China link-up an opportunity and a challenge for Pakistan

Author: Sajjad Ashraf, NUS

After signing more than 50 agreements with China providing for US$46 billion in investments in Pakistan’s energy, road and rail network sectors, construction has begun on the China–Pakistan Economic Corridor (CPEC). The project will connect the Chinese city of Kashgar in Xinjiang Uyghur Autonomous Region with the deep water Chinese-built Gwadar Port at the mouth of Straits of Hormuz. While the project offers opportunities for Pakistan, it is not without its challenges.

In addition to providing energy-starved Pakistan with much needed resources, the planned investment will generate economic activity along the route. Once completed, the CPEC is expected to lift Pakistan’s GDP by 15 per cent from an abysmally low US$274 billion for a country of 186 million people.

This US$46 billion-dollar commitment is more than double the amount of foreign assistance Pakistan has received since 2008 and is considerably more than the US assistance to Pakistan since 2002, according to the BBC.

In a promise of a tighter embrace from China, Pakistan also gets a much-needed sense of security that surprisingly still evades the nuclear-armed country. And this comes with no apparent strings.

The investments are also a part of China’s initiative to create seamless connectivity between energy and raw materials imports, Chinese factories and Chinese exports of manufactured goods across Asia and on to Europe. This investment commitment will therefore be a part of a bigger undertaking — the US$240 billion plan for China’s One Belt, One Road strategy.

The investments in the power sector are from Chinese banks, plant manufacturing companies and private Pakistani partners, who are obliged to raise 20 per cent local equity. Given the culture of nepotism in Pakistan, the government already faces accusations that energy projects will go to the regime’s favourites.

Controversy also surrounds the alleged change of CPEC route favouring Punjab. But Pakistan’s minister for planning, who is the focal point of the project, is confident that the route ‘will mainly benefit Balochistan and Khyber Pakhtunkhwa’. The project, he believes, will transform the entire region and benefit about two billion people.

Until now, economic relations between China and Pakistan have not matched their extremely close strategic relations. Also, given Pakistan’s earlier lacklustre performance in handling major foreign funded projects, critics question Pakistan’s capacity and resolve to fulfil its side of the bargain.

But, dispelling doubts, China has again demonstrated that it is seriously committed to Pakistan’s future. For China, there is no better country than Pakistan that can provide them access to the energy-rich Persian Gulf region. Chinese President Xi Jinping called the project a ‘historic development opportunity’ for Pakistan during his April address to Pakistan’s parliament. The deal is also a way for Pakistan to overcome its own insecurities.

The handover of Gwadar, the deep-water port at the edge of Straits of Hormuz, to China Overseas Port Holdings for a 40-year operation agreement will certainly lead to questions about whether the deal is purely civilian in nature. Nearly 20 per cent of the world’s oil passes though the Hormuz Strait, much of it going to China.

While there is promise, security concerns remain. The Chinese funded projects and the Chinese working on them have been targets of Uyghur and Pakistani militants as well as Baloch nationalists in the past. Pakistan has addressed security fears by raising a separate 12,000-strong force to protect the Chinese personnel deployed on these projects. Without adequate security, especially over connectivity to Gwadar, the reliability of the project will remain in doubt.

Once operational, the CPEC can link with the Iran–Pakistan–India (IPI) gas pipeline after the sanctions over Iran are lifted. Such a development will benefit all the stakeholders. It will free China from the possible strangulation of ocean routes — the so-called Malacca Dilemma — for its energy supplies. It would allow Iran a land route for its gas and oil exports and enable Pakistan to benefit from a multilateral arrangement contributing to its economic growth.

Above all else, India may be eager to be a part of an economic arrangement in which China and Iran have a major stake and that ensures the security of installations and supplies. If this happens, the CPEC may be a harbinger of peace for India and Pakistan. It will also be in China’s interest to engage India in an economic arrangement, with potential volumes that Pakistan is unable to match.

For India, this is a time to ponder whether it wants to be seen as a part of a US-led alliance that undercuts the expanding Chinese footprint in the Asia Pacific region and beyond. India realises that there are economic gains from drawing closer to China, but it is concerned about the strategic implications of China’s rise.

The Pakistani population, half of whom live below the poverty line, hope that the empty promises that they have been fed will now turn into reality. The challenge is for Pakistan to take this opportunity to lift its economic future and engage other countries in the region with dignity and honour.

Sajjad Ashraf is Adjunct Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore. He was Pakistan’s high commissioner to Singapore in 2004–2008.

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