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Possible benefits and risks in CPEC projects

China and Pakistan have for a long time cooperated closely at the diplomatic levels and currently both countries are making efforts to expand their bilateral collaboration economically as well and in this regard the construction of the China-Pakistan Economic Corridor (CPEC) is an important example.

The total committed amount under CPEC of $50 billion is divided into two broad categories — $35 billion is allocated for energy projects while $15 billion is for infrastructure, Gwadar development, industrial zones and mass transit schemes. The entire portfolio is to be completed by 2030.

Energy projects are planned for completion by 2020. 10,000MW would be added to the national grid by 2018. The disbursement schedule of energy projects is eight years (2015-2023).

Infrastructure projects such as roads, highways, and port and airport development, amounting to $10 billion is expected to be finished by 2025. The remaining projects worth $5 billion would spill over into the 2025-30 period.

For the economic corridor to reach its zenith, there are security and political challenges in Pakistan that must be addressed. China considers the development initiatives a potential source of stability and prosperity for both countries.

From a Chinese viewpoint, cooperation in the areas of security and economics are closely intertwined, and improvements on one side can improve the other.

China believes economic development can strengthen Pakistan’s internal stability, thus reinvigorating the latter’s economy through investment in infrastructure projects as well as the construction of oil and gas pipelines.

China hopes this will create a certain level of stability within Pakistan and in turn stabilize China’s western borderline, particularly the province of Xinjiang.

The CPEC has to be known in the context of China’s strategic interests in East Asia. The fact is that Pakistan serves as an imperative bridge between China and Central Asia, South Asia, and the Middle East.

Security and stability in Pakistan will make it possible for China to exercise greater influence in these regions and to ensure security at home.

China is willing to pour vast amounts of resources into the economic corridor based on the logic of improving security through economic development.

Pakistan has realized that no other country places such high strategic importance in its economic relationship with Pakistan as China does.

Pakistan hopes to attract increasing amounts of foreign investment. It is working to improve its overall economy by constructing energy projects and other forms of infrastructure, to create employment opportunities for its population and to improve its governance.

The development of CPEC project will help alleviate the challenges posed by political extremists, radicals, and jihadists.

China recognizes that the security, political and cultural risks and uncertainties facing the economic corridor cannot go unnoticed. Terrorism has long affected Pakistan’s internal security and stability.

Pakistan has worked hard to strike at religious extremism and terrorist activities. Its problems with terrorism have substantially improved in recent years.

CPEC projects’ construction sites and engineering personnel may become targets for religious as well as nationalist extremists.

The economic, political and security rewards are attractive to both China and Pakistan. This seems to be true and nobody can deny it.

There is a view commonly held among policy-makers in India that many CPEC projects are simply not viable enough to sustain the interest of Chinese investors in the long run.

Numerous countries receiving Chinese financing will weaken their sovereign credit position further, elevating non-payment risks.

In the short-term, CPEC may lead to notable benefits like markedly fewer power outages and increased employment in Pakistan.

CPEC projects to be a success, the Chinese will need to work with innumerable stakeholders across Pakistani society something China is not proficient at.

If CPEC to be a success China need to be dependent on locals and there are innumerable problems around corruption and governance in rural and urban areas Pakistan, which complicates matters.

A recent report by the Federation of Pakistani Chambers of Commerce complained that the flood of Chinese capital and firms into the country was marginalizing local business.

The Chinese workers could become increasingly vulnerable to Balochi insurgents and Taliban militants. A large number of Pakistani and Central Asia, Chinese engineers have been captured and killed and the Chinese Embassy in Bishtek, Kyrgyzstan was even targeted with a car bomb last August.

Pakistan needs to be more cautious in balancing the negative externalities of the project for its population, the impact it may have on the economy.

The China-Pakistan Economic Corridor (CPEC) has brought a needed infrastructure aid and investment to Pakistan as the country has faced chronic electricity shortages and collapsing infrastructure leading to economic stagnation.

Government need to be more mindful in balancing the negative externalities of the project for its population, the impact it may have on the economy.

The corridor stretches from the now completed port of Gwadar, in Pakistan’s least developed province Balochistan, to the Karakorum Highway further connecting Pakistan to Western China.

The Asian Development Bank’s recent working paper on the impact of “economic corridors” states that: “Economic corridors connect economic agents along a defined geography. They provide important connections between economic nodes or hubs that are usually centered in urban landscapes. They do not stand alone, as their role in regional economic development can be comprehended only in terms of the network effects that they induce.”

Most of Pakistan’s urban centers are located in the east not in the west. The port of Gwadar is an “island” isolated in an arid landscape with roads and railways linking it to the rest of the nation. There are no major hubs of industry or manufacturing in Balochistan that would truly constitute the linking of economic hubs into an economic corridor.

The majority of Pakistan’s economic base resides in the provinces of Punjab and Sindh. Those residing in the west of the nation have shown anger at the blatant favoritism of the eastern portion of the nation. This division may create further inter-provincial bitterness as certain parts of the country, already at a stronger economic position, acquire greater benefits from the projects.

The dangers originating from Pakistan’s debt-to-GDP ratio and the government short sightedness at the prospect of CPEC projects can pose remarkable dangers to the economy as a whole.

Economic analysis of the project is difficult to conduct as much of the project lacks transparency.

The State Bank of Pakistan’s Governor, Ashraf Wathra, has even stated that “CPEC needs to be more transparent” and that he does not “know out of the $46 billion how much is debt, how much is equity and how much is in kind”.

A feeling of caution has also been echoed by the IMF that has warned Pakistan on the possible economic externalities that may occur as a result of the project.

Much of the criticism of CPEC is purely debatable. The lack of a contingency plan continues to be a source of anxiety for observers.

The success of the “corridor” is entirely dependent on Pakistan’s ability to export its goods and services.

Pakistan’s sectors of the economy (manufacturing, industry, agriculture, and services) are performing well, passing on the benefits to the overall population.

Chinese imports have increased from their prior position of 4 percent in 2010 to 9 percent in 2015. If a downward trend of exports and increase in imports continues to occur, Pakistan would face a serious balance of payments crisis. However, if Pakistan links its sectors to Chinese sectors, for example producing parts in machinery or products that would then be either assembled in China or vice versa, Pakistan would greatly improve its economic position.

Pakistan must be cautious in how it implements and administers the completion of CPEC with China for both its population and its future economic state.

The uplifting of Pakistan’s infrastructure and power-generation abilities is a vital venture and Pakistan must make sure it’s best utilization.

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