Economics Of China-Pakistan Economic Corridor

The tragedy with our great and powerful neighbor China has been its geo-strategic location. Notwithstanding, 21000 kilometers of land frontiers and 14000 kilometers of maritime boundaries, China still feels fairly claustrophobic and crammed-up in its existence. Given the inter-play of economics and power projection parameters in the world, to a great extent these feelings may appear to be justified. If we look back at the history of World War-II, there are many who believe that Japanese attack on Pearl Harbor was the result of economic strangulation it felt, by the USA at that time. In the present times, it appears that the Chinese strategy of China-Pakistan Economic Corridor (CPEC) and Silk route viz One Belt–One Road projects are meant to precisely offset that strangulation. China also retains its options to remain more than relevant for the power projection as also securing its energy needs for the future; given that the Ports of Gwadar and Straits of Hormuz, gateway for 20% oil trade in the World, are only 330 km apart. In fact, this too appears to be only the bottom line of the power projection curve in terms of both, economy and military, that may be built further based on this foundation.

Without doubt, Pakistan’s excellent geo-strategic location offers limitless possibilities for China. Currently70% of China’s trade and 40% percent oil passes through the Indian ocean and straits of Malacca, which in case of any interruptions will require a detour of another 500 Km.[i]Therefore, China is well on its course to pursue this policy with all its commitment and resources; however doubts are already being expressed at the long term viability and success of such projects. For one, China has yet to prove itself on its credibility to its allies at the International level and two, details available of the project, so far,  do not provide enough confidenceof their long term viability.

Although this project was proposed in 2013, it has been announced only this year in April 2015 during the visit of Chinese President Xi Jinping to Pakistan. The China-Pakistan Economic Corridor(CPEC)will be a 3000 km long network of roads, rail and pipelines projects along with dry ports, Special Economic Zones and other supporting infrastructure, which will link the Port of Gwadar in Pakistan (Baluchistan) to the Chinese city of Kashgar throughthe Xinjiang-Uygur region, a distance of nearly 10,000 km. Gwadar port with possible military capabilities,is being built by Chinese companies and has already been taken on lease for 40 years.

Actually there are two major impediments that appear to be at the core of the issue; given Pakistan’s fragile economy, who is going to provide the funding amidst the ever-complicating scene of internal security combined with politicalinstability in Pakistan. Notwithstanding the fact that there were news reports to suggest that Pakistan is going to raise a Divisional size force to take care of security concerns of China.

 Apparently, funding for the project atan estimated cost of $45 billionis being organized by China as a loan, at very high rates of interests through Bank of China, the Export-Import Bank of China and the proposed Asian Infrastructure Development Bank (AIDB). But that is not all, this loan comes with a caveat that only Chinese firms need to be co-opted for CPEC   and Gwadar port development related contracts which will leave out USA, Gulf and European firms out with ease. For this reason alone the tendering action has been held up since 30 July 15.[ii]

The building of large number of power plants too is to be part of this project. It has been given to understand that Baluchistan has huge amounts of coal and natural gas reserves and Pakistan is currentlyfacing acute power shortages, which has put its industrial production on decline affecting its economy. Therefore,the power sector has ample potential; however, twoissues act as impedimentshere. Firstly, the cost of production and distribution across grossly under-developed terrain may not make it a very profitable proposition; it is well known fact that power is already subsidized in Pakistan. Secondly,abundance of coal is fine but opting for coal-fired power plants will come under environmental scrutiny and concernsbeing expressed the world over.Therefore, these may not be sustainable in the long term.

Now let us talkof the security challenges. We are already aware that the initial alignment of the CPEC has been proposed to be shifted out of Baluchistan due to security concerns. There are reports of protests in Baluchistan to the extent of breakup of Pakistan because they fear that they will lose out on the developmental benefits accruing out of CPEC.[iii] But even the realigned route through Punjab and Sindh is not trouble-free. One is certain that, by now, Pakistan too would have learnt their lessons and difficulties of providing secure environment for development in terrorist-infested areas regardless of number of troops deployed on the ground.[iv]

India has also raised their objection to the alignment passing through Pakistan-occupied Kashmir and the manner in which Pakistan seems to have ‘gifted’ it to a third party, much the same way  asit did toShaksgam  Valley  in  1963 . It is alsoallowing the presence of Chinese men and security personnel in this disputed territory. The corridor also envisages construction of almost 200 km of all-weather tunnels in Gilgit-Baltistan(G-B) area that Pakistan wants to convert as its fifth province?[v] Pakistan has been invoking the provisions of UN resolution on the issue of ‘Kashmir’ time and again while blatantly violating them at the same time.

China alsoappears to be overlooking the fact that Pakistan continues to be the epicenter of worldwide terrorism. It is not a secret any more that it has been the training ground for Uighurs and this corridor could well provide the much needed connectivity that can fuel the movement of these groups in Xinjiang region with the possibility ofcombining with even Tibetans. In fact the spread of Islamic State (IS) into power vacuum and less developed areas of impoverished population should serve as a potent warning to both the involved parties in this highly sensitive area. But may be the security dynamics are being ignored in view of overriding economic considerations.

Indian strategic concerns apart, when we look at the bigger picture, we find that this strategic corridor is also going to make USA and Russia sit up. Pakistan has been an US ally for nearly over five decades now and to imagine it changing sides at this crucial juncture, when there is total shift in the global order with the center of gravity towards the Indo-Pacific region, one will have to wait and watch thetransition. On the other hand,Russia too, with a very strong intervention in Syria, has shown greater assertiveness towards its old ally and proven its credibility as an old friend. Why would it not be over-sensitive to its underbelly and China’s greater presence there? Is it not that the next turmoil could be heading towards Central Asia after Middle East?

Finally, notwithstanding the above analysis, China has done well to pro-actively push its strategic interests to a different level and made others think of the counter moves. The answer to the bigger question - if only ‘money could buy everything’ even national interest,  to what extent will the ‘free falling’ economy of China stay on course in terms of time-lines and investment commitments, along with avery fragile and weak economy of Pakistan, only time will tell.  One thing is for sure - we are in for a major ‘gravitational’ shift of the ever changing-global order.