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The New Silk Road

CPEC and its prospects in regional political economy.
by Jawwad Rizvi

CPEC and its prospects in regional political economy.

The China-Pakistan Economic Corridor (CPEC), the most debated development project in South Asia, will reportedly connect the region with Central Asia and Europe paving the way for rapid economic growth in the region.

China and Pakistan are the two major beneficiaries of the project. However all South Asian and Central Asian countries and Europe will have a good impact on their economies in the long run when the corridor will be fully operational for trade and logistics.

Besides Pakistan and China, other countries which will directly benefit from the CPEC are Tajikistan, Uzbekistan, Turkmenistan and Afghanistan. These are landlocked countries and through the CPEC, they will get access to international waters for their indigenous products for trade including oil and gas while it will reduce the cost of restructuring of Afghan infrastructure.

The CPEC has been launched with the basic objectives of achieving economic integration through enhanced communication and increase in trade through building a corridor which would reduce the cost of logistics and transshipment time in the region.

Globally, the economic corridors are considered the most comprehensive form to connect countries for trade, industry and investment potentials with each other. In the long run, these corridors provide fast, efficient and reliable access to industrial production units and significant reduction in the transaction costs, including the logistics. This attracts the investors to invest in the region for increased profitability. These corridors are developed with the basic philosophy to connect different commercial, borders, and gateways and interchange points of a geographical locality for robust growth of the region. These types of corridors have been built in almost all parts of the world which have been benefitting the countries involved.

This is proved with European case where better connectivity led to better per capita income across Europe. The economic corridor operated in the Baltic States proved to be a good means for increasing exports and imports. Smaller states like Latvia and Estonia, which had experienced considerable economic turmoil in the aftermath of the breakup of Soviet Union, have now relatively high export-to-GDP ratios of 50 to 70 percent plus a complex export manufacturing base. These corridors have not only proven to be useful for economic growth between countries, but proved beneficial within a country too. The corridor between Jena and Berlin in Germany has helped the town of Jena regain its prominence in terms of being a world leader in optics.

It is therefore Pakistani and international experts see the CPEC as a game-changer for Pakistan. For China, the project can help it become the leading economic power of the world which is still the U.S.

The CPEC is also in line with Pakistan’s earlier plan of establishing a National Trade Corridor (NTC), proposed in 2005, at the cost of around $9 billion. However, this project was delayed after Pakistan became an active partner in war on terror with the U.S. and the North Atlantic Treaty Organization (NATO). Subsequently, Pakistan Army started various operations in different parts of Khyber Pakhtunkhwa against the militants. The country has paid a huge cost of the war on terror and the US supported it by doling out billion of dollars. However this financial support was mainly spent to fulfill the defence needs which affected the infrastructure of the country.

With the shift of Pakistan’s international policy to regional cooperation and making neighboring countries ally in order to foster regional growth, China is taking part in economic development of Pakistan actively. It has always had a tilt towards Pakistan in international politics despite India’s attempts to improve its relations with China. Indian economy is growing rapidly and it has registered GDP growth of over 7 percent over a decade, making it a major player of the region. India is not ready to accept Chinese might in the region as compared to Pakistan which is in development phase and has been adversely affected by inconsistent policies, weak democracy, war on terror and other factors.

In such a scenario, Pakistan naturally becomes the most ideal ally of China in the region for development and growth. The acceptance of China’s might has resulted in the huge Chinese investment in Pakistan, from development of Gwadar Deep Seaport to the CPEC and mega energy generation projections.

China has got the right to operate Pakistan’s Gwadar port for 40 years which allows it to access Gulf countries and the possibility of building a naval base in the Arabian Sea, as well.

China was interested to take over this port because it opens up a route for transporting Middle Eastern oil by a 3,000km long land route from Gwadar port to Kashgar, the northwestern Chinese city – the least developed part of China as compared to others parts which is now the focus of Chinese government. China is both financing and constructing this most important seaport of Pakistan. Gwadar port is located just outside the Strait of Hormuz, which is the gateway for about 20 percent of the world’s oil.

Oil from the Middle East could be offloaded at Gwadar and transported to China by rail and road for which China requires a secure land route and the CPEC will provide this route.

The Chinese economy is mainly dependent on Gulf oil. Currently, China imports this oil via a very long route, through the Strait of Malacca which is under US influence. Once imported oil from Gulf reaches at Shanghai or the Chinese east coast, it is transported thousands of miles in the mainland to the west of China which not only increases the cost of transportation of oil but also consumes lot of time. On the flip side of it, the Gwadar port and then Karakoram Highway (KKH) much safer, cheaper and shorter route to the west of China which would be used under the CPEC for transportation of Gulf oil.

Middle East has a significant role due to its huge oil reserves and large markets while China has a natural dependence on it but it is unable to influence it. To make its influence over Middle Eastern region, China is developing it’s a naval base in Gwadar which will not only secure the Gwadar but also provide an opportunity to establish its might in Arabian sea.

Through the CPEC and Gwadar, Chinese goods will find an easier, shorter and secure route to the Middle East increasing its profitability. Other than this, expected Chinese-Pakistanis joint ventures in the industrial zones set up along with the CPEC route of Pakistan will also increase profits of Chinese investors.
This CPEC is connecting Gwadar to China’s Xinjiang via roads, railways and pipelines to transport oil and gas. The corridor will also act as a bridge for China’s planned Maritime Silk Route which connects more than 20 countries as part of a trans-Eurasian project.

For this China has already invested $1.62 billion on further development of the Gwadar project, which includes construction of an eastern expressway linking the harbor and coastline, an international airport, breakwater and nine other projects. These projects are expected to complete within three to five years.
For a modern seaport China will construct a container terminal measuring 1,200 meters with a 300-meter-long cargo terminal that can harbor as many as four berths.

The government of Pakistan has established a high-profile force with the help of its military in order to provide foolproof security to the Chinese officials working on the CPEC.

China will fulfill energy needs of Pakistan, an energy-deficient country, by making huge investments in it. The Chinese investments in Pakistan’s energy sector will helpful it create a win-win situation for both countries. Out of total planned $ 46 billion, almost 75 percent is being invested in the energy sector entirely in the Independent Power Producers (IPP) mode. About $11.5 billion will be invested in the infrastructure projects, primarily in the form of the western alignment, expressways and Gwadar Airport and several other projects. This will be in the form of government-to-government loan on commercial and concessionary terms.

Other than the government-to-government investments, the CPEC has also been creating a lot of opportunities for private sector infrastructure in transmission and distribution of power along the CPEC route besides the development of industrial parks where collaboration with the Chinese energy companies can be carried out in transmission and distribution of power.

China has made huge commitments with Pakistan for establishment and success of the CPEC and Gwadar projects. These commitments are provisions of approximately 80 percent of the cost of Gwadar Port in shape of grants and soft loans.

Over 500 Chinese workers have been working on Gwadar port project alone on 24-hour basis to execute the port project. There are large number of Chinese workers and engineers and laborers working on various energy and other projects of the CPEC in Pakistan while the government is providing foolproof security to them.
China is also setting up a dry port at the Pak-China Sost border to take advantage of shorter route of the CPEC to sea through Gwadar.

The Karakoram Highway goes through one of the toughest hilly terrains of the world with a very unpredictable weather. Therefore for smooth logistic operations, good weather forecast is crucial for trade consignments. For this China has paid $360 million to Pakistan for expansion and upgrade of all-weather traceability installations of Karakoram Highway linking Pakistan with China. The government of Pakistan has already started feasibility and engineering studies to connect China with Gwadar through pipeline and railway track.

The CPEC and Gwadar port have an international significance for its strategic location. India considers the CPEC and Gwadar a threat to its economy as with the CPEC, Chinese influence will further increase in the region and further strengthen Sino-Pak ties. In regional as well global politics, a stronger Pakistan is not suitable to India which is also concerned with increased dependence of the Central Asian Republics (CARs), Afghanistan and China on Pakistan.

The fact is, the CPEC and Gwadar are going to benefit everyone, shorter and economical route to CARs and Afghanistan will also benefit India who eagerly looks to increasing trade with them and in the past, it has negotiated Pakistan to give it access to them.

Turkmenistan is a landlocked oil and gas rich country while the CPEC and Gwadar port will benefit the dormant project of Trans-Afghan Pipeline (TAP) from Turkmenistan to Gwadar, to pump Turkmen natural gas to markets in the South Asia.

Similarly, Kazakhstan also has huge oil reserves but no means to access the international market. A pipeline is also planned to transport this oil to Gwadar and the rest of the world.

After Arab Spring and real estate downfall in Dubai, global investors are also looking for the alternate. Dubai is playing the role of connectivity for the businesses, not only for the Gulf but also Europe, United States, Africa, China and Central Asian states. A substitute of Dubai is also required for the world investors to continue their business freely. Gwadar can be an ideal nearby substitute for Dubai which can ensure continuous supply line of oil from the Gulf region to the rest of the world.

China being an emerging super economic power of the world, wants its control over the region as well as on the Gulf which is under the US influence. The Chinese investment in Gwadar and the CPEC is crucial to develop its might in the region.

A warm water seaport is crucial for any country in order to continue trade transaction round the year and China is all set to take advantage of this through Gwadar port.

The distance of Chinese industry to the Shanghai port is approximately 16,000km and the sea travel of 2-3 months is additional which costs China a lot in the form of taxes and duties as well. As compared to it, Gwadar port is only on a distance of 2,500km from China and the port is working round the year. Therefore China is interested in the development of Gwadar port and the CPEC to boost its economy.

Similarly, the Central Asian States, after the fall of the USSR, are trying to develop their economies. These states are landlocked and Karachi is expected to provide them with the services through Afghanistan. For the purpose, a highway from Peshawar to Karachi was constructed but due to Afghan crisis, the route couldn’t be established.

Pakistan is continuously exploring ways to maximize benefits from Gwadar and the CPEC. The government is also working to increase the involvement of private sector in the development of CPEC.

Undoubtedly Pakistan has a golden opportunity to bank on the fact that the world’s second largest importer is in its neighbour and the country can truly regain its trade deficit by increasing its exports.

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