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MANTRAYA BRIEF#25: 23 FEBRUARY 2018

Stock-taking China Pakistan Economic Corridor

Sayantan Haldar

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Abstract

The China Pakistan Economic Corridor (CPEC) is a flagship project under China’s emergent Belt and Road Initiative (BRI). Hailed as one of the most investment heavy projects that China is undertaking as a part of its BRI, CPEC has received immense attention from all over the world. CPEC provides strategic leverage to China as Beijing sees it as an alternative to overcome the Malacca Dilemma. It also promises to be a potential game changer for Pakistan’s ailing economy and provide for a better connectivity network between China and Central Asia. How much of it is true?

OBOR

(Photo Courtesy: cpecinfo.com)

South Asia is the hot bed of global politics. Adding to its complexities rooted in history, geo-politics and economics, is President Xi Jinping’s mega globalisation project, the One Belt One Road (OBOR), also known as the Belt and Road Initiative (BRI). It is considered by experts to be the biggest infrastructure and geo-economics project of all times. Will OBOR unleash a spate of economic development in the region, or will it only further China’s geo-political interest? More than four years after its launch, countries who have embraced it and those who have not, do not have clear answers to such questions. Among such countries is Pakistan.

OBOR has already elicited participation from 70 countries countries and international organisations and has initiated projects which will stretch China’s influence from Asia to Europe via parts of Africa. The China Pakistan Economic Corridor (CPEC) is a flagship project under OBOR, jointly undertaken by Beijing and Islamabad. CPEC will link the North Western province of Xinjiang in China to the Gwadar port in Pakistan and is of political and economic significance for both countries.

During the time of General Pervez Musharraf who served as the President of Pakistan from 2001 to 2008, the idea of an economic corridor was discussed for the first time and China did show great interest. A joint declaration with regard to enhanced cooperation between China and Pakistan followed a 2003 meeting between Chinese President Hu Jintao and Gen. Musharraf in Beijing. A Free Trade Agreement (FTA) was signed in 2006 between China and Pakistan in Islamabad. All these appeared to have prepared the ground work for the CPEC. Chinese premier Li Keqiang formally discussed CPEC for the first time in May 2013 during his visit to Pakistan. CPEC became a part of the larger project of OBOR only in April 2015 when Xi Jinping paid a visit to Pakistan.

CPEC includes major investments by Chinese financial institutions. The net financial worth of CPEC itself has expanded from an original estimate of US$46 billion to US$55 billion, over the years, making it one of the biggest projects in OBOR. China aims to make full use of the potentially huge market that Pakistan has to offer. However, far from being a financial grant, even Pakistan will be responsible for investing approximately US$15 billion in the project.  CPEC is considered to be another step towards strengthening Sino-Pak relations, which is of particular relevance for both countries, considering their cut and thrust relation with India and the USA.

Beyond Pakistan, CPEC provides landlocked Central Asian nations an opportunity to gain access to the Arabian Sea, once the Gwadar port is fully operational. The construction of CPEC could streamline cooperation between China and Central Asia, and Gwadar could also become the hub port for Central Asian countries, provide them with markets to extend their trade,  thereby reinvigorating their economies. It will potentially allow them to develop their out dated and neglected energy sectors and infrastructure. With abundant oil, gas and other natural resources, CPEC could be a great investment area for the Central Asian nations.

India, however, does not share any of these enthusiasm and has, on the other hand, disputed the economic corridor since it passes through Pakistan occupied Kashmir. CPEC, according to India, violates not only its sovereignty but also the principle of Panchsheel (five principles of peaceful coexistence and respect for other’s sovereignty), which is supposed to govern Sino-India relations.

On the other hand, for Pakistan, the economic corridor is of utmost relevance, as they are of the belief that CPEC will catapult them towards development. Pakistan has been unstable for over the years mainly due to poor governance and lack of a stable leadership which resulted in a deplorable economic condition. Pakistan’s economy has seen an abysmal low last year, when their current account deficit stood at US$12.09 billion, a massive 149 percent increase since the end of fiscal year 2016.

Will CPEC indeed be a boon for Pakistan, however, remains to be seen in the light of experiences of other countries such as Sri Lanka. Colombo’s failure to put the infrastructure built by China to use and eventually falling in a debt trap is an alarming instance. In fact, despite its engagements with China and the initiation of CPEC, Pakistan’s exports have remained low. OBOR in general has been considered to be China’s version of Marshal Plan by many. That huge investments will eventually empower  China to exercise political influence in Pakistan remains a genuine fear. A unstable country remains vulnerable to such influences and the Pakistani Senate approving Mandarin as an official language for Pakistan on 19 February 2018 is a soft reminder of the things to come. The argument put forward by India that China could potentially violate sovereignty under the garb of economic assistance remains relevant.

On the other hand, for China, a project like CPEC brings OBOR a step closer to being a reality. Pakistan serves as a suitable market for the Chinese to invest given the strategic relevance of Gwadar. China’s bolstering relation with Pakistan is particularly relevant today, at a time when USA is effectively downsizing the aid it used to provide Pakistan. CPEC was planned keeping in mind the Chinese objective of expand their political and economic influence in South Asia, as an alternative to beat the Malacca dilemma. China has been interested to develop in the domain of energy security.  However the Strait of Malacca is vulnerable to border conflicts between China and The Philippines and Vietnam. China is seeking to reduce its over-reliance on the Strait of Malacca by pursuing alternative routes.

Pakistan is looking to make the most out of this engagement. CPEC does promise economic growth for Pakistan, but implementation and escalating disagreement between the two countries owing to certain payment criterions set by China are some of the issues affecting the project. In the Diamer-Bhasha dam project under the CPEC, for instance, the Pakistan government, which has been struggling to raise funds internationally, objected to preconditions set by China which included taking ownership of the project, operation and maintenance cost and securitisation. It decided to construct the dam using its own resources. Pakistan is indeed facing the challenge of resources as both the World Bank and the Asian Development Bank have refused to fund the projects located in the PoK. CPEC is pretty much operating on rhetoric with almost no tangible outcome in the five years since its announcement. It is difficult to predict reach a conclusion right now regarding how beneficial this Chinese globalisation project will be for Pakistan. But looking at the economic performance of Pakistan, it is perhaps safe to say that Pakistan and China need to go a long way to make CPEC a success and a model for others to join in.

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(Sayantan Haldar is a final year Under Graduate student of Political Science at Presidency University, Kolkata. This brief is published as part of Mantraya.org’s ongoing ‘China and South Asia’ and ‘Regional Economic Cooperation and Connectivity’ projects. All Mantraya publications are peer reviewed.) 

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