Opportunity and challenge
THE China-Pakistan Economic Corridor is part of the ‘One Road, One Belt’ vision expounded by President Xi Jinping to establish close land and maritime links between 60-plus countries across Asia and Europe. This is China’s pivot to the West. Unlike America’s pivot to Asia, its motivating force is prosperity rather than the preservation of power.
The OBOR vision, of which CPEC is a part, can contribute to regional and global growth by building infrastructure, physically integrating over 60 economies and focusing investment in regions with large latent economic potential.
CPEC’s importance for China, and particularly for Pakistan, cannot be overstated. It will revive the ancient Silk Road. It is the first and essential phase of the OBOR enterprise. It will cement and add a vital economic dimension to the strategic partnership between Pakistan and China.
CPEC will provide China a shorter and secure route for its trade and interaction with Pakistan, West and South Asia, the Arabian Peninsula and Africa, circumventing the possible choke points in the western Indian Ocean and the South China Sea through which 80pc of China’s $4,000 billion annual trade presently flows. It will contribute to the development of China’s vast western region. It will accelerate investment, trade and growth in Pakistan, and help to stabilise the country.
Encouraging progress has been made on the planning and initial execution of several CPEC projects. But there is no room for complacency. CPEC faces many challenges, internal and external. There are several steps that Pakistan and China can take to ensure CPEC’s realisation. Pakistan should ensure:
— equitable distribution of economic projects and benefits to all of Pakistan’s provinces and regions. This is essential to counter external attempts to create internal discord in Pakistan;
— consistency in economic policies. For instance, the sudden ban on new power plants using imported fuel will disrupt several projects under way;
— transparency in decision-making, also required to avoid charges of crony capitalism;
— speedy and fair dispute resolution, to avoid time consuming litigation;
— expansion of its capital markets to provide adequate local financing for projects;
— availability of qualified personnel for project execution through large-scale programmes for vocational training and skill creation.
The CPEC trade corridor will be complete only when the rail link and oil pipelines are added to the road network being constructed presently. Roads can cater to only a small part of China’s potential trade flows with the countries accessed via CPEC.
To ensure adequate spin-off benefits for Pakistan’s economy, the scope of CPEC projects eligible for government financial and policy support will have to be considerably enlarged to cover other sectors besides transport and energy, to include mining, oil and gas exploration, agro-industry, textiles, automotive and consumer goods.
CPEC’s success and its economic promise cannot be achieved without the fullest participation of the private sector in both countries, including small and medium-sized enterprises. Pakistani enterprises should be encouraged and helped to interact closely with Chinese companies, including through sponsored visits and exchanges. The Pakistan Business Council and other business bodies in Pakistan should identify specific ventures that can be undertaken with Chinese counterparts, and establish a mechanism for continuous exchange of information with them on such opportunities.
Given the strategic significance of the CPEC enterprise and its challenges, not only of security but also of coordination within Pakistan and with Chinese entities, serious consideration should be given to creating an independent ‘CPEC Authority’ which can serve as a ‘one-stop-shop’ to address all issues relating to CPEC.
China has allocated $46bn in mostly concessional loans to identified CPEC projects. It has extended other financial support to ensure that Pakistan remains economically viable. But equity finance can be a constraint. The Chinese authorities should encourage larger equity investment by Chinese state and private companies in projects, ventures and businesses in Pakistan. The creation of one or more Pakistan-focused private equity funds, with the political support of the two governments, could be an important avenue for enhanced financial flows to and economic growth in Pakistan.
Second, Chinese insurance providers could adjust their terms and conditions to finance a wider scope and number of projects, for instance, by accepting commercial as well as sovereign guarantees.
Third, Chinese industry associations could make a conscious effort to identify production and manufacturing lines that are becoming less competitive in China and that could be relocated to Pakistan instead of countries like Vietnam, the Philippines and Bangladesh.
CPEC’s success can also be ensured by creating stakes in it for a wider group of countries. To this end, Pakistan and China should encourage the participation of public and private companies in CPEC projects from a number of countries, including the US. Russia’s proposed involvement in the construction of the south-north gas pipeline is a positive sign. The early construction of oil pipelines and trans-shipment infrastructure at Gwadar to expedite oil exports to China from Saudi Arabia and the Gulf will give real meaning to the corridor. A road link from Chabahar to Gwadar can bring Iran into the CPEC network. Afghanistan is unlikely to be part of the network unless peace is restored there; India may maintain its hostility indefinitely.
Security is likely to remain the most important challenge to CPEC’s success. Given the emerging strategic alignments, CPEC may have already become the target of an economic ‘war’.
While Pakistan is addressing the internal problems of extremist violence and terrorism, it is also compelled to counter the support that the intelligence agencies of India and Afghanistan are extending to TTP terrorists and Baloch insurgents. Modi’s reference to Balochistan and Gilgit-Baltistan cannot be ignored. Nor can the workings of a foreign hand in Karachi be ruled out.
The ever closer Indo-US alignment, and escalating Sino-US rivalry, provide India and other detractors with a new strategic motivation to destabilise Pakistan and CPEC. Pakistan has created a dedicated force to provide security to CPEC projects. This force is being further augmented. Yet, fending off the foreign mischief through defensive and defensive-offensive measures has assumed a new priority. The security of CPEC is the joint responsibility of Pakistan and China and they must take appropriate joint action to ensure this.
The writer is a former Pakistan ambassador to the UN.
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Opportunity and challenge