CPEC China-Pakistan Economic Corridor
The CPEC is touted by Beijing as the flagship project of their grandest foreign policy initiative in living memory, the ‘One Belt, One Road’ (OBOR) project. But it also represents the biggest gamble – financially and security wise, ever undertaken by China.
When the Chinese President Xi Jinping unveiled the OBOR in 2014, also known as the ‘Belt and Road Initiative’[3"> (BRI), a massive project which will connect Asia with Europe through a host of infrastructure projects, Beijing expected that the neighbouring countries would lap it up and make a beeline to benefit from the OBOR. China also created two financial institutions specifically for the project- the Asian Infrastructure Investment Bank (AIIB) and the USD 40 billion Silk Road Fund.[4">
Two years down the line, the OBOR project has proved to be a sobering reality check for China.
The only willing partners for the OBOR so far have been Pakistan and Sri Lanka- countries which had seen a significant Chinese investment, even prior to the OBOR. Else, many smaller countries in China’s neighbourhood have expressed hesitation and reluctance in embracing the ‘Chinese Dream’. The two most predominant reactions to the OBOR have been that the initiative at present remains a grandiose dream, rather than a coherent well-defined blueprint or that it is a Chinese hegemonic plan to rule its neighbours and dominate the international system.
This is even more so in the case of the CPEC.
The stated aim of the CPEC is to connect the underdeveloped Western part of China- the Xinjiang province to the port city of Gwadar in Pakistani Baluchistan. By developing an alternative overland route, the Chinese are hoping to overcome their ‘Malacca dilemma’. But the project faces financial and security risks.
The financial risk aspect is evident when one looks at the hotchpotch projects that the CPEC lines up along its route- a mixture of connectivity and energy projects. As per different estimates, the CPEC is expected to see investment in excess of USD 50 billion, including China’s own USD 46 billion.[5"> The question that is rarely asked here is whether Pakistan, with an economy worth approximately USD 270 billion of GDP[6"> will be able to absorb this much investment and give profits? The Chinese realise that due to the potential financial risks that the CPEC faces, it is unlikely to find any backers in the AIIB or the BRICS’s New Development Bank. That is why they have taken the route of the Silk Road Fund to fund CPEC projects.
Ironic that for the OBOR, China is banking on its financial strength and the multilateral lending institutions that it had been instrumental in creating while a flagship project of the OBOR is being funded solely by the Chinese deep pocket investments.
Yet, these Chinese deep pockets may not continue for a long time. Investments in Pakistan have proved to be excruciatingly profitable as a result of which the Chinese state corporations would be stretched to their limits to continue funding the CPEC, particularly as Chinese economic growth becomes more sluggish. Not to mention the fact that most of the economic calculations of the CPEC have estimated that the corridor is 8-10 times more expensive than the ocean transport route.
But these economic pains pale in comparison to the security risks that the CPEC faces- starting off from Kashgar in the restive Xinjiang province where the resurgent separatist Ughyur insurgency has beeen a headache for China’s Ministry of State Security. It doesn’t help the matters that the CPEC tail ends in Gwadar which is located in a region also characterised by strife and insurgency. If the previous experience is anything to go by of the numerous instances of Chinese nationals coming under attack, many of them undocumented, Chinese are not safe in Baluchistan and in parts of Khyber Pakhtunhwa, where the Uyghur militants flourish with other terrorist groups. In the latest such instance, in October 2016, Baluch insurgents attacked a convoy of the Chinese explosive company.[7"> Earlier too, Baluch insurgents had targeted Chinese operations, just a month before the much awaited trip of President Xi to Gwadar.[8"> And in a major PR fiasco, the attacks forced Beijing to cancel President Xi’s trip to Gwadar.
The Chinese approach to all this has been twofold: at the macro level, they have overlooked the security concerns on OBOR; that is why the original OBOR document makes no reference to security aspects. At the micro-level, the Chinese have taken a limited view of the problem by working with Pakistanis to deal with threats to their investments in Pakistan- extraditing the Uyghur insurgents and making Pakistan to crackdown on the Baluchis and raise a separate force to protect the Chinese personnel and assets. Both these approaches have yielded temporary gains but not helped to resolve Chinese concerns.
Added to this is the strange Chinese behavior when it comes to addressing terrorism problem emanating from Pakistan. As a country which has invested billions of dollars in Pakistan, China should have been highly disapproving of Pakistani actions of exporting cross-border terrorism to India, and this behaviour can create an unstable regional security situation, thereby jeopardising the Chinese investment. Yet Beijing has made no visible effort to restrain Islamabad and Rawalpindi from encouraging Maulana Masood Azhar or Hafiz Saeed.
Perhaps the Chinese want to buy peace by throwing money at a problem. That may explain their sizeable investment in Pakistan. Perhaps the CPEC is more than mere economics for China. The CPEC, apart from granting China access to a deep water port of Gwadar, also provides a satellite nation which can be used in whichever manner that Beijing wants, in its machinations against India.
Surely, at a time when the rest of the international community is shunning it, Pakistani leadership- civilian and military would definitely be grateful to China for reposing trust in them. Notwithstanding the projection by Pakistan’s Punjabi elite that the CPEC- also called as China Punjab Economic Corridor, will serve Pakistan’s economic interests, within the rest of the Pakistani society, the project has been viewed with utmost caution. This is one of the reasons why of late there have been commentaries in Pakistan questioning the rationale of the CPEC. Many of these critiques are pointing out the peculiar nature of Chinese investments abroad- that the host countries rarely benefit out of the Chinese investments as Beijing bulldozes through its firms, labour and technology, without any regard for the local economy.
One look at the Chinese investment in Sri Lanka would suffice. For years, Chinese have been lending heavily to Sri Lanka for its infrastructure development. But most of these lending come with a precondition that the major contract would be given to the Chinese firms, without any bidding and that the Chinese equipment should be used. All those projects which used the Chinese capital are now performing poorly, forcing the Sri Lankan government to request International Monetary Fund for paying back the Chinese loans.
The situation is not different with regard to the CPEC. The electricity being generated out of the power plants that are being built under the CPEC will require high tariffs that will be out of reach for most Pakistanis. Already Pakistani consumers are paying a CPEC protection tax on electricity.[9"> All this apart from the labour and environment issues that the CPEC projects will have to face as they materialise on the ground.
Despite years’ of involvement in Pakistan, China remains a subject of intense scrutiny and susceptible to Pakistan’s internal conflicts. It will be no different in the case of the CPEC, which has fundamental conceptual flaws. It does not look like a panacea for Pakistan’s economic growth and remains a half-baked idea. Whatever the strategic importance of the CPEC for China, the balance sheets and the security risks do not make it a strategic investment.