Wednesday, 15 April 2015

China and Pakistan Prepare to Establish Economic Corridor

Published in Analytical Articles

By Ghulam Ali (04/15/2015 issue of the CACI Analyst)

Beijing and Islamabad have completed the groundwork for the implementation of the China-Pakistan Economic Corridor (CPEC). A final decision with a clear roadmap is expected during Chinese President Xi Jingping’s much-awaited visit to Pakistan in May 2015. The CPEC is the largest project not only in the relationship between the two states, but also in Pakistan’s history. The future of Sino-Pakistan relations will hinge upon corridor’s success.  

BACKGROUND: China and Pakistan claim to have an “all-weather” friendship. Their geographical proximity adds geo-economic significance to their overall relationship. To optimize the benefits of their shared border, the two sides in 1982 completed the legendary Karakorum Highway (KKH), connecting China’s Kashgar to Pakistan’s Hasan Abdal, a town near Islamabad, via the Khunjerab Pass. During the 2000s, the highway was expanded and modernized to make it operational for all types of traffic, year-round. An inland network of roads connects Hassan Abdal with Pakistan’s Gwadar and Karachi ports in the south of the country.

The proposal to establish an economic corridor emerged in the 2000s, but gained momentum with the advent of “assertive” Chinese leadership under Xi Jinping. It has since become a central theme of discussion in Sino-Pakistani high-level interaction. In February 2013, state-owned China Overseas Ports Holding Limited took “administrative” control of the Gwadar Port. During Premier Li Keqiang’s visit to Pakistan in May 2013, the two sides signed agreements on the blueprint for the CPEC. In November 2014, China allocated US$ 45.6 billion for the project, including US$ 33.8 billion for energy and US$ 11.8 billion for infrastructure development, including US$ 622 million for developing the Gwadar Port. Informed sources state that China’s actual allocation is more than double this amount, subject to progress on the CPEC.

This was the single largest foreign commitment in Pakistan’s history, indicating the significance that Beijing attaches to this project. Moody’s has termed the CPEC “credit positive” for Pakistan, as it will “spur investment activity, boost bilateral trade flows and help ease the country’s growing energy shortages.” Although China has established a number of Silk Roads, including the 21st Century Maritime Silk Road, the CPEC is unique in its short distance and the fact that it involves only one country, Pakistan, with whom China has cordial relations. The CPEC also provides a bridge between land and maritime silk roads.

In addition, the CPEC offers more than mere road connectivity. It is a comprehensive concept aiming to integrate Pakistan economically and strategically with China in the long term. China offers to restore Pakistan’s “glorious” past by economic assistance. This is a long-term task that will be implemented gradually. Currently, the two countries are upgrading existing roads and building new ones to consolidate land connectivity. They have also completed studies to construct railways, oil and gas pipelines, and fiber optic lines along with the corridor. At Gwadar, they will construct an international airport, storage facilities, and oil refineries. Pakistan will establish industrial and economic zones with tax incentives at Gwadar and along the corridor.

IMPLICATIONS: The significance of the CPEC stems from Pakistan’s geographical location and that of the Gwadar Port, which is at the heart of this project. The country is at the crossroads of Central, South and West Asia and in close proximity of China. Gwadar, a natural deep seaport, is located close to the Strait of Hormuz, the Persian Gulf and the Middle East. Islamabad hopes that the CPEC will provide inter and intra-regional connectivity and facilitate the flow of goods and energy. Two proposed west-east pipelines, the Turkmenistan- Afghanistan-Pakistan-India (TAPI) and the Iran-Pakistan-India (IPI) pipelines, intersect with the CPEC at different points. The CPEC can benefit landlocked Afghanistan and some Central Asian states.

Pakistan’s Prime Minister has stated that the CPEC could be a “game changer” for the region. It serves key Chinese economic and strategic interests. Over 70 percent of China’s trade and energy transit the Indian Ocean and the Malacca Straits. This area is infected with pirates and patrolled by the U.S. and Indian navies. Any conflict could choke off China’s energy supplies. The CPEC provides a short and safe alternative. It can become a gateway for trade between China and the Middle East, Africa and beyond. Oil shipments originating in the Middle East could be offloaded at Gwadar for onward transport to China, via roads, railways and pipelines. This will reduce time, distance, freight cost, and is above all safer than the Malacca Straits. In addition, the CPEC will complement China’s drive to modernize its Western regions, and to address separatism in Xinjiang through economic and trade activities.

The CPEC and the Gwadar port is a cause of concern to especially the U.S. and India, who consider it part of China’s “string of pearls” strategy aiming to encircle India. Alongside Gwadar, China has assisted the Hambantota Port in Sri Lanka, Chittagong in Bangladesh, Kyaukpyu and Sittwe in Myanmar, and a “dry port” at Larch in Nepal. These developments, along with China’s construction of a blue-water navy and its activities in the Indian Ocean raise concerns. While the current structure of the CPEC and Gwadar is economic and commercial, these facilities could be utilized for military purposes if needed. 

Aside from the CPEC’s stated economic and strategic implications, the project faces daunting challenges at this stage. Pakistan’s chronic security situation is the primary hurdle to its implementation. The corridor passes through the unruly Khyber Pakhtunkhwa and Baluchistan provinces, which face a low-scale insurgency. Some Baluch tribes also oppose the development work in their province. Potential spillover from Afghanistan could add to the instability. It will take a long time for Pakistan’s government to establish its writ in those areas. Moreover, the country is divided along political lines, which prevent consensus on the project. A conflict over the change in the corridor’s route recently divided the legislatures of different provinces, exposing these fault lines.

Furthermore, aside from Pakistan’s fanfare, the CPEC is only one of China’s several new Silk Roads. If Islamabad fails to address its domestic challenges to the CPEC’s implementation, China could decide to focus on others projects. Finally, China’s investment in Pakistan has been quite modest in the past, but was coupled with China’s observance of the principle of non-interference in Pakistan’s internal affairs. Observers argue that after such huge investments, China could change its behavior and take positions on domestic Pakistani policies that affect its interests.

CONCLUSIONS: Given the historically close relationship between China and Pakistan, the CPEC could indeed become a game changer. If implemented successfully, it could serve China’s economic, energy and strategic interests on the one hand and boost Pakistan’s moribund economy on the other. It cannot be ruled out that the CPEC could be used for military purposes if either side requires it. Roads and ports built for economic purposes can be equally useful for defense purposes. However, aside from this this potential, the CPEC faces several challenges, mostly originating in Pakistan. Until these are addressed, the CPEC will remain a dream. In the context of rapid changes in the region, especially China’s gradual rise from a regional to a great power and growing Sino-Indian rapprochement, Pakistan has lost some of its traditional importance in China’s calculation. The success of the CPEC is therefore crucial for the future of Sino-Pakistan ties.

AUTHOR’S BIO: Dr. Ghulam Ali is a Postdoctoral Fellow at Peking University, Beijing. The views expressed in this article are his own. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Image Attribution: Moign Khawaja

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