CPEC: Opportunities & Challenges

The China Pakistan Economic Corridor (CPEC) has been termed a game-and fate-changer for Pakistan and rest of the region. It has indeed strategic importance for China as well as Pakistan but increasing criticism in and outside the country has created some doubts about its overall utility and importance. Nevertheless, CPEC has the capacity to transform local industries, economies, cultures and humanities at large, if it is implemented in win befitting propositions for both countries.

CPEC’s Serious Concerns (2017-18)

With the passage of time somehow, domestic main stakeholders showed their serious concerns about its overall composition, implementation strategy, utility, dubious supply & demand chains, apparently absence of human considerations and the last but not the least financial sources/resources in the country. Main stakeholders of the country also have reservations about imbalanced “mix of energy production” which has been tilled towards coal energy mere not renewables, provincial/ geographic preferences, consumption of local labours force, security issues/red lines, visas issuance mechanism (in a decade, the number of Chinese citizens staying in Pakistan jumped to 30,000 from 9000), permission of ownership and the last but not the least slow progress on different operational aspects of the CPEC.

According to creditable/ reliable sources Chinese enterprises have been leased thousands of acres of Pakistani agricultural land to set up ‘demonstration projects’ to introduce new seed varieties, pesticides and irrigation technologies. Facilities for processing, storing and transporting, grains, fruits and vegetables are also being set up indicating that access to the full supply chain of Pakistan’s agriculture is an important goal of CPEC. China appears to be using CPEC to strengthen its food security. So where is Pakistan’s food security and development of agro-based economy and industries under CPEC?

Moreover, many independent research centers of the country are of the opinion that the long-term financial implications of a number of deals made under the CPEC would create serious debt trap for Pakistan. Most of them are of the views that the debt repayment terms are not transparent. According to them Pakistan has put itself in a position where it will need to put very large amounts of money into debt servicing in the coming years. Therefore, transparency must be mantra of both the countries to make CPEC a successful project of the century.

Chinese government and stakeholders have their own deep concerns which have been conveyed through “track-II” diplomacy behind the “corridors of real power”.

The Deteriorating law & order situation in the country especially Balochistan is not taken “satisfactory” in Beijing. Moreover, constant political turmoil and battel of survival among the different power brokers (legislative, judiciary and administration) in the country have also sent not so “pleasant message” in and beyond China’s great walls. Incidents of alleged corruption are a killer for the CPEC which must be rectified.

Comparative Analysis of Pakistan-China

Concerns about CPEC (Table-I)

CPEC: A Strategic Vision

CPEC is strategic vision of the leaders of China and Pakistan which will open new avenues of economic opportunities, generation of jobs, blossoming tourism, massive growth of construction/communications industries, commonalities of interests, massive industrialization, and will economically stabilize the whole region but the above mentioned concerns of both the countries (Table-l) need to be rectified as soon as possible because there should not be any “conflict of interest” in the days to come since CPEC is flagship of trustworthy friendship.

CPEC: A Model of Massive Collaborations

CPEC is model of massive collaborations at government and public-private levels. It is a pro-development. It is a pro-industrialization. It is a pro-renewables. It is pro-job generation. It is pro-peace and regional harmony. It would ease out trade in both eastern and western directions.

Wish-list of Provinces

In Pakistan at provincial levels, other than Punjab every province has its own “wish list” under CPEC.

There is dichotomy between Punjab and KPK-Pakhtunkhwa on allocation of projects under the CPEC which is not establishing good example in the eyes of foreigner investors (Chinese) and local businessmen too. But now there is a broader consensus in Pakistan that CPEC would create a “shared future” for all the provinces of Pakistan. It is estimated CPEC will bring 17 industrial zones to Khyber-Pakhtunkhwa.

The government of Pakistan has been labeled CPEC as the “gate-way” to Balochistan for its future socio-economic development and greater connectivity. But on the contrary, people of Balochistan are seriously worried that CPEC would benefit outsiders rather than locals. An additional concern is that migration of workers to Gwadar will change the demographic profile of the province, turning the group into a minority. Such serious fears need to be rationalized.

CPEC is a mega project which undoubtedly, offers huge dividends for all the provinces and regions of Pakistan, opening new avenues of opportunities for the people of the country, particularly, underdeveloped regions. The transport infrastructure projects of CPEC will give a boost to economic activities in far-flung areas of Khyber Pakhtunkhwa, Balochistan and Sindh thus would help in the emergence of new urban and economic centers.

Under CPEC a number of provincial infrastructure projects, Mirpur Mansehra Road, Nokundi Mashkhel Panjgur Road and Gilgit Chitral Chakdara, as well as the development of Keti Bandar Port, have been included in CPEC which would further enhance connectivity in the province. Moreover, under CPEC, circular railway projects are being implemented in all the four capitals.

Furthermore, an 820 km long fiber optic that passes through GB and KP to connect Rawalpindi and Khunjrab is planned to be completed this year. It is hoped that this project will not only turn the trade corridor into a digital corridor and would bring boom to IT related industry in this region along the route.

Railways track would be upgraded from Karachi to Peshawar and Peshawar to Landi Kotal. The groundbreaking of the ML-1 railways project is expected in March 2018 and it would be completed in four years in various phases. All the technical matters relating to the project will be settled between Pakistan and China within two to three months.

Pakistan and China have also agreed on two mega projects of infrastructure of western route from Khuzdar to Basima Road (110km) at estimated cost $80 million and from Yarik to Zhob (210km) at estimated cost $195 million.

High Ratios of FDIs

Moreover, the increased flow of foreign direct investment (FDI) and completion of some of the early harvesting programmes is a good omen. However, the idea of “special economic zones” (SEZs) under CPEC program has created uneasiness among the local industrialists in the country which must be removed for achieving the greater cause i.e. timely completion of CPEC. Nine sites have been identified as SEZs under CPEC.

Special Economic Zones (SEZs)

These sites would be established in all the four provinces, federal areas, and Gilgit-Baltistan. The federal government has assured all the stakeholders in the country that these sites would be open to domestic as well as international investors/ businessmen. But private sector of Pakistan fears Chinese investors may have a “comparative advantage” in this regard.

CPEC and Industrial Financing

There is an urgent need to ink an agreement for “Industrial Financing” for achieving a sustainable development and expansion of SEZs in the country which may be later turned into joint ventures in the days to come. It is strongly suggested to have an independent company and a sizeable fund for each of the SEZs should be established. It is the replication of cooperation model between Belarus and China.

Apparently, Chinese are not very keen on exporting labour force to Pakistan and emphasised that Pakistan need to develop its labour intensive industry under CPEC where its domestic labour may be made to work. Among opportunities, Chinese highlighted tapping coal, iron, and cotton resources of Pakistan through superior Chinese technology. Highlighting the importance of infrastructure, Chinse pointed out that railways, airport, port projects would be the focus of bilateral cooperation.

Ideal Befitting Propositions (IBPs)-(Model-l)

The following given models are the “Strategic Road Maps” for further strengthening of bilateral relations between Pakistan and China. These models provide win-win situation for both the countries. These models also value “psychological make-up” during the implementation of CPEC. The IBPs are the “face-saver” of both the countries observing by which CPEC hopefully would win heart and minds of the people at large.

The IBPs provide solid foundations of further strengthening of bilateral relations under umbrella of CPEC. The IBPs outline perquisites for achieving greater economic integration, energy cooperation, infrastructural development, cooperative tourism, massive industrialization and capacity building measures.

Regional Rivalries & CPEC 

CPEC is a symbolic mega project which would bring socio-economic prosperity in the region. It would reduce distance and eradicate poverty. It would be binding force for achieving greater peace and harmony in the region. Having said all that CPEC would also be “dividing pool” among the neighbouring countries especially India, Afghanistan, UAE, and Iran. In bigger picture of power politics, the US and Japan have also very serious reservations about the development of the CPEC because of their perpetual “China containment” policies.

Most recently, while meeting with Secretary General of Shanghai Cooperation Organization (SCO) Rashid Alimov, Prime Minister Shahid Khaqan Abbasi offered to connect China Pakistan Economic Corridor (CPEC) with six approved routes of Shanghai Cooperation Organization (SCO) to enhance region’s connectivity. It would become a conduit linking Eurasian landmass, China, Russia and Central Asia with the Arabian Sea.

Security Alert & Arrangements

According to latest “security alert” received from intelligence agencies and circulated by the Federal Ministry of Interior, India has sent more than 400 young Muslim to Afghanistan to sabotage installations of the CPEC in different parts within Pakistan including bridges at Karakoram Highway (KKH) and other important points on the CPEC route. The Ministry of Interior has informed the Gilgit-Baltistan’s home department that India has made a plan to attack the installations of China-Pakistan Economic Corridor (CPEC) in a bid to sabotage the multi-billion mega project. The ministry has issued directives for making foolproof security arrangements to avoid any untoward incident.

Pakistani government has already deployed 15,000 military personnel, as part of the SSD and Maritime Security Force (MSF), to protect projects under the umbrella of CPEC. Moreover, as many as 813 police constables have been recruited for security of the China-Pakistan Economic Corridor (CPEC) projects in Sindh.

CPEC’s Phase-I Completion

Phase-I of the China Pakistan Economic Corridor (CPEC) nears completion with the Road and Energy projects, Pakistan has decided to take the CPEC project towards the next step. Pakistan has also decided to build a mega oil city at Gwadar under CPEC for transportation of imported oil to China.

The proposed city, which will be constructed on 80,000 acres, will help store the oil imported from Gulf. The project will also reduce the distance to China and it will take seven days to reach China border from Gwadar as the import through western China took around 40 days. Moreover, Gwadar Model City covers an area of 290,000 acres, including 130,000 for industrial purpose and 160,000 for the residential area. A Chinese company is working on the Model City Plan that will be completed by August 14 this year.

Pakistan’s Power Ministry (2018)

Power Ministry is now negotiating with the Federal Board of Revenue (FBR) to introduce tax exemption for power sector projects being carried out under the China-Pakistan Economic Corridor (CPEC). The Minister also assured the investors that the Power Division is also in close negotiation with FBR on the issue of exemption of tax and related matter and positive results are expected soon.

The Impact of CPEC on Pakistan’s Industrial Sector

CPEC is approximately a 3,000 Kilometre network of roads, pipelines and railways to transport goods from Gwadar port in Pakistan to Kashgar in the Xinjiang Uygur Autonomous Region of China. The $46 billion mega project of CPEC intends to rapidly modernize Pakistan’s infrastructure, improve energy ecosystem and establish special economic zones. CPEC is not just a “transit route” for Chinese exports, rather involves an elaborative plan to overcome economic issues such as unemployment, the energy crisis, the underdevelopment of national infrastructure and the overall external economic dependency by building capacity in these sectors.

Chinese Ministry of Foreign Affairs (2018)

According to Chinese Ministry of Foreign Affairs spokesperson Hua Chunying, most power projects will be completed before 2019 easing the shortage of energy in Pakistan which will benefit the people. At present 17 priority energy projects are being completed under CPEC. She added that the Sahiwal Coal Power Project is an example of intensive building and completion period of the projects under the CPEC framework. Hua Chunying expressed confidence that shortage of power and energy in Pakistan will gradually reduce with the Pak-China projects under this framework.

It is constructed by a joint consortium of China’s state-owned Huaneng Shandong and the Shandong Ruyi Science and Technology Group, the project had already been connected to the national grid since May 12, 2017.

It is the first major energy project which uses the latest, environment-friendly, supercritical technology under the China-Pakistan Economic Corridor (CPEC). It had been completed and started full operations in a record time for Pakistan. Apart from powering thousands of houses, the Sahiwal power plant has also provided direct jobs to over 3,000 locals in different fields, including engineers, technicians, supervisors and labourers, during its construction period.

CPEC 2018

It is estimated that if all goes well, 10 CPEC projects may be completed during 2018. Main focus of CPEC during 2018 would be changed from “road to railway network”.

CPEC and Job Generation

Pakistan Engineering Council (PEC) and other technical institutes have shown its concerns about chances of local employment in the ongoing CPEC projects in the country. They claimed that chances of local engineers and skilled labour are very remote which should be made local people’s friendly. 

According to Planning and Development Ministry’s Spokesperson over 30,000 people have so far been employed in different projects under the CPEC which will bring more and more tangible benefits to local workers in the coming days. Chinese Deputy Head of Mission Zhao Lijian, told that around 60,000 Pakistanis are working on different Chinese projects in Pakistan, including those under the CPEC. It is expected that at least 100,000 jobs will be created over the next few years under the power and infrastructure projects of CPEC alone. China Communications Construction Company Chairman Liu Qitao said that development at Gwadar had created as many as 20,000 direct and indirect jobs to locals.

CPEC: Health Care Corridor

The Belt and Road Initiative and the mega projects under CPEC bring a lot of opportunities and connectivity in the fields of healthcare and life sciences. It is strongly proposed to formulate China-Pakistan Health Corridor along CPEC for both the nations to benefit. The proposed corridor will be an effective platform to strengthen bilateral cooperation in various fields. It is also suggested to launch various joint ventures to focus on healthcare market. Bioengineering, information sciences, data analytics, and system engineering oriented joint ventures would be launched along with CPEC. China has the world’s largest mobile healthcare app operators which must be developed and shared with people of Pakistan.

CPEC & Diamer-Bhasha Dam

Most recently, Pakistan withdrew its request to include the $14-billion Diamer-Bhasha Dam in the China-Pakistan Economic Corridor (CPEC) project claiming strict monetary conditions on Beijing’s part as being against the country’s national interests. At a Joint Working Group (JWG) meeting at Islamabad in (November 2017) Pakistan objected to Chinese conditions, which included Chinese ownership of the project, operation and maintenance costs and securitization of the project by pledging another operational dam. According to Pakistan’s Water and Power Development Authority Chairman these requirements “were not doable” and against Pakistan’s interests. Rigorous re-negotiations should be initiated for re-inclusion of Diamer-Bhasha under CPEC so that western perception about “Iron Brothers, Unequal Partners” would be diminished. 

Concluding Remarks

China-Pakistan Economic Corridor (CPEC) consists of “one belt, three passages, two axes and five functional zones” in terms of its spatial layout. “One Belt” refers to the belt which consists of zone area of the CPEC and the economic cluster area of industries, population and cities. It runs from Kashgar to Karachi and Gwadar on the Arabian Sea. Three “Passages” refers to the eastern, central and western routes.

Eastern Route consists of railway-highway network from Islamabad to Karachi via Lahore, Faisalabad, Multan, Sukkur and Hyderabad and will be the main traffic artery of the corridor. Central Route starts from Islamabad to Karachi via Daria Khan, Jacobabad and Khuzdar through N25 or to Gwadar through M8. Western Route is from Islamabad to Gwadar via D.I.Khan, Quetta, Basima and Hoshab. “Two Axes” refers to two east-west development axes in the corridor: Lahore-Islamabad-Peshawar” and “Karachi-Gwadar” development axes. So, CPEC is a comprehensive package of greater connectivity, cooperation and collaboration and celebration of greater socio-economic prosperity and self-reliance.

The CPEC has the potential to transform Pakistan into a regional hub for trade and investment and provide a unique opportunity for Pakistan to boost its strategic and economic position.

It is estimated that CPEC being game changer will boost Pakistan’s Gross Domestic Product growth (GDP) from 5 to 7.5 percent and create 2 million direct and indirect jobs during 2015-2030. Most of the businessmen, investors and importers of Pakistan show their genuine concerns about Chinese Customs and authorities not so friendly attitudes and policies towards them which should be rectified. While both countries say the project is mutually beneficial, the figures show a different story. Pakistan’s exports to China decreased by almost 8 percent in the second half of 2016, while imports increased by almost 29 per cent. Pakistan accused China of flooding its market with cut-rate steel and threatened to respond with high tariffs.

It is estimated that the CPEC, once implemented, has the potential of transforming Pakistan’s economy from a low growth mode (3%-4%) to a higher and sustainable growth economy with low inflation, removing key infrastructural bottlenecks (energy, roads, highways, railways etc.), promoting balanced regional growth and development, shaping new industry clusters, improving living standards and social stability and promoting regional connectivity.

The Corridor is expected to fuel economic growth of Pakistan by adding 2.0 percentage point to its growth between 2016 and 2020; another 1.5 percentage point between 2020 and 2030. It is likely to create 800,000 to 2.0 million new jobs. The length of newly-built or upgraded roads and railways should reach 3871km and 1529km, respectively. Power generated by newly-built sources will reach 19.785 million KW, and length of optical fiber Cable will reach 2084km.

Newly appointed Chinese Ambassador to Pakistan Yao Jing showed satisfaction on the progress of China-Pakistan Economic Corridor projects and has said that work on 21 projects is in progress while 20 more projects are in pipeline. China is also satisfied with the security arrangements initiated by Pakistan government, he added. He further elaborated that ten thousand Chinese nationals and sixty thousand Pakistanis are working with CPEC projects.

Gwadar Sea-port promises to offer huge dividends not just to Pakistan and China but has the potential to bring about benefits beyond the immediate region. The China-Pakistan Economic Corridor is so precisely situated that it magically connects Silk Road Economic Belt and the 21st Century Maritime Silk Road. Gwadar Port will eventually create a link between China, Pakistan and the Central Asian Republics (CARs) with prospective revenues more than billions of dollars every year for all the countries.

Despite sever political uncertainty in the country the 7th Joint Coordination Committee (JCC) meeting on CPEC was successfully held on November 21, 2017 in Islamabad. Chinese delegates showed complete resolve and commitment to successfully complete all CPEC projects in a timely manner. It also officially approved the Long Term Plan (LTP) of CPEC. CPEC has been projected worldwide due to its significant contribution towards lessening “energy deficit” and infrastructure growth issues from Pakistan’s economy. It also provides Pakistan a great opportunity to leapfrog to expedite the processes of industrialization.

The LTP provides a conceptual framework for CPEC up to 2030; it also gives a framework for the industrialization of Pakistan. To finalise the LTP, the government of Pakistan consulted provinces, federal ministries and their respective technical groups. The plan is completely in line with the seven pillars of ‘Pakistan Vision 2025’. The LTP is based on connectivity, energy, trade and industrial parks, agricultural development and poverty alleviation, tourism, cooperation in areas concerning people’s livelihood and non-governmental exchanges and financial cooperation.
 
It includes the construction and development of Kashgar-Islamabad, Peshawar-Islamabad-Karachi, D I Khan-Hakla, Sukkur-Gwadar Port and Dera Ismail Khan-Quetta-Sohrab-Gwadar road infrastructure to improve inter/ intra-connectivity in Pakistan and China. The development of Gwadar Port city, Gwadar airport and Easy Bay expressway are going to transform the city of Gwadar into a maritime trade hub and a new smart port city of the region. It will also lead to the industrialisation of Balochistan.

Information technology is essential critical for development. A cross-border optical fibre cable between Pakistan and China has already been started. Both countries have also agreed to cooperate in promoting technologies of the fourth industrial revolution in Pakistan.

China and Pakistan will enhance cooperation in the fields of oil and gas, electricity and power grids. The focus is on thermal power, hydropower, coal gasification and renewable power generation and modernising power transmission networks. CPEC has already addressed the major energy bottleneck in Pakistan. Almost over half of the 10,000 MW energy added recently to the national grid comes from CPEC.

Both countries should extend their cooperation in monetary area through their central banks. Both countries agree on bilateral currency swap arrangements and would prefer making payments in RMB and rupees regarding CPEC projects rather than any third-party currency.

According to the LTP, the implementation of CPEC will take place in three phases, with clear goals. In the first phase, that is by 2020 reducing “red-lines” from Pakistan’s socio-economic development will be completely addressed and “CPEC shall start to boost the economic growth along it for both countries. The second phase will be achieved by 2025, all the infrastructure of CPEC will be ready and all industrial projects will have been completed. As a result, CPEC will have a major impact on the livelihoods of people living along the corridor. It is hoped that there will be more balanced regional economic development. The third phase of the LTP will be matured by 2030. As per the LTP: “CPEC’s role in stimulating economic growth in Central Asia and South Asia will be brought into holistic play, and South Asia shall grow into an international economic zone with global influence.

China-Pakistan Economic Corridor (CPEC) would be definitely game & fate for both the countries. To achieve this desired goal, China must come out of “comparative advantage” equation and try to develop befitting propositions for Pakistan under CPEC. China must also stay away from its superiority of technologies, infrastructures, communications and finances and wholeheartedly support Pakistan and its people to make CPEC, the “Project of the Century”.

Being icon of smarter technologies, China must try to develop “Capacity Building Measures” in Pakistan’s macro-economy, industry, agriculture, communications, society, banking and finance sector, which may be further translated/ transformed into successful models of joint ventures in the days to come between the two countries. It would generate “Strategic Dividends” for the centuries. 

It is a general perception among Pakistani intelligentsia that CPEC’s terms and benefits disproportionately favor China. The state-run China Overseas Port Holding Company, for example, which will operate Gwadar port for a period of 40 years, is set to take 91 percent of gross revenue collection from terminal and marine operations and 85 percent of gross operations revenue from the Gwadar free zone.

Moreover, SEZs are being are being set up exclusively for Chinese companies where they will be exempted from taxes. The CPEC plan provides the Chinese with visa-free access to Pakistan. There is no such reciprocal arrangement for Pakistanis and China’s visa rules for Pakistanis have in fact tightened. There is even little clarity regarding who will run or supervise the elaborate electronic surveillance system that China will install in Pakistani cities. With such free rein over debt, policing and tax collection, there is concern over CPEC’s implications for Pakistan’s sovereignty.

Three major powers, the US, Japan and India, seem to be disproportionately uneasy with ongoing project of CPEC in different parts of Pakistan. The US fears that successful completion of CPEC would be fatal for its “hegemonic rule”. Moreover, Pakistan would create another “strategic alliance” with China and Russia in the days to come which would be a great set back of US vested interest in the Central Asian Region and South Caucasus in the days to come.

Japan considers completion of CPEC as setback to its geo-political maneuvering in the South East Asia and CIS in the days to come. Japan being considered China as a “potential superpower” does not want Chinese further socio-economic development and regional connectivity via CPEC. India is also worried about the safety and security of its oil supplies that pass through the Strait of Hormuz at the mouth of which Gwadar is located. It fears that China may set up a naval base here. India seems also concerned about the future of Chabahar Port that it is helping build in Iran; along the Strait of Hormuz about 72km from Gwadar for which it is contributing as much as $20 billion. India is using all its resources along with non-state actors to sabotage ongoing projects of CPEC in the Pakistan. Every country has its own vested socio-economic, geo-political and geo-strategic interests and a protection of these is the legitimate right of every country/ state in our civilized world where hawks and doves fly side by side without any act of beast. Being independent and sovereign country, Pakistan has every right to enhance its regional connectivity by using its strategic location with the help of a trustworthy friend/brother in shape of China. Concerns of most of the regional countries and international power brokers are self-perceived threats and ground realities are totally different.

Since CPEC is a game changer billions of people, China apply all its technology and to make CPEC a success. The success of CPEC results in cutting costs and saves Chinese cargo ships from passing through crowded sea lanes, mostly through unfriendly stretches of water. For Pakistan, the success of CPEC is essential to its dreams of achieving a “qualitative life”

China and Pakistan are likely to continue to differ on issues related to CPEC. However, these are unlikely to derail the initiative, given their strong relationship; Pakistan’s deepening dependence on China and Beijing’s determination to make a success of BRI’s flagship venture.