The China- Pakistan Economic Corridor (CPEC) is a network of highways, railways and infrastructure projects under the Belt and Road Initiative (BRI) that will run from Kashgar in China to Gwadar Port in Baluchistan. The project was launched in 2015 with the Beijing government planning to invest $50 billion in 15 years to successfully implement the initiative. Pakistan and China shall monitor the progress of the project by deploying satellites that were launched in June 2018. The project is currently operating in its second phase with both the nations claiming a multifold increase in trade that would benefit other Asian and Gulf countries as well.
The Rationale behind CPEC: The ancient Silk Route whose origin dates back to 130 BCE (second century) was a vital way to exchange goods and ideas between China and the Mediterranean region. Marco Polo, a very prominent explorer has documented a detailed chronicle of his experience on the Silk Road and how various religions like Buddhism were spread along the route. Despite its popularity, the road had to be shut down due to the discovery of a sea route from Europe to Asia in the 15th century. Moreover, owing to the territorial threats from the West and the introduction of Communism with the conclusion of the Chinese Civil War added all the more motive to cease the operation of the ancient route.
Hence, ever since then China has been attempting to revive the Silk Route to boost connectivity and trade under its Belt and Road Initiative (BRI).
The Salient features of the bilateral agreement: Considering the current international stand of Pakistan, China being one of its closest allies has provided a rare opportunity to the former country to realize its true strategic and economic potential. This opportunity shall bring investment to revive the Baluchistan province and create employment opportunities.
On the other hand, the CPEC framework aims at connecting mainland China to Central Asia, the Horn of Africa, Europe, and the Middle-east that will provide an alternative to China which currently uses the Strait of Malacca and the Indian Ocean for shipments. This move is expected to save $2 billion dollars every year of the Chinese government.
The multibillion-dollar deal constitutes of two major parts – (a) $35 billion investment by the Chinese government to lay gas pipelines and to setup coal, wind, solar and hydropower plants and (b) $11 billion investment in the infrastructure project, i.e., to build a road corridor from Kashgar to Gwadar.
Needless to say, Pakistan will have its own share of investments with a 20% share in the energy projects and a 50-60% share in the infrastructure projects which would essentially amount to around $15-20 billion. Taking into account the present situation of Pakistan’s ‘Debt to GDP’ ratio trending around 75% and its total external debt amounting to $105 billion, it becomes difficult for the Islamabad government to procure additional funds for the CPEC project. It must also be noted that Pakistan is a signatory to the Paris Climate Accord and the issue of eco-dumping and increased carbon footprint during the developmental projects under CPEC in Pak’s territory will be scrutinized internationally.
Assuming that Pakistan would be able to arrange funds for the project, the economic viability is still doubtful because to re-pay the principal amount along with interest requires a regular return on investment (ROI) and with China confirming 27.2% ROI from the energy sector, the credibility of Pakistan is again questioned. Now, to fulfill its commitment towards China, Pakistan has imposed a CPEC Security Tax of 1% on all electricity bills that will directly impact the industries in the country driving down economic growth.
The untold side of the story: The investment for the project has been halted by China despite the successful completion of the first phase due to alleged corruption cases that have surfaced after the appointment of PTI leader- Imran Khan as the Prime Minister of Pakistan.
It has also been speculated that Pakistan has siphoned over $160 million from the CPEC project to other non-BRI project upsetting the Beijing government.
At the same time, China’s scheme of ‘predatory economics’ has been highlighted once more as now Pakistan owes a whopping $10 billion in debt to China for constructing the strategic Gwadar Port in Baluchistan and other projects as well. In a similar manner, China has been striving to expand its global influence by threatening the territorial sovereignty of the nations that the Chinese government assists financially. This series of predatory debt tactics of China can be witnessed in nations that are saddled with hefty Chinese loans like Maldives which now owes 30% of its GDP to China as construction costs, Sri Lanka has granted China 70% stake in its deep-water port and Argentina has been denied access to its sovereign territory after leasing a land tax-free to China for the operation of its satellite tracking station.
Amidst these tensions, UNHRC officials and the White House have raised concerns over the violation of human rights in the hitherto insurgent Baluchistan province as the One Belt One Road (OBOR) initiative has led to an increase in terrorism including the Islamic State (ISIS).
India’s stand on the CPEC framework: When the CPEC framework was in talks in 2014, India strongly opposed the CPEC route for two major reasons. Firstly, the proposed CPEC route passes through the controversial regions of Gilgit- Baltistan area of Kashmir that lies in Pakistan occupied Kashmir (PoK). Hence, supporting the CPEC framework would mean surrendering the falsely annexed region of PoK to Pakistan.
Pakistan might be able to completely cut off India from Iran which happens to be one of the largest importers for oil and gas energy for India.
Secondly, India fears that the Gwadar Port shall function as a Chinese naval base giving access to China to the Indian Ocean. The setting up of the Gwadar Deep Sea Port shall provide China the room to maneuver over the Indian trade authorities. The presence of the Chinese military in this region remains a serious threat to India’s security and territorial integrity.