The $46 Billion Tie That Binds China and Pakistan

A billboard in Islamabad features pictures of Chinese President Xi Jinping (L) and Pakistani Prime Minister Nawaz Sharif. (FAROOQ NAEEM/AFP/Getty Images)

Forecast

• Issues with regionalism, security and implementation will ensure that the eastern corridor of CPEC infrastructure project is prioritized over the western corridor.

• The nature of the obstacles the project must overcome means that progress will move forward in fits and starts.

• Whatever the status of the CPEC, the relationship between China and Pakistan will strengthen, enhancing China's presence in South Asia.

The partnership between Pakistan and China is one of the strongest in Asia. Pakistani Prime Minister Nawaz Sharif once said that his country's ties with Beijing are "higher than mountains" and "deeper than oceans." In May 2015, those sentiments were given form when Chinese president Xi Jinping, on his first visit to Pakistan, signed $28 billion worth of agreements as part of the proposed $46 billion China-Pakistan Economic Corridor.
The ambitious project, which when complete would link China with two Pakistani ports, faces an array of challenges. But if completed as planned, it will help stimulate Pakistani economic growth, particularly in its more impoverished western region. It would also further strengthen Chinese influence in the region and give it an export corridor to the Arabian Sea.
Foundations of the CPEC
The two branches of the China-Pakistan Economic Corridor (CPEC) consist of a network of roads, railways, energy pipelines and other infrastructure projects that will run from the city of Kashgar in China's western Xinjiang province through each of Pakistan's major cities before terminating at the Arabian Sea ports of Gwadar, near Iran, and Karachi, to the east. The initiative demonstrates the expansion of the already-deep partnership between the two nations. The CPEC, which, broadly speaking, is divided into eastern and western corridors running the length of Pakistan, fits into the Chinese trade diversification strategy dubbed the Belt and Road Initiative.

Analysis

The project is vital to Pakistan's economic ambitions and could provide the basis for an economic boom. Estimates suggest that the country's current 4.5 percent annual growth rate could climb three percentage points if the country can overcome the energy supply problems plaguing the nation. Available electricity, for instance, falls short of peak demand by some 7,000 megawatts, leading to daily blackouts. Energy infrastructure investments associated with the CPEC are meant to ameliorate a portion of that shortfall. The CPEC can also help Pakistan achieve its goals of becoming a major regional energy hub connecting the Middle East, Central Asia, South Asia and China. The project would give China access to energy supply routes linking Central Asia with South Asia as well.
Notably, the United States has pursued this same objective for two decades, seeking to connect energy-abundant Central Asia to energy-deficient South Asia by promoting the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. But its construction has languished under the enduring threat of militancy throughout Afghanistan and Pakistan. Beijing fears that the militancy could spill across its border gives it an incentive to stabilize the region, hence its investment in Pakistan.
CPEC constitutes the largest proposed investment package in Pakistan's history and is being branded as a solution for the country's economic problems, one that will create jobs, grow the economy and reform the energy sector. But unless Pakistan implements structural reforms — further democratizing the country, uprooting corruption, strengthening civilian institutions and bolstering the economy of its largest and poorest province, Balochistan — the effect of those benefits could be blunted.
Implementation Difficulties

While CPEC has been touted as a "game-changer" for Pakistan, Islamabad will need to overcome several problems standing in the way of its implementation. The first is regionalism. Rivalries among Pakistan's provinces of Punjab, Khyber Pakhtunkhwa (KPK), Sindh and Balochistan — each with its own strong cultural identities — have long stood in the way of forging an overarching national identity. In particular, Balochistan, the country's least-populous province, has long accused Punjab, the wealthiest and most populous province, of marginalizing its people. One grievance Balochis hold is that Punjabis expropriated the operations of the Gwadar port, which is being expanded under the CPEC, and delegated the port authority's administration, cutting Balochis out of the equation. (In November 2015, a Chinese firm signed a 43-year lease for the rights to operate the port.)

Those regional rivalries have taken on a political dimension in regard to the CPEC. In November, the Pakistani Senate Standing Committee on Communication derided CPEC; one senator who represents Balochistan called the project the "China-Punjab" corridor and lamented the fact that its eastern corridor will be prioritized over the western one. Indeed, political considerations could help explain the unequal pace of development: Punjab is the base of Prime Minister Nawaz Sharif's support, and development there could boost the popularity of his Pakistan Muslim League-Nawaz party ahead of 2018 elections.
Difficulties in implementing the CPEC's constituent projects have presented another obstacle. For instance, two high-priority electric power infrastructure projects faced delays or cancellations because of bureaucratic snags. That includes a land-lease issue that imperiled a 1,320-megawatt generation plant planned by the Port Qasim Electric Power Company, a project at the top of the CPEC's priority list. A water project under the Gwadar Port Authority faces a quandary over the source of its funding. Any undertaking on the enormous scale of CPEC will inevitably run into similar obstacles. But the basic nature of the issues hampering these projects suggests systemic problems.

Security concerns pose another challenge. CPEC's western corridor crosses through KPK and Balochistan, which have a history of militancy. Chief of Army Staff Gen. Raheel Sharif assembled a 12,000-troop force to guard Chinese engineers working on CPEC, demonstrating the importance the military gives the project. In 2004, attacks by the Balochistan Liberation Army killed three Chinese engineers, while in 2007 militants bombed a bus carrying Chinese engineers. In 2015, pipelines were targeted 10 times in militant attacks, and in March 2015, attackers set five fuel trucks on fire and kidnapped four of their drivers. But under the military's watch, there have been no reported attacks this year on pipelines in Balochistan. And in April, 144 Balochi militants surrendered to the army.
The military wants to expand its involvement in CPEC beyond handling security, seeking a project management role as well. Because CPEC has been advancing slowly, the military's proposal, which fits squarely into Pakistan's military-civilian dynamic, could be seen as a way to boost progress. However, Ahsan Iqbal, Pakistan's minister of planning, development and reform, argued against giving the military a role in development, saying that the accompanying increase in bureaucracy would only further slow CPEC's progress. Even so, it is likely that the Chinese have requested that the military take on a management role, given the civilian government's difficulties.

Going Forward
Because Pakistan's political, economic, and human capital is concentrated along the Indus River, which runs longitudinally through the country's eastern half, it is natural that the eastern segment of the CPEC will develop faster. Indeed, in fiscal 2015-2016, Islamabad allocated only 15 percent of the 130 billion rupees ($1.24 billion) in CPEC funding to the western route, with the remainder going to the eastern route. The eastern corridor's terminus, the Port of Karachi, is already the country's busiest, processing 60 percent of Pakistan's seaborne cargo. Islamabad recently signed agreements with China worth $4.2 billion for highway construction projects in the eastern corridor. The western route, on the other hand, ends at the underdeveloped port at Gwadar, which is expected to process about 1 million tons of cargo next year, a fraction of its envisioned capacity of up to 400 million.
The large troop contingent deployed along the western route of development may contain the immediate security concerns there, but it is only a temporary solution to a longer-term problem. If underlying issues in Balochistan, including political and economic exploitation and a lack of autonomy, are not addressed, the region will grow even more restive. Concerns about unrest give politicians from the more powerful and influential Punjab and Sindh regions an excuse to push more development east, leaving western provinces to languish. This in turn means that Balochistan would remain underdeveloped, sustaining the grievances of the Balochi secessionists.
Whether or not the proposed CPEC projects materialize, it is important to consider that such an undertaking, massive though it may be, is only one of the many ties that bind Pakistan and China together. The strategic interests of both nations dictate that their relationship, especially in economic development, will only improve.www.stratfor.com