Why the Revival of CPEC now?

In international rhetoric, the China-Pakistan Economic Corridor (CPEC) is often referred to as the crown jewel or the colossal blunder of China’s Belt and Road Initiative. These diametrically opposite assessments reflect the ambiguity and irrationality associated with the project. From reducing China’s Malacca Dilemma and building new connectivity routes into Eurasia and beyond, to developing Pakistan into a mini China crisscrossed with power plants, transport infrastructure and special economic zones; a number of reasons have been peddled to outline the CPEC vision. Ignorance is feigned on many aspects such as the fact that the Strait of Hormuz is as much a dilemma for the Chinese as the purported Malacca threat. In 2019, China turned down an invitation to join the United States and other countries in naval patrols to protect its oil tankers in the Persian Gulf and Strait of Hormuz, despite its heavy reliance on Middle East oil¹.

Then, Pakistan’s political stability or its finances or even its electricity supply do not correlate either with the amounts spent or with the results so far, much less facilitate the grand economic scope that both countries highlight. For example, even after the Chinese-funded power projects become operational, they will still utilize the dilapidated Pakistani transmission infrastructure that is prone to annual transmission losses of 25 per cent². The total package of projects under CPEC since its launch in 2015—which run as high as $62 billion—has seen only 32 projects worth $25.5 billion completed as of 2020³. In 2018, Prime Minister Imran Khan constituted a nine-member committee to evaluate CPEC. “The previous government did a bad job negotiating with China on China-Pakistan Economic Corridor— they did not do their homework correctly and did not negotiate correctly so they gave away a lot,” industrialist Abdul Razak Dawood, part of the committee said. The team will “think through CPEC – its benefits and liabilities⁴.”

Thus, the announcements on the second CPEC phase of “high-quality development” in the pandemic year bears need for greater scrutiny⁵. After early excitement in 2015 with President Xi’s visit to Pakistan and the initial commitment of $46 billion, the ensuing politicization of the CPEC with recurrent corruption and public protests along with a rising separatists’ alliance led to a visible stumbling of the project. Pakistan was also stuck in the middle of US- China tensions, wherein both had vested interests in attaining Pakistan’s cooperation. Simultaneously, Pakistan’s need for constant dole outs to manage its external debt obligations, along with rising attacks on both Chinese projects and personnel on ground, raised red flags for Beijing. However, in spite of reservations, the two countries set out to build a coalition of the willing to revive the much-touted project. Dozens of Pakistani delegations comprising politicians, businessmen, tribal leaders, and journalists have visited China on "Beijing-funded, all-expenses paid trips". These efforts have been aimed at cultivating a positive image of China among influential Pakistanis. Many of them are even taken to visit a pre-detailed show trip to Urumqi and Kashghar in Xinjiang⁶.

In March 2019, the first CPEC Political Parties Joint Consultation Mechanism (JCM) was held in Beijing to stamp a new political consensus on the project. JCM brought together nine political parties including Pakistan Tehreek-e-Insaf, the Pakistan Muslim League (Nawaz), the Pakistan People’s Party, the Balochistan Awami Party, the National Party, the Jamiat Ulema-e-Islam, the Awami National Party, the Jamaat-e-Islami, and Pashtunkhwa Milli Awami Party, as well as leading officials from relevant government departments and representatives from the business communities of the two countries⁷. Later in October, Pakistan President Arif Alvi promulgated two ordinances to set up the China-Pakistan Economic Corridor Authority (CPECA) and Tax Laws Amendment Ordinance 2019 that granted a 23-year income tax holiday, exemptions of sales tax and customs duties, to the Chinese operators of the Gwadar Port and its free zone⁸. Despite much domestic furore, the CPECA under retired Lt. Gen. Asim Saleem Bajwa has been portrayed as a comprehensive effort to prevent derailment and ensure effective execution for the CPEC projects under the volatile Pakistani polity⁹. Gen Bajwa, who also held the post of Adviser to the Prime Minister, was forced to resign from that office in mid-October under a cloud of corruption charges.

Amid the global pandemic’s economic devastation, Beijing has committed an additional $11 billion to the CPEC. Agreements were signed in July 2020, for two hydroelectric power projects in Pakistan Occupied Kashmir- Azad Pattan Hydel power Project and Kohala Hydel Power Project- costing around $4 billion. At the same time, Prime Minister Khan inaugurated construction of the contentious Diamer-Bhasha Dam in the in the illegally occupied Gilgit-Baltistan region of the Indian Union Territory of Ladakh. Although the dam is not a CPEC project, the bulk of the investment is coming from Beijing¹⁰. Earlier, the World Bank and Asian Development Bank had declined to finance the project¹¹. In August, Islamabad also finally approved the upgradation of rail line ML-1 (Main Line 1 from Karachi to Peshawar) at a revised cost of $6.8 billion in phased work packages—well below the more recent estimates of $9.2 billion and the initial proposed cost of $7.2 billion¹². One must note that under the CPEC framework, ML-1 is the only strategic project being finalised as part of the initial $46 billion deals, but it too remains circumspect¹³,¹⁴. There are also road projects under consideration such as the Swat Express Way Phase-II and Peshawar-D.I Khan Motorway¹⁵.

On July 28, the secondary road section (from Mansehra to Thakot) of Phase II of Karakoram Highway (Havellian to Thakot Section) officially opened to traffic. This marked the official opening to traffic of the whole project¹⁶. In September, representatives from China and Pakistan signed a memorandum of understanding in a ceremony held in office of Prime Minister Imran Khan, who formally inaugurated the Rashakai special economic zone. The first of nine proposed zones, Rashakai SEZ is being built in Pakistan’s northwest Khyber Pakhtunkhwa province which is Pakistan’s gateway to Afghanistan and Central Asian states. In view of strong domestic opposition and concurrently an obvious Beijing hand, the Imran Khan government in late September announced election date for the third legislative assembly of Gilgit-Baltistan (to be held on November 15). The Khan Government also decided to elevate the status of Gilgit-Baltistan, over Indian objections, to a fully-fledged province of Pakistan with all constitutional rights, including representation in the upper and lower houses of parliament of the country¹⁷.

Not only is Gilgit-Baltistan (GB) geographically important for China’s logistics to Gwadar, GB’s geology has a large number of mineral deposits, including metallic, non-metallic, energy minerals, precious and dimension stones, and rocks of differing industrial value. More than 2000 leases (many illegal) are held by China in the GB region for the mining of gold, uranium, and molybdenum (a rare earth for which China is world’s largest producer). Chinese companies and labour are everywhere in GB, especially in the Hunza-Nagar district, which is rich in uranium. Far more serious is the creation of ‘no-go’ areas by the Chinese, who prevent locals from accessing these areas. This is apparent in some areas in upper Hunza, for instance, the Chapursan Valley, where the Chinese have done both tunnel building and mineral exploration¹⁸. Molybdenum is an alloying element for increasing strength, corrosion, and heat-resistance. It is critical to production of parts for extreme applications such as aerospace or metallurgy. In oil processing, it is also used as a catalyst for sulphur removal¹⁹. Thus, the large number of dams being built in GB under CPEC is not coincidental, as mining often requires large amounts of water.

Furthermore, new geopolitical realities after a fatal standoff between India and China this year, has given added incentive to Beijing and Islamabad to double down on CPEC that is bitterly opposed by New Delhi. A report released in June 2020 by CICIR, China Institutes of Contemporary International Relations (which is affiliated with the Ministry of State Security, China’s top intelligence body) mentioned: “On the Chinese side, India opened up new territory on the map, incorporated part of the areas under the local jurisdiction of Xinjiang and Tibet into its Ladakh union territory… This forced China into the Kashmir dispute, stimulated China and Pakistan to take counter-actions on the Kashmir issue, and dramatically increased the difficulty in resolving the border issue between China and India²⁰”. Despite belligerent rhetoric and an aggressive Chinese stance, China sees increasing challenges for its grandest BRI project. For Pakistan, the growing tensions between China and India on their border encapsulate a rare opportunity to expand its weight in a heavily unbalanced bilateral relationship while drawing economic benefits.

With an ongoing US troops’ withdrawal from Afghanistan, the Wakhan Corridor that separates Afghanistan from Gilgit Baltistan has become pivotal to Chinese security. Beijing is extremely concerned about terrorist outfits such as the East Turkestan Islamic Movement and Islamic State Khorasan Province infiltrating into the Uyghur-populated Xinjiang area in western China. The Uyghur population in the province of Xinjiang has been targeted by a vast internment campaign that has, by some estimates, seen up to 1 million people torn from their families for indoctrination programs. The Chinese government denies these claims, insisting that the camps in question are only for vocational training²¹. The Washington Post reported in March 2019 that China has an operating military base in Tajikistan, confirming earlier accounts of this base. However, China may have a second base situated in the Wakhan corridor of Afghanistan. Chinese forces have been present there since 2017, around the same time that the base in Tajikistan became functional. In fact, the Pentagon is also of the opinion that there is a Chinese base in Pakistan too²².

The success of CPEC is also crucial for China to sell its strategic entanglement template to other South Asian countries in a bid to compete with India. In July 2020, Chinese Foreign Minister Wang Yi held the first joint virtual conference with his counterparts from Pakistan, Afghanistan, and Nepal. He said China would take forward the China-Pakistan Economic Corridor, the Trans-Himalayan Multi-dimensional Connectivity Network project with Nepal and supported extending the corridor to Afghanistan²³. Also, while Chinese State-Owned Enterprises that execute large CPEC contracts such as China Communications Construction Company (CCCC), China Railway Construction Corporation (CRCC) etc. have high credit ratings due to sovereign guarantees, their high investing cash outflows and rising leverage in recent years remain a concern²⁴. They remain far from generating substantial operational cash flows from their investments²⁵. China is now fortifying its strategic CPEC investments by working more directly with the powerful Pakistani military and its affiliated business interests. The Pakistan army’s construction arm, Frontier Works Organization (FWO), has secured many CPEC-related contracts²⁶.

There is a visible revival of the CPEC despite China’s declining outward investment overseas and its own burgeoning domestic and external debt. But instead of an economic underlining, CPEC’s revival has acquired more geopolitical connotations, especially for China. China has also expanded its economic footprint in the Central Asian Region, which is crucial not only for its energy security and domestic stability but also acts as a gateway to Eurasia, Europe, and Russia. The CPEC platform allows China to play a larger conflict mediation role and present itself as a responsible regional actor, while evading full responsibility if efforts are unsuccessful. On grounds of ensuring security of its investment and personnel, China has a facade to extend PLA’s reach into the region after the US withdrawal, while simultaneously countering an unprecedented assertive India. On the other hand, Pakistan which is projected to need US$ 27.8 billion to meet external debt service payments between September 2020 and June 2023²⁷ is more than happy to entrench Chinese stakes. In conclusion, CPEC like its BRI mother ship is contorting into a new monster. Despite all the rightly acknowledged irrationalities, it is too early to dismiss the CPEC.

References:

1. China and Gulf Security: Conspicuous By Its Absence, 21 May 2020, https://thediplomat.com/2020/05/china-and-gulf-security-conspicuous-by-its-absence/#:~:text=When%20China%20turned%20down%20an,to%20defend%20against%20in%20what [3]
2. As Pakistan’s Energy Crisis Worsens, Have Chinese Investments Failed Islamabad?, 02 June 2020, https://thewire.in/south-asia/pakistan-energy-crisis-cpec [4]
3. The BRI in Pakistan: China’s flagship economic corridor, 20 May 2020, https://merics.org/en/analysis/bri-pakistan-chinas-flagship-economic-corridor [5]
4. Pakistan set to review CPEC: FT report, Sept 10, 2018, https://tribune.com.pk/story/1799466/pakistan-set-review-cpec-ft-report [6]
5. Wang Yi: China-Pakistan Economic Corridor Enters New Stage of High-quality Development, 21 Aug 2020, https://www.fmprc.gov.cn/mfa_eng/wjb_663304/zzjg_663340/yzs_663350/gjlb_663354/2757_663518/2759_663522/t1808968.shtml [7]
6. China's efforts to speed up Belt and Road in Pakistan falters, 16 Sept 2019, https://asia.nikkei.com/Spotlight/Belt-and-Road/China-s-efforts-to-speed-up-Belt-and-Road-in-Pakistan-falters [8]
7. JCM has stamped on the consensus built on CPEC, 23 Sept 2020, http://cpecinfo.com/jcm-has-stamped-on-the-consensus-built-on-cpec/ [9]
8. CPEC is China-Pakistan corruption corridor. This challenges Indian security in new ways, 08 June 2020, https://theprint.in/opinion/cpec-is-china-pakistan-corruption-corridor-this-challenges-indian-security-in-new-ways/437329/ [10]
9. CPEC 2.0: Full Speed Ahead, Sept 10, 2020, https://thediplomat.com/2020/09/cpec-2-0-full-speed-ahead/ [11]
10. China, India fire fueled by Pakistan Belt and Road, 14 Sept 2020, https://asiatimes.com/2020/09/china-india-fire-fueled-by-pakistan-belt-and-road/ [12]
11. Pakistan’s 40-yr-old Gilgit-Baltistan dam project could finally be a reality, with China help, 15 May 2020, https://theprint.in/world/pakistans-40-yr-old-gilgit-baltistan-dam-project-could-finally-be-a-reality-with-china-help/422614/ [13]
12. The Pakistan Army’s Belt and Road Putsch, 26 Aug 2020, https://foreignpolicy.com/2020/08/26/the-pakistan-armys-belt-and-road-putsch/ [14]
13. Pakistan, China may ink deal for road project, 16 Oct 2020, https://tribune.com.pk/story/2268555/pakistan-china-may-ink-deal-for-road-project [15]
14. CPEC’s strategic ML-1 project gets final nod, 06 Aug 2020, https://tribune.com.pk/story/2258237/cpecs-strategic-ml-1-project-gets-final-nod [16]
15. CPEC set for expansion: China-Pakistan plans additonal road networks, 17 Oct 2020, https://economictimes.indiatimes.com/news/defence/cpec-set-for-expansion-china-pak-plans-additonal-road-networks/articleshow/78713133.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst [17]
16. Phase II of Karakoram Highway (Havellian to Thakot Section), a key CPEC project, was officially opened to traffic, https://en.ndrc.gov.cn/newsrelease_8232/202008/t20200813_1236060.html [18]
17. China nudges Pakistan to turn Gilgit-Baltistan into province; India opposes, 29 Sept 2020, https://www.deccanherald.com/national/china-nudges-pakistan-to-turn-gilgit-baltistan-into-province-india-opposes-894740.html [19]
18. SPECIAL: Chinese firms drain mineral wealth in Gilgit Baltistan, 21 July 2019, https://asianlite.com/news/asia-diaspora-news/special-chinese-firms-drain-mineral-wealth-in-gilgit-baltistan/ [20]
19. Molybdenum, Mo, atomic number 42, https://en.institut-seltene-erden.de/seltene-erden-und-metalle/strategische-metalle-2/molybdaen/ [21]
20. China’s security stakes 'will calm border strain', 13 Sept 2020, https://www.aa.com.tr/en/asia-pacific/china-s-security-stakes-will-calm-border-strain/1972205 [22]
21. Tajikistan: Secret Chinese base becomes slightly less secret, 23 Sept 2020, https://eurasianet.org/tajikistan-secret-chinese-base-becomes-slightly-less-secret [23]
22. China's Military Base in Tajikistan: What Does it Mean?, 18 April 2019, https://www.cacianalyst.org/publications/analytical-articles/item/13569-chinas-military-base-in-tajikistan-what-does-it-mean?.html [24]
23. China chairs meet with Afghan, Pak., Nepal Foreign Ministers, 27 July 2020, https://www.thehindu.com/news/international/china-chairs-meet-with-afghan-pak-nepal-foreign-ministers/article32206906.ece [25]
24. Fitch Affirms China Railway Group at 'A-'; Outlook Stable, 12 June 2020, https://www.fitchratings.com/research/corporate-finance/fitch-affirms-china-railway-group-at-a-outlook-stable-12-06-2020 [26]
25. Fitch Affirms China Communications Construction Company at 'A-'/Stable, 20 May 2020, https://www.fitchratings.com/research/corporate-finance/fitch-affirms-china-communications-construction-company-at-a-stable-20-05-2020 [27]
26. Ibid, no. 7
27. Urgent debt relief needed as Pakistan faces perfect debt trap, 09 Sept 2020, https://www.eurodad.org/urgent_debt_relief_needed_as_pakistan_faces_perfect_debt_trap [28]

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