China-Pakistan Economic Corridor: State and Strategy
The much-publicized China-Pakistan Economic Corridor (CPEC), launched with great fanfare, is part of the ambitious Beijing Initiative Belt and Road (BRI) global plan to develop the infrastructure of small and medium-sized nations around the world, although its original scheme dates back to the 1950s, when the need for a corridor between the Chinese border and Pakistan’s deep-water ports on the Arabian Sea arose, which prompted the two powers to build the highway Karakoram from 1959, followed by Chinese interest in building a port of Gwadar in Pakistan in 2002 and completed in 2006.
The new plan of the current CPEC, after two years (2013-2014) of in-depth discussions and high-level visits from both sides, the Chinese government announced in the last quarter of 2014 its intention to finance Chinese companies as part of its $ 45.6 billion in energy and infrastructure projects in Pakistan. Following the announcement, an agreement to this effect was signed on April 20, 2015 during Chinese President Xi Jinping’s state visit to Pakistan, and to further increase the scale and reach of the CPEC. , 20 other agreements were signed. on August 12, 2015, which began a series of agreements for the expansion of work in different areas and in proportion to the volume of Chinese aid, grants and loans also multiplied.
On the other hand, the Chinese BRI has become very popular around the world and around 140 countries have given their approval for the program, while many of them have reached the brink of bankruptcy and have defaulted in Beijing, in especially after the global spread of covid-19 pandemic. The new situation also posed several obstacles to the further implementation of CPEC projects in Pakistan, also causing much harassment and accusations from both sides.
CPEC is one of the largest and largest infrastructure development projects in independent Pakistan, aimed at rapidly modernizing its required structural foundations and strengthening its economy through the construction of modern transport networks, numerous energy projects and special economic zones. This plan for the renovation of the Pakistani economy includes: a. projects in the port and town of Gwadar, b. road projects, c. railway projects, d. energy sector projects, e. other areas of cooperation in the fields of agriculture and aquaculture, science and technology.
Obstacles encountered by China in the implementation of its BRI-related projects disappointed Beijing and the postponement of the 10e China-Pakistan Economic Corridor Joint Cooperation Committee (JCC) meeting testify to their differences on the issue.
The plan being a landmark project in the history of Pakistan, is the biggest investment Pakistan has ever attracted since independence and also the biggest by China in a foreign country, and therefore the Pakistani government and the media have also called the investment a “game and fate changer” for the region which will ultimately make the country a regional economic center, further strengthening and cementing the ties between the two countries. The first impact of Chinese investments was visible in the energy sector, in which the country had long faced shortages and regularly faced a deficit of over 4,500 MW, but in December 2017, Pakistan had managed to generate excess electricity.
In addition to the blueprints and details of the projects, there was a separate arrangement for financing the works which would take the form of concessional loans, interest-free loans, private consortia and assistance from the Asian Development Bank. Of the total, around $ 11 billion will be distributed by the Exim Bank of China, China Development Bank and ICBC at an interest rate of 1.6% while, according to an announcement made by the Chinese government in August 2015, concessional loans for several projects in Gwadar totaling $ 757 million would be converted into loans at 0% interest. In another development in September 2015, China announced that the $ 230 million Gwadar International Airport project will be considered a grant that the government of Pakistan will not be required to repay. For energy purposes, $ 15.5 billion is to be built by joint Sino-Pakistani ventures, rather than the governments of China or Pakistan. Exim Bank of China will finance these investments at interest rates of 5-6%. The dozen remaining projects will be financed by the Asian Development Bank.
By all accounts, the number one beneficiary of the China-Pakistan Economic Corridor is Beijing and if everything remains normal, it is in Islamabad’s best interest. It will provide China with an alternative route for energy supply, as well as a new route through which Western China can conduct its trade; however, in the context of the United States-dominated Strait of Malacca, in particular, CPEC offers China an alternative route in the event of negative United States action. In addition, China is heavily dependent on the sea routes that cross the South China Sea near the disputed area, the Spratly Islands and the Paracel Islands, which is currently a source of tension between China, Taiwan, Vietnam, the Philippines and the United States and under the circumstances, the alternative route provided by the CPEC would reduce the possibility of a clash between Beijing and Washington. The CPEC alignments will improve connectivity with China’s Xinjiang Province, thereby increasing the region’s potential to attract public and private investment. Due to the CPEC, Chinese imports and exports to the Middle East, Africa and Europe would require much shorter shipping times and distances, as well as an alternate route to Afghanistan and the Central Asia.
With the People’s Republic of China being the richest country in the region, there is no doubt about its financing capacity, but Pakistan’s repayment capacity has always remained uncertain given the already torn economic situation of Islamabad which has been pushed. further in a decline due to the slowdown in the global economy amid the covid-19 pandemic, which began in late 2019 from Wuhan, China, and has spread to more than 200 country of the world. Thus, in the situation, the political fragility, the increased interference of the security agencies and the military establishment in matters of civilian administration, put additional pressure on the ambitious projects of CPEC currently underway in Pakistan. Obstacles encountered by China in the implementation of its BRI-related projects disappointed Beijing and the postponement of the 10e China-Pakistan Economic Corridor Joint Cooperation Committee (JCC) meeting testify to their differences on the issue. Since the projects started, Pakistan’s opposition parties have also abused it as a political tool unsuitable for a country like Pakistan.