June 25 - July 01, 2007

Knowing the critical link between geography and strategy, China is poised to convert its strategic assets in Pakistan into economic opportunities. China's stakes have witnessed a steady growth in Pakistan over past many years. It has made investments in a range of infrastructure projects in different parts of the south Asian country and particularly its profile in strategically located Balochistan and the Northern Areas has been rising for the past many years.

The Dry port at Sost near the Pakistan-China border, the seaport, airport and oil refinery at Gwadar in Balochistan province, the proposed rail sector projects and the construction, maintenance and expansion of the Karakoram Highway (KKH) are all the moves toward energy corridor, the two countries have been discussing for the last five years.

There are some 100 Chinese companies functioning in Pakistan while over 3,000 engineers, technicians and Chinese entrepreneurs are working on various projects. Prime Minister Shaukat Aziz, in his recent visit to China asked the Chinese government to help increase Pakistan's exports under the Free Trade Agreement (FTA) to give it due share in trade for achieving $15 billion trade target in next five years. By extending bilateral cooperation in trade, the two countries are gradually advancing toward establishing a trade and energy corridor that has been under discussion between the two sides.

Geographically, Northern Areas of Pakistan border the Wakhan corridor of Afghanistan to the northwest, the Xinjiang territory of China to the northeast, the Indian-controlled state of Jammu & Kashmir to the southeast, the region of Azad Kashmir to the southeast and the NWFP province of Pakistan to the west. The dry port at Sost on the Pak-China Border in northern areas is the latest Pakistani dry port established with the help of China. Situated in Gojal Tehsil of Hunza subdivision, some 300km north-east of Gilgit, the Sost Dry Port has become a hub of trade activities in recent years. The Chinese have built dry-port facilities at Sost to facilitate customs clearance and other formalities for goods coming in from China on the KKH. The facilities at Sost can also be used to handle goods going from Pakistan to China. Gilgit has acquired the status of gateway to Central Asia after Pakistan-China barter trade agreement and accords with Central Asian States. The establishment of Sost Dry Port has also multiplied border trade between the two countries.

Gwadar port will play a key role in the proposed energy and trade corridor to China. Gwadar has all the natural advantages that can play a major role in serving as a corridor for energy, cargo and services between Central Asia, the Gulf and other surrounding regions. Western China can benefit from the Gwadar seaport through the Sost dry port, which will also create a ribbon of economic activity along the proposed highway linking Gwadar with the Karakoram highway in the north. The movement of oil and trade between Pakistan and China will obviously gain momentum when Gwadar is linked to the Karakoram Highway (KKH).

The Great United Petroleum Holdings Company Limited (GUPC) of China is presently carrying out the feasibility study of the US$12.5 billion strategic project of petrochemical city at Gwadar. The petroleum products so refined in Gwadar refinery may be transported to Kashghar on Pakistan's North through a pipeline. The proposed refinery and the oil pipeline is a part of the proposed energy corridor. The plans are also afoot for a rail link between Pakistan and China. The Chinese have already built the railroad to Tibet and its extension to Pakistan will lead to a faster movement of cargo between the two countries. The linking of the KKH with Gwadar will need the building of new highways and rail tracks passing through Balochistan's vast expanse. China and Pakistan are also planning to link the Karakoram Highway to the southern Pakistani port of Gwadar in Balochistan through the Chinese-aided Gwadar-Dalbandin railway, which extends up to Rawalpindi in Pakistan.

Islamabad has also decided to award the contract for construction of an international airport at Gwadar at a cost of US $ 70 million to a Chinese company the China Harbour Engineering Company (CHEC). The Chinese company will undertake the construction work of the airport and complete the project in 24-28 months.

Karakoram Highway (KKH) connects China's Xinjiang region with Pakistan's Northern Areas. The KKH has a strategic importance, as it cuts through the collision zone between the Asian and Indian continents, where China, Tajikistan, Afghanistan, Pakistan and India come within 250km of each other. It connects the Northern Areas of Pakistan to the ancient Silk Road, which runs approximately 1,300 km from Kashgar, a city in the Xinjiang region of China, to Havelian in the Abbottabad District of Pakistan. An extension of the highway meets the Grand Trunk Road at Hasan Abdal, west of Islamabad. The KKH is a part of the Silk Route that links China, Pakistan, Afghanistan, Iran and Turkey. It is the only trade route in the world that winds its way through some of the world's greatest mountain ranges, the Karakoram, the Hindukush and the Great Himalayas. Its construction spanned a period of twelve years, from 1966 to 1978.

Islamabad and Beijing have also planned to extend and expand the existing Karakoram highway which links Islamabad to Kasghar, via Hassan Abdal, Haripur, Havelian, Abbottabad, Mansehra, Thahkot, Besham, Chilas, Gilgit, Karimabad, Gulmit, Sost and the Khunjrab Pass. In June 2006, an MoU was signed between China's State-owned Assets Supervision and Administration Commission (SASAC) and the Pakistani Highway Administration to rebuild and upgrade the KKH. Under the MoU, the width of the highway will be expanded from 10 meters to 30 meters, and its transport capacity will be increased three times. The upgraded road will also be constructed to particularly accommodate heavy-laden vehicles and extreme weather conditions.

China has been focusing on building the strategic transport links between Pakistan's Northern areas and its remote western regions including Xinjiang. The number of road links between Pakistan and China has risen to eight after an agreement signed between Islamabad and Beijing last year in March. Under the accord, China and Pakistan opened four new passenger and cargo road links. While the two cargo routes run from Kashi in southern Xinjiang to Pakistan's ports of Karachi, Bin Qasim and Gwadar. The passenger lines run from Kashi and Taxkorgan, also in southern Xinjiang, to Pakistan's Northern Gilgit and Sost Pass respectively.

If Pakistan is to really serve as an energy corridor between the Gulf and China and the Gwadar port is to become a major outlet for trade between the China, Central Asia and the Gulf region, Islamabad must pay attention to the improvement of communication network and security situation in Balochistan. The proposed $6 billion National Trade Corridor (NTC) project envisages improving all sectors of communications, including ports, shipping, aviation. The Asian Development Bank has agreed to provide $1 billion for the National Trade Corridor (NTC) project that would link Karachi to Gwadar and Khunjrab in Northern Areas. It is worth mentioning that the World Bank and other lenders have already agreed to provide $1.8 billion for the Karachi-Gwadar-Khunjrab section, which is estimated to cost $2.8 billion. The World Bank will provide $300 million a year.

Syed Fazl-e-Haider,, is a Quetta-based development analyst in Pakistan. He is the author of six books, including The Economic Development of Balochistan, published in May 2004.