What Pakistan gains from CPEC

The long and short of it

Beijing agreed to provide Pakistan with a $5.5b concessional loan to upgrade and modernise the Karachi-Lahore main railway line called ML-1

During a press briefing on 29 September 2016 Federal Minister for Planning, Develpoment and Reforms Ahsan Iqbal said despite Indian conspiracies, the size of the China-Pakistan Economic Corridor (CPEC) has been increased to more than $51.5 billion after China and the Asian Development Bank (ADB) agreed to lend $8b to upgrade the main railway line from Karachi to Peshawar.

Iqbal said Beijing agreed to provide Pakistan with a $5.5b concessional loan to upgrade and modernise the Karachi-Lahore main railway line called ML-1.

In addition, ADB will extend financing of $2.5b for the Lahore-Peshawar railway track, he said.

“Both loans will carry less than two percent interest rate. Both are concessional loans,” he said.

However, he declined to discuss specifics of the lending programme, saying the economic affairs division is still busy finalising the terms and conditions.

He said the original $46b CPEC included about $3.56b financing for the railway network, which has now increased to $8b. “This is an add-on” to the original CPEC, he explained.

He said the Karachi-Peshawar railway line processed 75pc of the passenger and cargo traffic, but its efficiency has dropped to 60-80 kilometres per hour. That is because of a continuous deterioration during the long tenure of former President Pervez Musharraf, adding that the track, signalling system and bridges were in bad shape.

The refurbishment and upgradation of the main line will cost $8b and take five to six years to complete. This will revive its efficiency to 120-160 kilometres per hour. It will be upgraded in a manner that it will accommodate fast-moving trains, reduce the cost of production and increase the competitiveness of Pakistani products.

The main line will then be expanded in the next phase to link Gwadar with Peshawar and then Havelian, Abbottabad, with Khunjerab.

Iqbal said CPEC has three phases and four major areas, namely Gwadar Port’s development, energy projects, road networks and industrial cooperation. The short-term, medium-term and long-term projects will complete by 2020, 2025 and 2030, respectively.

At present, work is in progress in the first three areas of infrastructure development, which will enable the two nations to push for industrial cooperation, he said.

However, in his opinion piece for Business Recorder, Veteran journalist and an expert on Balochistan Rashed Rehman wrote that there are many angles to CPEC. It has been rightly called a game changer for Pakistan. In China, it is perhaps understood as a game changer for that country. And when completed it would most likely serve as a game changer for world trade.

India also fears that once CPEC takes a final shape it would render the Chabahar seaport redundant, its supplies of oil from Iraq, Iran and Saudi Arabia would become totally dependent on the goodwill of Pakistan and China

Three countries — the US, Japan and India — however, seem apprehensive as they see the project taking shape. The US is looking at CPEC as an early sign of the beginning of the end of its global hegemony on the economic front. Japan is worried that with the completion of CPEC any competitive edge that it currently has in world markets over China would simply disappear as while the physical distance between China and its markets would shorten by as much as 9,000km, its cost of producing exportable surpluses would as a consequence come down steeply, Rehman opined.

India, on the other hand, is worried about the safety and security of its oil supplies that pass through the Strait of Hormuz at the mouth of which is located Gwadar, the entre-port of CPEC and where New Delhi fears in due course of time China will set up a naval base. India seems also concerned about the future of Chahbhar sea port that it is helping build in Iran along the Strait of Hormuz about 72km from Gwadar for which it is contributing as much as $20 billion. It had perhaps wanted to deny Pakistan the Afghan and Central Asian markets through Chabahar, he stated.

While the US and Japan still seem to be engaged in getting China to bog down in the South China imbroglio, India appears to have already finalised a stratagem to counter the self-perceived threats to its sovereignty and integrity emanating from CPEC.

Rehman believes that Indian Prime Minister Narendra Modi set the ball rolling from Lal Qila on August 15, 2016 by openly declaring his country’s intentions to foment trouble in Balochistan believing perhaps that once an insurgency in the province heats up uncertainty that would engulf the region as a result would make it impossible for the CPEC project to take off.

India also fears that once CPEC takes a final shape it would render the Chabahar seaport redundant, its supplies of oil from Iraq, Iran and Saudi Arabia would become totally dependent on the goodwill of Pakistan and China and its plans to capture the Central Asian market would be nipped in the bud as China would be able to access in the shortest possible time the CA states through CPEC while India would be left with its round-about route going through Afghanistan which is still in the grip of a wasteful war.

However, some politically influential quarters in India believe that with the completion of CPEC Pakistan would be focusing its attention more on the economy which they think would create conditions conducive for those currently indulging in militancy to adjust themselves in gainful employment which in turn would vastly lessen the threat of cross-border terrorism.

CPEC consists of “one belt, three passages, two axes and five functional zones” in terms of its spatial layout. “One Belt” refers to the belt which consists of zone area of the CPEC and the economic cluster area of industries, population and cities. It runs from Kashgar to Karachi and Gwadar on the Arabian Sea. “Three Passages” refers to the eastern, central and western routes. Eastern Route consists of railway-highway network from Islamabad to Karachi via Lahore, Faisalabad, Multan, Sukkur and Hyderabad and is considered as the main traffic artery of the corridor. Central Route starts from Islamabad to Karachi via Daria Khan, Jacobabad and Khuzdar through N25 or to Gwadar through M8. Western Route starts from Islamabad to Gwadar via D.I.Khan, Quetta, Basima and Hoshab. “Two Axes” refers to two east-west development axes in the corridor: Lahore – Islamabad – Peshawar” and “Karachi-Gwadar” development axes.

According to a recent presentation (CPEC: Its impact on Pakistan’s economy) by Ashfaque H. Khan, the CPEC has the potential to transform Pakistan into a regional hub for trade and investment and provide a unique opportunity for Pakistan to boost its strategic and economic position.

“The CPEC, once implemented, has the potential of transforming Pakistan’s economy from a low growth mode (3-4pc) to a higher and sustainable growth economy with low inflation, removing key infrastructural bottlenecks (energy, roads, highways, railways, etc), promoting balanced regional growth and development, shaping new industry clusters, improving living standards and social stability, and promoting regional connectivity.

“The Corridor is expected to fuel economic growth of Pakistan by adding 2.0 percentage points to its growth between 2016 and 2020; another 1.5 percentage points between 2020 and 2030. It is likely to create 800,000 to 1.0 million new jobs. The length of newly built or upgraded roads and railways should reach 3871km and 1529km, respectively. Power generated by newly built sources will reach 19.785 million KW, and length of optical fiber Cable will reach 2084km.

“Under the CPEC, various Pakistani industries will benefit. These include: Textile Industry. The garment and textile industry will be developed in Kashgar Economic Development Zone through importing raw materials from Pakistan. Textile and Garment Centers or EPZ will be built in Lahore and Karachi. To enrich cotton textile varieties, investment should focus in producing top grade cotton yarn, printing and dyeing fabrics, Jean fabric and Knitted fabric. Household Appliances Industry appears to have a bright future. Living conditions of Pakistani people will be improving gradually. Some Chinese enterprises have already established plants in Pakistan. A household appliance industrial park will be established near Lahore through joint ventures. They will move from assembling imported parts to producing them locally. Cement: The demand for cement will continue to rise because of the rising construction activity. More investment can be made in cement industry to meet the growing demand for the CPEC-related construction projects. Mineral exploration is another area where Chinese enterprises will have interest. Industrial Park Construction along the corridor should be considered by Pakistani-Chinese investors.

“Financial cooperation will play an important role in economic corridor construction and operation. Multi-level cooperation includes: Central bank cooperation for establishing bilateral payment and settlement to ease pressure on foreign exchange reserves. Business Organisation Cooperation will take place where Chinese financial institutions can lead the syndicated loans of international financial institutions. And cooperation in financial markets is likely where the two countries can open their bond market.”