China-Pakistan Economic Corridor: Status and Strategy

The much publicised China-Pakistan Economic Corridor (CPEC), launched with great fanfare, is a part of Beijing’s ambitious global plan Belt and Road Initiative (BRI) meant for infrastructural development of small and medium range nations of the world although, its original scheme dated back to the 1950s when the need for a corridor from the Chinese border to Pakistan’s deepwater ports on the Arabian Sea was felt that motivated the two powers to construct the Karakoram Highway beginning in 1959, followed by Chinese interest in construction of a deep-water harbour at Gwadar in Pakistan in 2002 and completed in 2006.

The further plan for the current CPEC, after two years (2013-2014) of extensive discussions and high-level visits from both sides, the Chinese government announced in the last quarter of the year 2014 its intention to finance Chinese companies as part of its $45.6 billion energy and infrastructure projects in Pakistan. As a follow-up of the announcement, an agreement to this effect was signed on 20 April 2015 during the state visit of Chinese President Xi Jinping to Pakistan, and in line to further augment the scale and scope of CPEC, 20 more agreements were signed on 12 August 2015 which commenced a series of agreements for expansion of the works in different spheres and in proportion volume of the Chinese aid, grants and loan also multiplied.

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On the other hand, the Chinese BRI became very popular all over the world and about 140 countries gave their consent for the scheme, while many of them reached the verge of bankruptcy and became defaulters to Beijing, especially after the worldwide spread of the covid-19 pandemic. The new situation also posed several hurdles in further implementation of CPEC projects in Pakistan, also causing a lot of harassment and accusations from both sides.

CPEC is one of the biggest and largest infrastructural development schemes of independent Pakistan, intended to rapidly upgrade its required structural basics and strengthen itas economy by the construction of modern transportation networks, numerous energy projects and special economic zones. This renovation plan for the Pakistani economy includes: a. projects in Gwadar Port and City, b. roadway projects, c. railway projects, d. energy sector projects, e. other areas of co-operation in agriculture and aquaculture, science and technology.

The hurdles faced by China in the implementation of its projects related to the BRI have disappointed Beijing and the deferral of the crucial 10th meeting of China-Pakistan Economic Corridor’s Joint Co-operation Committee (JCC) testify their differences on the issue.

The plan being a landmark project in the history of Pakistan, is the largest investment Pakistan has ever attracted since independence and also the largest by China in any foreign country, and therefore both the Pakistani government and media as well have called the investment a ‘game and fate changer’ for the region that will ultimately make country a regional economic hub, further strengthening and cementing ties between the two countries. The first impact of Chinese investment was visible in the energy sector, in which the country had been facing shortages for long and was facing a shortfall of over 4500 MW on a regular basis but in December 2017, Pakistan succeeded in producing surplus electricity.

In addition to the schemes and detail of projects, there was a separate arrangement for the finance of the works which would come in the form of concessional loans, interest-free loans, private consortia, and assistance from the Asian Development Bank. Of the total approximately $11 billion will be dispersed by the Exim Bank of China, China Development Bank and the ICBC at an interest rate of 1.6% while as per an announcement made by the government of China in August 2015, concessionary loans for several projects in Gwadar totaling $757 million would be converted in 0% interest loans. In a further development in September 2015 China announced that the $230 million Gwadar International Airport project will be considered a grant which the government of Pakistan will not be required to repay. For energy purposes $15.5 billion are to be constructed by joint Chinese-Pakistani firms, rather than by the governments of either China or Pakistan. The Exim Bank of China will finance those investments at 5-6 % interest rates. The other dozen or so projects are to be financed by the Asian Development Bank.

From all counts number one beneficiary of the China-Pakistan Economic Corridor is Beijing and if all things remain normal it is in the interest of Islamabad. It will provide China with an alternative route for energy supplies, as well as new route by which Western China can conduct its trade; however, in context of the Straits of Malacca being dominated by the USA, in particular, CPEC provides China an alternative route in case of any negative action by the USA. In addition, China is heavily dependent upon sea routes which pass through the South China Sea near the disputed area, Spratly Islands and Paracel Islands, currently a source of tension between China, Taiwan, Vietnam, the Philippines and the USA and in the circumstances, the alternative route provided by CPEC would decrease the possibility of confrontation between Beijing and Washington. The CPEC alignments will improve connectivity to Xinjiang province of China, increasing the region’s potential to attract public and private investment. As a result of the CPEC, Chinese imports and exports to the Middle East, Africa, and Europe would require much shorter shipment times and distances and also alternative route to Afghanistan and Central Asia.

As the people’s Republic of China is the most resourceful country of the region, there is no doubt in its funding capability, but the repayment capacity of Pakistan has remained always in doubt keeping in consideration the already torn economic condition of Islamabad which was pushed further into a decline due to the slowing down of the global economy in the context of the covid-19 pandemic, which began at the close of the year 2019 from Wuhan, China, and spread to over 200 countries of the world. Thus, in the situation, political fragility, increased interference of security agencies and the army establishment in matters of civilian administration, have put additional pressure on ambitious CPEC projects currently ongoing in Pakistan. The hurdles faced by China in the implementation of its projects related to the BRI have disappointed Beijing and the deferral of the crucial 10th meeting of China-Pakistan Economic Corridor’s Joint Co-operation Committee (JCC) testify their differences on the issue. Since the commencement of the projects, the opposition parties of Pakistan have also abused it as a political tool not suitable for a country like Pakistan.

Dr Rajkumar Singh
Dr Rajkumar Singh
The writer is head of the political science department of the B.N.Mandal University, Madhepura, Bihar, India and can be reached at [email protected]

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