Analyst note: Pakistan’s new Silk Road of opportunity

Analyst note: Pakistan’s new Silk Road of opportunity

China’s New Silk Road trade route initiative will benefit both China and Pakistan. And while international opposition is expected, internal politics pose the main threat to the largest-ever foreign investment in the Pakistani state.

Pakistan’s three major ports in Gwadar, Karachi and Qasim would be developed under a $28 billion investment from China to create the China-Pakistan Economic Corridor, or CPEC — agreements on which were signed in Islamabad in April this year.

Road and rail links, including construction of the Karachi-Lahore motorway and an upgrade of the Karakorum Highway, are also planned; as well as an investment of $34 billion to develop a diversified energy sector. In total, the Chinese government plans to invest $45 billion in the CPEC with ambitions for it to be fully operational by 2027. To date, it is Pakistan’s greatest ever package of foreign direct investment.

The one port of particular interest for China is Gwadar in the southern Balochistan administrative region. This port would link to Kashghar and Xinjiang, in western China, and will also offer China access to the Arabian Sea and its lucrative oil routes from the Gulf. Its other main purpose would be to handle containers. It has a current handling capacity of 500,000 20-foot-equivalent units.

The government plans to build breakwaters and new berthing areas and a new terminal at Gwadar International Airport. It is also set to build the Gwadar Eastbay Expressway, as well as infrastructure for free trade zones and port-related industry within the city.

Political will within the Chinese leadership to implement these projects seems strong, even in the face of several significant challenges. The economic, as well as geopolitical, benefits are evident. The current 15,000-mile journey by sea and by land between Shanghai and northern Europe would be cut in half by the CPEC, it is estimated, reducing costs for destinations in western China dramatically.

China’s tried and tested policy of connecting underdeveloped regions to industrial and trade hubs has undoubtedly brought varying degrees of prosperity to China’s population, as well as stability to China. Also,the long-term plan for the CPEC will entail further integration with Pakistan’s neighboring countries, principally Afghanistan and Iran, as well as other Central Asian nations, which all seem to broadly welcome the initiative.

There is also hope that prosperity resulting from the CPEC will bring some so far elusive stability to Pakistan, acting as a counterbalancing force to its regional rival India.

Strategically, threats to the CPEC could come from the United States, which is often seen as competing with China for influence in Pakistan and India. However, to date, the U.S. has made little comment on the initiative, indicating its willingness to let China bring stability to Pakistan, something that the U.S. has so far been unable to do despite billions of dollars in aid.

India, which has officially raised objections against the corridor’s proposed route through disputed territory in Kashmir, is the main strategic challenge to the development. The country will also be wary around deepening Chinese-Pakistani cooperation. However, India is likely to be more concerned with growing Chinese influence in countries it considers within the sphere of its political influence, such as Sri Lanka, and it would be cautious of risking its own potential and economic cooperation with China.

But it is Pakistan’s own domestic challenges that are likely to prove the biggest threat to the CPEC. Corruption, over-regulation, competing federal government and provincial government interests and a lack of experience in implementing such large-scale projects efficiently are factors that have restricted foreign investment in the past and are likely to also adversely affect CPEC projects.

While there appears to be broad political support for the CPEC and its potential economic benefits, there is fierce debate over the CPEC’s three proposed routes from two of Pakistan’s six administered regions.

The provincial governments of Khyber Pakhtunkhwa, formerly the North-West Frontier Province, and Balochistan have accused the Sharif-led federal government, which draws its support primarily from Pakistan’s Punjab province, of prioritizing the CPEC’s eastern route through Punjab and Sindh over the western route, even though the latter, which goes through the other two comparatively underdeveloped provinces, offers a more direct link to Gwadar.

In response,the government argues that it intends to construct all three routes but that it plans to use the existing and more developed road network in Punjab and Sindh on an interim basis while the route through Khyber Pakhtunkhwa and Balochistan is constructed, which could take as long as four years, according to current government estimates.

The major threat of violent opposition to the development of the CPEC comes from the nationalist militancy in Balochistan. Despite their capabilities being relatively low, the Baloch groups have regularly targeted Chinese nationals and projects as part of a bid to end foreign investment. On the day the agreements were signed, Baloch militants attacked a government air traffic radar control in Pasni, Gwadar, causing minor damage. In response to this threat, the Pakistani military has agreed to set aside 10,000 soldiers to protect Chinese nationals working on the CPEC projects.

Other traditional targets include government assets, pipelines and railway tracks.

There appears to be little enthusiasm in Pakistan’s military for a more comprehensive strategy to resolve the root causes of Baloch separatism. Rather, the military has repeatedly accused Indian intelligence agencies of fueling Baloch groups, though it has not provided any tangible evidence. The Tehrik-iTaliban, the Pakistani Taliban, is also active in Balochistan and might similarly seek to undermine the CPEC projects. It is reasonable to expect attacks against Chinese workers and the CPEC projects as they develop. But Beijing will no doubt have a high tolerance for unrest in Pakistan, and also for delays, given the potential advantages offered by the CPEC.

A version of this story originally appeared in IHS Maritime Fairplay, a sister product of JOC.com within IHS.

Comments

It seems such a simplistic article. China already had land routes to Europe. What is the level of economic activity in west China that justifies a closer links to Europe? Since sea transport is almost always cheaper than land, what products justify the high cost route? The current freight for 40' from Karachi to Shanghai is zero. The reverse is about $700. How will land transport compete? What kind of economy does Kashghar have? Chinese companies are getting sovereign guarantees from Pakistan but China is not giving any throughput guarantee to Pakistan. China had setup plenty of ghost infrastructure in a bid to keep its growth going, mostly unsuccessfullly of late. Now Pakistan is guaranteeing billions of potential white elephants in case their planning is not viable.