Traditionally, Pakistan and China have cooperated closely at the strategic and political levels. Since 2014, the two countries are now making efforts to expand their bilateral collaboration economically as well. The construction of the China-Pakistan Economic Corridor (CPEC) is a milestone that clearly shows the shift. The CPEC is a large-scale initiative to build energy, highway, and port infrastructure in Pakistan by Chinese companies with the support of the Chinese government. China came forward at a time when no other country was willing to invest in Pakistan. In order to make the economic corridor a success, control on terrorism and improved security situation in Pakistan were prerequisites. China first proposed the corridor project in May 2013 and was given a name Pakistan China Economic Corridor which was later changed to China Pakistan Economic Corridor. Chinese President Xi Jinping visited Pakistan in April 2015, and both sides agreed to elevate their relationship to an “all-weather strategic partnership.” During President Xi’s visit, the two countries signed fifty-one agreements at an estimated value of USD 46 billion.
CPEC is a collection of infrastructure projects that are currently under construction throughout Pakistan. Originally valued at USD 46 billion, the value of CPEC projects is now worth USD 62 billion as of 2017. Groundbreaking of first CPEC project was held in May 2016 in Sukkur, Sindh and construction began on a section of Motorway between Sukkur and Multan. The road network is a major component of the CPEC.
The corridor will reduce sea-land route distance between Europe and Western China to less than half. One of the major milestones in the history of Pakistan was achieved on 13 November 2016 when first large shipment of Chinese goods went through Gwadar Port. Gwadar Port is a backbone of overall CPEC project. CPEC is one component of China’s mega One Belt and One Road Initiative (OBOR), which is spread over a number of continents and crosses through numerous countries. China wants warm waters of Indian Ocean of Pakistan and CPEC can create a certain level of stability within Pakistan whereas in turn can also stabilize China’s western areas, particularly the province of Xinjiang. Almost 80 percent of China’s oil is currently transported from Strait of Malacca to Shanghai. Transportation time of oil imports from the Middle East and Africa will be reduced from over 30 days to just 2 days after completion of pipeline projects and will not be dependent on shipping through Straits of Malacca and the vulnerable maritime routes.
Pakistan realized that no other country placed such high strategic importance in its economic relationship with Pakistan as China did. Pakistan greatly values the economic corridor and views it as mutually beneficial in terms of politics and economic development.
A blueprint for economic development was published in 2014 by Ministry of Planning, Development and Reform. Like in many other issues, various parties in Pakistan disagreed on the CPEC transportation routes because of their vested interests and wanted to take their share. There are two routes considered for CPEC transportation routes, eastern and western. In fact, since the initiative was first presented in 2013, the debate over which route the CPEC would follow caused substantial delays.
Both Pakistan and China have started the second phase of CPEC. The next phase of CPEC includes agriculture, culture, tourism, information technology, education and youth exchanges. If both governments negotiate a mutually beneficial deal on Pakistani agricultural exports, especially cotton and sticky rice, that would sell very well in China and fetch a high price. The second phase of the CPEC project includes building economic zones and industrial estates across Pakistan to uplift industrial development and boost the economy. These include constructing special economic zones (SEZ) in Dhabeji, Faisalabad, Rashakai, Hattar, Keti Bander and Sheikhupura. Industrial estates will be built in Vehari, Chunian and Rahim Yar Khan.
The Chinese government has made abundant funds available for investments in Pakistan and Chinese government is giving rebate in China to Chinese companies investing under CPEC. Similarly, Pakistan has also offered sovereign guarantees, tax concessions and exemptions along with guaranteed revenue stream to Chinese companies. In short, CPEC is a huge business opportunity for both sides. The private sector is required to take the lead and explore areas where investment is required.
Trade with China will increase with the building of economic zones and industrial estates. Formulating a policy for the second phase of CPEC would be a challenge for the policymakers. It is important to manufacture goods in Pakistan in these industrial estates instead of using these industrial estates as assembly plants. Pakistan so far only provides raw material which is very cheap as compared to finished goods. In the second phase of CPEC, not only export quality finished good should be manufactured in Pakistan but also transfer technology to Pakistan besides training human resource of Pakistan.
An easy approach would be to relocate some industry to Pakistan from China and this can boost the exports. The real issue would be how to select the local partners, we all know how such businesses are negotiated and who gets the share. There is a need to keep things transparent.
China has been a key driver of infrastructure investment and construction in Central Asia since the mid-1990s. Chinese state-owned companies have built highways, railways, bridges, and telecommunication systems in Tajikistan, Kyrgyzstan, and Uzbekistan. CPEC would be a natural extension of that strategy. In order to move forward, there is a need to add a third country in CPEC. There is discussion going on to include Saudi Arabia or India in CPEC. Ideally, Afghanistan is the best option to add as a third country in CPEC.
CPEC is not free from problems as the Chinese are growing increasingly irritated by project delays and problems mobilizing funds on the Pakistan side. Recently federal government made certain statements which were not viewed positively by the Chinese authorities. China’s model of investment in infrastructure projects is not particularly inclusive. They bring in a lot of their own labor and do not use local technology, capital, or labor. Due to this, local skilled and semi-skilled workforce are not getting benefits of CPEC. Pakistan will not get the true benefit from CPEC if this mega project doesn’t provide job opportunities for the local workforce.
CPEC linking Gwadar Port to the Chinese province of Xinjiang, will be a game changer not only for Balochistan and Pakistan but also for the world trade. Pakistan has yet to figure out the sectors and industries in which China should invest. Pakistan has an established textile and agriculture sector, therefore, it is better to offer these two sectors to China as the first phase of the second phase of CPEC. Pakistan should produce high quality of products now and if this phase is not properly negotiated then chances of getting another chance would be very remote.