China–Pakistan Economic Corridor (CPEC)

[CPEC] will be a strategic game changer in the region, which would go a long way in making Pakistan a richer and stronger entity than ever before.

Firstpost (India) April 22, 2015

The China–Pakistan Economic Corridor (Chinese: 中国-巴基斯坦经济走廊; Urdu: پاكستان-چین اقتصادی راہداری‎), often referred to by the acronym CPEC, is a collection of projects currently under construction at a cost of $51 billion intended to rapidly expand and upgrade Pakistani infrastructure as well as deepen and broaden economic links between Pakistan and the People's Republic of China.

The corridor is considered to be an extension of China's ambitious One Belt, One Road initiative and the importance of CPEC to China is reflected by its inclusion as part of China's 13th five-year development plan. Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015–2030, and add 2 to 2.5 percentage points to the country's annual economic growth.

Were all the planned projects to be implemented, the value of those projects would be equal to all foreign direct investment in Pakistan since 1970, and would be equivalent to 17% of Pakistan's 2015 gross domestic product.

Infrastructure projects under the aegis of CPEC will span the length and breadth of Pakistan, and will eventually link the city of Gwadar in southwestern Pakistan to China's northwestern autonomous region of Xinjiang via a vast network of highways and railways. Proposed infrastructure projects are worth approximately $11 billion, and will be financed by heavily-subsidized concessionary loans that will be dispersed to the Government of Pakistan by the Exim Bank of China, China Development Bank, and the Industrial and Commercial Bank of China.

As part of the broad package of infrastructure projects under CPEC, a 1,100 kilometre long motorway will be constructed between the cities of Karachi and Lahore, while the Karakoram Highway between Rawalpindi and the Chinese border will be completely reconstructed and overhauled. 

The Karachi–Peshawar main railway line will also be upgraded to allow for train travel at up to 160 kilometres per hour by December 2019. Pakistan's railway network will also be extended to eventually connect to China's Southern Xinjiang Railway in Kashgar. A network of pipelines to transport liquefied natural gas and oil will also be laid as part of the project, including a $2.5 billion pipeline between Gwadar and Nawabshah to eventually transport gas from Iran

Over $33 billion worth of energy infrastructure are to be constructed by private consortia to help alleviate Pakistan's chronic energy shortages, which regularly amount to over 4,500MW, and have shed an estimated 2-2.5% off Pakistan's annual gross domestic product. Over 10,400MW of energy generating capacity is to be developed between 2018 and 2020 as part of the corridor's fast-tracked "Early Harvest" projects in conjunction with four projects under construction prior to the announcement of CPEC.Electricity from these projects will primarily be generated by coal, though wind projects are included under CPEC, as is the construction of one of the world's largest solar energy plants.

Plans for a corridor stretching from the Chinese border to Pakistan's deep water ports on the Arabian Sea date back to the 1950s, and motivated construction of the Karakoram Highway beginning in 1959.

Chinese interest in Pakistan's deep-water harbour at Gwadar had been rekindled by 1998 and in 2002 China began construction at Gwadar port which was completed in 2006. Expansion of Gwadar Port then ceased thereafter owing to political instability in Pakistan following the fall of General Pervez Musharraf and subsequent conflict between the Pakistani state and Islamist militants.

The current form of the project was first proposed by General Pervez Musharraf, however it was postponed owing to the political instability in the country that followed Musharraf's step down. The subsequent government of the Pakistan Peoples Party proposed it again but it was formally launched during the Pakistan Muslim League-N’s current tenure.

In February 2014, Pakistani President Mamnoon Hussain visited China to discuss the plans for an economic corridor in Pakistan.

Two months later, Pakistan Prime Minister Nawaz Sharif met with Premier Li Kequiang in China to discuss further plans, resulting in the full scope of the project to be devised under Sharif's tenure.

 In November 2014, Chinese government announced its intention to finance Chinese companies as part of its $45.6 billion energy and infrastructure projects in Pakistan as part of CPEC.

During the state visit of Xi Jinping to Pakistan in April 2015, he wrote in an open editorial stating: "This will be my first trip to Pakistan, but I feel as if I am going to visit the home of my own brother." On 20 April 2015, Pakistan and China signed an agreement to commence work on the $46 billion agreement, which is roughly 20% of Pakistan's annual GDP, with approximately $28 billion worth of fast-tracked "Early Harvest" projects to be developed by the end of 2018.

As a gesture of friendship, the Pakistani capital at that time was dotted with slogans and signboards such as "Pakistan-China friendship is higher than the mountains, deeper than the oceans, sweeter than honey, and stronger than steel" an often repeated phrase coined by the Chinese to describe their deep ties to Pakistan.

On 12 August 2015 in the city of Karamay, China and Pakistan signed 20 more agreements worth $1.6 billion to further augment the scale and scope of CPEC.

Details of the plan are opaque, but are said to mainly focus on increasing energy generation capacity. As part of the agreement, Pakistan and China have agreed to co-operate in the field of space research.

In September and October 2015, the government of the United Kingdom announced two separate grants to the Government of Pakistan for construction of roadways that are complementary to CPEC.

In November 2015, China included the CPEC into its 13th five-year development plan, while in December 2015, 

China and Pakistan agreed on a further $1.5 billion investment to set up an information and technology park as part of the CPEC project. On 8 April 2016, during the visit of Xinjiang's Communist Party chief Zhang Chunxian companies from Xinjiang with their Pakistan counterparts signed $2 billion of additional agreements covering infrastructure, solar power and logistics.

Promises for Pakistan:

Gwadar Port complex

Initial infrastructure works at Gwadar Port commenced in 2002 and were completed in 2007, however plans to upgrade and expand Gwadar's port stalled. Under CPEC agreement, Gwadar Port will initially be expanded and upgraded to allow for docking of larger ships with deadweight tonnage of up to 70,000. 

Improvement plans also include construction of a $130 million breakwater around the port, as well as the construction of a floating liquefied natural gas facility that will have a capacity of 500 million cubic feet of liquified natural gas per day and will be connected to the Gwadar-Nawabshah segment of the Iran–Pakistan gas pipeline

Projects in Gwadar city

China will grant Pakistan $230 million to construct a new international airport in Gwadar which is to be operational by December 2017.The provincial government of Balochistan has set aside 4000 acres for the construction of the new $230 million Gwadar International Airport which will require an estimated 30 months for construction, the costs of which are to be fully funded by grants from the Chinese government which Pakistan will not be obliged to repay.

The city of Gwadar is further being developed by the construction of a 300MW coal power plant, a desalinisation plant, and a new 300 bed hospital.[53] Plans for Gwadar city also include construction of the East Bay Expressway – a 19 kilometre controlled-access road that will connect Gwadar Port to the Makran Coastal Highway. These additional projects are estimated to cost $800 million, and are to be financed by 0% interest loans extended by the Exim Bank of China to Pakistan.

In addition to the aforementioned infrastructure works, the Pakistani government announced in September 2015 its intention to establish a training institute named Pak-China Technical and Vocational Institute at Gwadar, which is to be developed by the Gwadar Port Authority.The institute is to be completed by March 2016 at the cost of 943 million rupees, and is designed to impart to local residents the skills required to operate and work at the expanded Gwadar Port.

Roadway projects:

 The CPEC project envisages major upgrades and overhauls to Pakistan's transportation infrastructure. Under the CPEC project, China has announced financing for $10.63 billion worth of transportation infrastructure so far; $6.1 billion have been allocated for construction "Early Harvest" roadway projects at an interest rate of 1.6 percent. The remainder of funds will be allocated when the Pakistani government awards contracts for construction of road segments which are still in the planning phase. 

Three corridors have been identified for cargo transport: the Eastern Alignment though the heavily populated provinces of Sindh and Punjab where most industries are located, the Western Alignment through the less developed and more sparsely populated provinces of Khyber Pakhtunkhwa and Balochistan, and the future Central Alignment which will pass through Khyber Pakhtunkhwa, Punjab, and Balochistan.

Railway projects

The CPEC project emphasises major upgrades to Pakistan's ageing railway system, including rebuilding of the entire Main Line 1 railway between Karachi and Peshawar by 2020; this single railway currently handles 70% of Pakistan Railways traffic. In addition to the Main Line 1 railway, upgrades and expansions are slated for the Main Line 2 railway, Main Line 3 railway. 

The CPEC plan also calls for completion of a rail link over the 4,693-meter high Khunjerab Pass. The railway will provide direct access for Chinese and East Asian goods to Pakistani seaports at Karachi and Gwadar by 203

Procurement of an initial 250 new passenger coaches, and reconstruction of 21 train stations are also planned as part of the first phase of the project – bringing the total investment in Pakistan's railway system to approximately $5 billion by the end of 2019, 180 of the coaches are to be built at the Pakistan Railways Carriage Factory near Islamabad, while the Government of Pakistan intends to procure an additional 800 coaches at a later date, with the intention of building 595 of those coaches in Pakistan

Energy sector projects

 Pakistan's current energy generating capacity is 24,830 MW, though the country currently faces energy shortfalls of over 4,500MW on a regular basis with routine power cuts of up to 5 hours per day, which has shed an estimated 2–2.5% off its annual GDP. Energy generation will be a major focus of the CPEC project, with approximately $33 billion expected to be invested in this sector. 

As part of the "Early Harvest" scheme of the CPEC, an estimated 10,400 MW of electricity are slated for generation by March 2018 as part of CPEC's "Early Harvest" projects The energy projects under CPEC will be constructed by private Independent Power Producers, rather than by the governments of either China or Pakistan. The Exim Bank of China will finance these private investments at 5–6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates

Other areas of cooperation  Agriculture 

The long-term plan for the period 2025-30 during the CPEC summit held in Islamabad on August 30, 2016. The plan includes cooperation over livelihood, water resources, livestock, people-to-people communications and financial matters. 

Under the plan, agricultural information project, storage and distribution of agricultural equipment and construction project, agricultural mechanisation, demonstration and machinery leasing project and fertilizer production project for producing 800,000 tons of fertilizer and 100,000 tons of bio-organic fertilizer will be implemented.

Science and technology cooperation

As part of CPEC, the two countries signed an Economic and Technical Cooperation Agreement, as well as pledged to "China-Pakistan Joint Cotton Bio-Tech Laboratory" The two countries also pledged to establish the "China-Pakistan Joint Marine Research Center" with State Oceanic Administration and Pakistan's Ministry of Science and Technology Also as part of the CPEC agreement, Pakistan and China have agreed to co-operate in the field of space research

In February 2016, the two countries agreed to establish the "Pak-China Science, Technology, Commerce and Logistic Park" near Islamabad at an estimated cost of $1.5 billion. The park will be situated on 500 hectares, which will be provided by Pakistan to China's Xinjiang Production and Construction Corps, with all investments expected to come from the Chinese side over the course of ten years.

In May 2016, construction began on the $44 million 820 kilometer long Pakistan-China Fiber Optic Project, an optical fiber cable that will enhance telecommunication in the Gilgit-Baltistan region, while offering Pakistan a fifth route by which to transmit telecommunication traffic.

Government-to-government cooperation

The two nations also pledged co-operation in field ranging from anti-narcotic efforts, to co-operation in an effort to reduce climate change. The two nations also agreed to increase co-operating between the banking sectors of the two countries, as well as to establish closer ties between China Central Television and the Pakistan Television Corporation.

Project financing

Loans to the Pakistani Government:

 Approximately $11 billion worth of infrastructure projects being developed by the Pakistani government will be financed by concessionary loans, with composite interest rates of 1.6%, after Pakistan successfully lobbied the Chinese government to reduce interest rates from an initial 3%. The loans are subsidised by the government of China, and are to be dispersed by the Exim Bank of China and the China Development Bank. 

For comparison, loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%, while interest rates on market loans approach 12%

Interest-free loans for Gwadar projects

The government of China in August 2015 announced that concessionary loans for several projects in Gwadar totalling $757 million would be converted 0% interest loans. The projects which are now to financed by the 0% interest loans include: the construction of the $140 million East Bay Expressway project, installation of breakwaters in Gwadar which will cost $130 million, a $360 million coal power plant in Gwadar, a $27 million project to dredge berths in Gwadar harbour, and a $100 million 300-bed hospital in Gwadar. 

Pakistan will only repay the principle on these loans.

In September 2015, the government of China also announced that the $230 million Gwadar International Airport project would no longer be financed by loans, but would instead be constructed by grants which the government of Pakistan will not be required to repay.

Geostrategic impact:

A stimulus for economic growth in Pakistan:

CPEC is considered economically vital to Pakistan in helping it drive economic growth. The Pakistani media and government have called CPEC investments a "game and fate changer" for the region, while both China and Pakistan intend that the massive investment plan will transform Pakistan into a regional economic hub and further boost the deepening ties between the two countries. 

Approximately 1 year after the announcement of CPEC, Zhang Baozhong, chairman of China Overseas Port Holding Company told The Washington Post that his company planned to spend an additional $4.5 billion on roads, power, hotels and other infrastructure for Gwadar's industrial zone,[6] which would be one of the largest ever sums of foreign direct investment into Pakistan