overland Silk Road (Global Times, April 19). Beyond deepening the Sino-Pakistan ‘all-weather relationship’ (全天候战略合作伙伴关系), CPEC is expected to bring economic, strategic and other benefits to the two countries as well as the region. But deep skepticism remains over the project’s viability. Corruption, bureaucratic delays and political instability stand in the way of its successful completion. Importantly, the question of instability in Pakistan–particularly in the provinces of Balochistan and Khyber–Pakhtunkhwa–undermine CPEC’s chances of success.

Economic Corridor and More

CPEC envisages linking the ancient Chinese trading town of Kashgar with Pakistan’s deep-sea port Gwadar through a network of highways, railways, oil and gas pipelines and fiber optic cables. This network will stretch from China to the Arabian Sea in three parallel sections along eastern, central and western alignments. Special economic zones and energy projects will be set up along these routes between Kashgar and Gwadar. Of the $45.6 billion that China has allocated for the project, $33.8 billion will go toward power generation plants and $11.8 billion for infrastructure development (Express Tribune, November 21, 2014). While the entire CPEC plan is to be operationalized by 2030, ‘early harvest’ projects, which include the laying of rail and road networks as well as some energy projects, are expected to be completed within the next two to three years (Express Tribune, March 13; Daily Times, March 17).

China’s investment in CPEC is not small; the funds are equal to a fifth of Pakistan’s annual GDP and more than twice the entire amount of foreign direct investment Pakistan has received since 2008 (The News on Sunday, May 24). It dwarfs the $7.5 billion that the U.S. extended to Pakistan in 2009 for development projects over a five-year period. Spread too thin and over too many projects, American aid has proven ineffective. In contrast, China’s $45.6 billion spread over 15 years is more focused–it concentrates on power and infrastructure (Dawn, April 22). China’s investment will not only provide a much-needed boost to Pakistan’s cash-strapped economy, but will also address two important obstacles to Pakistan’s economic growth–poor infrastructure and power shortages. Natural gas, coal, solar and hydro-power projects are expected to come online by 2017, providing Pakistan’s national power grid with another 16,400 Megawatts (MW) of electricity. According to Pakistan’s Minister for Planning and Development Ahsan Iqbal this will roughly double its current capacity (Geo.tv, April 20). CPEC is also expected to stimulate employment and economic activity along the route of the corridor. Once completed, the project is expected to boost Pakistan’s GDP by 15 percent (Eastasiaforum.org, June 2).

A key part of CPEC is the Chinese-funded and constructed Gwadar Port. Gwadar Port’s strategic significance is enormous. Located at the mouth of the Persian Gulf, it is positioned just outside the Strait of Hormuz, a key passage that 20 percent of the world’s oil passes through. Initially touted as a major emerging regional transshipment hub, these predictions failed to materialize with the port for several years after its completion in 2006 (Dawn, August 3, 2012; Dawn, March 1). That is now expected to change with CPEC. The projects could radically expand the business potential of the port. CPEC will enable cargo unloaded at Gwadar to reach markets in Central Asia and Europe in a matter of days (Business Recorder, April 15; China.org, April 22; Express Tribune, April 27).

Pakistan’s political class often attribute China’s ‘largesse’ to the “higher than mountains, deeper than oceans, sweeter than honey and stronger than steel” relationship it has with Islamabad (Express Tribune, April 21, 2014). However, Beijing is not gifting Pakistan with funds. Its offer of $45.6 billion is in the form of commercial loans that will have to be repaid with interest. Hard economic and strategic calculations–not emotional bonds–are likely to have prompted China to push the CPEC project. After all, while the project is beneficial to Pakistan, it “is equally, in fact more, advantageous for Beijing” (Newsweek Pakistan, April 22).

Shortcut to Xinjiang

The economic and strategic benefits that will accrue to China are significant. CPEC has the potential to transform the economy of its underdeveloped, remote and restive Xinjiang province. Among the slew of measures Beijing has adopted to deal with Uygher unrest and alienation is the province’s economic development and CPEC fits in well with this strategy. It will provide landlocked Xinjiang with access to the sea. Kashgar, which is still predominantly Uygher, will be poised to emerge as a major trading hub. Kashgar will link CPEC with the Silk Road; China hopes that the anticipated prosperity will spread to other parts of Xinjiang, blunting the sharpness of separatist sentiments here (Global Times, July 5).

CPEC provides a shorter route between western Asia and China. The current route for transporting oil and other commodities from western Asia to Chinese ports, which is via the Straits of Malacca, is roughly 12,000 km long. It is another 3,500 km of overland travel from Chinese ports to Xinjiang. In comparison, the route from Gwadar Port to Xinjiang is just 3,000 km. It will mean dramatic savings in shipment time, distance and costs for China and other countries opting for this route (Frontier Post, June 24; Chinausfocus.com, June 25).

But more important than the reduction in shipment cost and time is CPEC’s potential to free China from its ‘Malacca Dilemma,’ (马六甲困境) which refers to the Chinese economy’s excessive reliance and vulnerability to pressure at the Straits of Malacca. (Chinausfocus.com, June 25). China’s economic growth depends enormously on foreign trade, which in turn relies on trade via the Indian Ocean. Much of China’s oil comes from West Asia and Africa and around 80 percent of this passes through the Straits of Malacca. Should the Straits of Malacca be threatened or come under the influence of hostile states or non-state actors, China’s trade could be choked. The resulting energy crisis could paralyze its economy. China has invested in alternative routes through the Gwadar Port, CPEC and the Kyaukphyu port in Myanmar, which connects to China’s Yunnan province to address this Malacca Dilemma (The Irrawaddy, February 2). CPEC will help ensure that if China’s trade via the Straits of Malacca are blocked, Beijing will now have other routes to transport oil to China.

Concerns and Controversies

While expectations for CPEC are soaring in Pakistan and China, realities on the ground suggest that implementing the project is not going to be easy. There are worries that the implementation of various projects could be derailed by corruption and bureaucratic delays (Daily Times, May 30). These concerns are further compounded by the fact that Gwadar was previously identified as a keystone of China’s energy strategy, yet failed to attract major business for several years. Will CPEC suffer a similar fate? According to Jabin Jacob, Assistant Director of the Institute of Chinese Studies in Delhi, Chinas’ commitment to the project is crucial to CPEC’s success. This is likely to happen because “Chinese companies that are going to be involved in the process of setting up energy plants and other physical infrastructure [in Pakistan as part of CPEC] need to make money and cannot do so back home due to China’s saturated markets.” With this as an incentive, CPEC “is likely to succeed.” [1]

However, formidable challenges exist; foremost being the dangerous security situation in Pakistan. Gwadar Port and a major part section of the western route of the corridor lie in Balochistan, where a low-intensity war is raging. Baloch insurgents fighting the Pakistani state can be expected to target CPEC infrastructure, as well as Chinese nationals and non-Balochi workers employed on the projects (The Diplomat, December 17, 2014). Numerous ambushes, abductions and attacks have occurred here in the past; in 2004, three Chinese engineers working at the Gwadar Port were killed and in March this year, five oil tankers carrying oil for a Chinese company extracting copper at the Saindak Project in Balochistan were set on fire (Express Tribune, April 21; Dawn, June 3). Elsewhere in Pakistan, CPEC could come under fire from the Taliban and other militant outfits fighting the state. Similarly, on the Chinese side of the border, Uyghur militants could target CPEC infrastructure in Xinjiang.

Insurgents are not the only opponents of the project. CPEC has caused concerns in neighboring India due to the route of the corridor. India has objected to the economic corridor running through Gilgit-Baltistan on the grounds that this territory rightfully belongs to India, though Pakistan has occupied it since 1947 (New Indian Express, May 13; The News, July 16). Pakistani development analyst and Balochistan expert Syed Fazl-e-Haider notes “China’s competitor in the global energy game and in establishing regional hegemony,” India, is “very much concerned” over the strategic goals that China is seeking to achieve through the CPEC project: dominance of the Indian Ocean, energy security and policing of routes of the energy pipelines and oil trade. [2]

Indeed, China’s rising profile in the Indian Ocean and its presence at Gwadar in particular is of concern to countries whose oil imports pass through the Straits of Hormuz. [3] Indian strategic analyst Brahma Chellaney warns that Gwadar Port, which is operating as a commercial port by a Chinese state-run company, could in the future “double up as a key outpost for the Chinese Navy and serve as China’s first overseas naval station.” CPEC would intensify the threat posed by China to India’s security interests as it will provide China with access to the Indian Ocean, “thus challenging India in its maritime backyard” CPEC’s improved transport infrastructure, he says, could facilitate China deploying its troops “to rapidly come to Pakistan’s aid in the event of war with India (Japan Times, April 27).

While regional and global powers will be closely monitoring CPEC’s evolution in the coming years, the project’s fate will be determined by the governments of Pakistan and China. This makes their handling of Balochistan crucial to CPEC’s success.

Balochistan Holds the Key

Long stretches of CPEC, including Gwadar, are located in Balochistan, providing important deep-water port access to the Persian Gulf. However, Balochis generally oppose CPEC project as they fear that as with other projects, they will be excluded from its rewards (The Nation, [Pakistan] April 30).

Such fears were recently underscored when it emerged that the Pakistani government would give priority to the eastern portion of CPEC. While infrastructure in the eastern route is readily usable and more secure than the other routes, it is seen to favor Punjab, Pakistan’s most prosperous province and the stronghold of the ruling party, the Pakistan Muslim League-Nawaz. Less than 12 percent of spending on infrastructure development for fiscal year 2016 will go to Balochistan and Khyber-Pakhtunkhwa, though these two provinces are Pakistan’s poorest. This contrasts with the 70 percent allocated to Punjab and Sindh, Pakistan’s wealthiest provinces–stirring old fears that the western route running through Balochistan will be delayed, or worse, ignored (Daily Times, April 24; Express Tribune, June 19).

Should development of the western route be ignored and Balochis excluded from CPEC’s benefits, already volatile Balochistan could potentially explode, putting CPEC’s future in jeopardy. Analysts warn that a restive Balochistan, which borders Afghanistan and Iran, presents players in the “energy great game” with “a mouth-watering prospect” (Express Tribune, May 14). According to Syed Fazl-e-Haider, these neighboring states would be tempted to meddle and Pakistan would face the prospect of “non-state actors such as sectarian outfits and separatists acting as proxies of the global energy players.” Should this happen CPEC will be in serious trouble.

CPEC offers Pakistan an opportunity to address many of the economic and political issues troubling the country. If Islamabad and Beijing do not ensure Balochi companies and workers play a prominent role, it could jeopardize China’s strategic gains and Pakistan’s most significant development project ever. Pakistan’s government cannot afford to fuel further the anger and alienation in this province. Balochis must have a stake in CPEC’s success. If CPEC is implemented in a way that includes Balochis in its rewards, (through commitment of funds for development and hiring Balochi companies and workers) CPEC has the potential to pull the province out of poverty and calm the anti-government anger. CPEC can be a game-changer for Pakistan and China, but only if it is first a game-changer for Balochistan.

Notes

1. Author’s Interview, Jabin T. Jacob, Assistant Director, Institute of Chinese Studies, Delhi, July 13.
2. Author’s Interview, Syed Fazl-e-Haider, development analyst and author of Economic Development of Balochistan, Karachi, July 11.
3. For example: joint exercises that the Chinese Navy conducted with its Iranian counterpart in the Straits of Hormuz in 2014, which brought Peoples Liberation Army Navy vessels to the strategic waterway for the first time ever or the Shaheen series of joint air exercises between the air forces of China and Pakistan fuel apprehensions among Beijing-wary countries of possible future deployment of Chinese warships and fighter planes near the Straits of Hormuz. For coverage of the Shaheen exercises, see China Brief, May 20, 2011.