Advance Business Research

 Impact of CPEC on the Economy of Pakistan &

China

Submitted to:
Dr. SH. Usman Yousaf

Submitted by:
Tariq Mahmood M19MBA018

Sohaib Ali M19MBA019

Mohd. Anas M19MBA025

Submission Date:

April 05th, 2020

Hailey College of Banking & Finance, Lahore.

Introduction:

Pakistan has very geostrategic importance in this region. For the past decade Pakistan has
become battle field of terrorism. CPEC present itself a golden opportunity to convert the
underdeveloped region in to trade hub. This project will be a game changer for Pakistan.
CPEC is a massive investment of $62 billion dollars in infrastructure and energy sectors in
Pakistan. China has gradually emerged as Pakistan’s major trading partner both in terms of
exports and imports. Bilateral trade between the two countries were established in 1963.
When both signed the first bilateral long-term trade agreement. Chinese president visit
Pakistan in April 2015 and met with Pakistani Prime minister and Business community and
show their interest in Pakistan about business and trade and investment. Pakistani Brain warm
welcome their interest about Pakistan and their work force. Pakistani Prime minister signed
an agreement with Chinese president on CPEC project under this agreement a lot of
infrastrure, trade and investment will come in Pakistan and economics and industrial zone in
many areas Especially Gwadar will be a trade hub for Pakistan china and other regional
countries.

Originally valued at $46 Billion, the value of CPEC projects is worth $62 billion as of
2017.CPEC is going to fastly upgrade Pakistan’s required infrastructure and strengthen its
economy by the construction of modern transportation network, many energy project and
special economic zone. On 13 November 2016, CPEC became partly operational when
Chinese cargo was transported overland to Gwadar Port for maritime shipment
to Africa and West Asia, while some major power projects were commissioned by late
2017.Gawdar port site will include manufacturing zones, logistics hubs, warehouses, and
display center. Businesses located in the zone would be exempt from customs taxes as well as
exempted provincial and federal taxes. Business established in the special economic zone will
be exempt from Pakistani income, sales, and federal excise taxes for 23 years. Contractors
and subcontractors associated with China Overseas Port Holding Company will be exempted
from such taxes for 20 years, while a 40-year tax holiday will be granted for imports of
materials, plant/machinery, appliances and accessories that are to be for construction of
Gwadar Port and special economic zone. The project will definitely help Pakistan to deal
with its energy and revenue or trade deficit. On the other hand, China will benefit in the form
of development of it under developed region and maintain rather accelerate its economic
growth. It also enhances trade opportunities with Middle East, Africa and European
countries. It will also reduce Chinese dependence on Strait of Malacca which is supervised by
Indian and American naval forces. Project has assumed prime importance for both the
Pakistan and China. Gwadar port provide shorter and secure route to China but it is important
to stabilize the local environment of Pakistan. The CPEC is destined not only bring change in
both countries it will also affect their relationship in Positive manner and enhanced regional
integration.

In broader prospective CPEC provides base to China’s ‘One Belt One Road’ initiative which
connects China to Eurasia in past decade China-Pakistan relations based on strategic and
military dimension but after signing CPEC their relationship enhanced in the field of trade
and investment. It is a “game changer”, or a “flagship” project which would change the fate
of Pakistan and China. The expected economic prosperity is perceived problematic to India
and other Chinese competitors. The major challenge of this mega project is security
conditions within Pakistan. Both China and Pakistan are mainly concerned with the
maintenance of peaceful and stable environment to this project. It faces certain internal and
external security concerns which create hurdles in the way of development of this project
which we will discuss in detail. If our forces tackle security issue, we can save CPEC project.

Problem statement:

In a problem statement we discussed the cpec facing the problems security challenges and
political instability and try to effect and solution of these challenges. CPEC impact on
Chinese economy and impact on Pakistan economy.

Research gap:

Research gap in our topic was how security concerns and political instability can affect the
CPEC and if they are effecting the CPEC then how much they can affect the CPEC. So we
tried to find in depth knowledge of these factors in this research paper hopefully you will
understand this after reading our research paper.

Research questions:

 What are the effects of security concerns on China-Pak economic corridor?

 What are effect of political instability on China-Pak economic corridor?
 What are consequences of CPEC on Chinese economy?
  What are consequences of CPEC on Pakistan economy?

Research objectives:

 To forecast the effect of Gwadar port on Pakistan and Chinese economy.

 To identify the effect of security challenges on CPEC.
 To identify the impact of political instability on CPEC.
 To examine the CPEC effect on Chinese economy.
 To examine the CPEC effect on Pakistan economy.

Significance of study:

We research on project of china Pakistan economic corridor and this flagship project have
many benefits to Chinese economy and Pakistan economy. General public can learn how
CPEC effect both countries economy and what are the issues and challenges China-Pak
Economic corridor facing. Analysis and study on these important factor can help us to
understand what is originally a CPEC and its benefits and threat to both economies. so there
is a great significance of this topic for our public.

CPEC Construct and Modal

Security concern Impact on Chinese

economy

China Pakistan
Economic corridor
Political instability Impact on Pakistan’s
economy

Independent variables:

 Security concern

Security concern regarding China-Pak economic corridor. What are the challenges and
security issue can effect China-Pak economic corridor and their effect on economy of china
and economy of Pakistan? Security issues external and internal. In external threat of militants
from India and America. While in internal threat BLA and BLF and TTP are involve to
destabilize this flagship project.

 Political instability

In this independent variable we discussed the political instability. How political environment
effect CPEC and economies of both countries. Political parties concern over these issues.

Mediator:

China- Pak economic corridor is effected by security concern and political instability. CPEC
effect on economy of china and economy of Pakistan. This project is game changer for both
nations. It is especially fate changer for Pakistan. Because massive investment and trade
activities bring revolution in Gwadar and Baluchistan.

Dependent variables:

 Economy of China

Economy of china is effected by CPEC in many ways that we discussed in literature review
very broadly.

 Economy of Pakistan
China-Pak economic corridor also having a large impact on Pakistan industry trade
infrastructure and foreign direct investment. We discussed all these impacts in literature
review.

Literature review:

Literature is available on CPEC in term of articles and research papers. Different author has
different point of view. Dr. Arham sidiq article argue that CPEC is beneficial for Pakistan it
will provide trade hub infrastructure and will increase per capita income of people of
Pakistan. Tax free industrial zone will increase export and import of Pakistan and bring
economic activity. According to Dr. Ashfiq Ahmed (2015) CPEC provide the china a shortest
route of trade and oil supply and easy access to middle -East countries. Gwadar port provide
a platform to china to import and export their product to Middle-East and other counties.
Under develop areas of china. Chinese manufacturing companies will be able to enhance and
increase their sales and trade volume. This will remarkable positive impact on Chinese
economy. Deep sea of Gwadar will become trade hub for china and Pakistan.

Different writer and author have different argument and highlighted the main causes and
security concern on CPEC. Naveed Elahi (2015) report security challenges and threat facing
in Pakistan. CPEC facing external and internal challenges. In internal Factor Baluchistan
liberation Army (BLA) and Baluchistan liberation front (BLF). they want to destabilize the
CPEC and Chinese investment. He also provides solution of this threat physical security and
effective intelligence. Umbreen (2015) in her article argue that CPEC is a game changer have
potential threat face by Indian intelligence agency RAW and American agency CIA. These
two agencies want to destabilize the Pakistan, china and CPEC. While on the other hand,
internally in the region of FATA also raised up concerns related to safety and advancement of
Project but in spite of of security challenges China and Pakistan avail huge gains. We
concluded that security of corridor is necessary to tackle the instable situations and militant’s
activities. Government of Pakistan and law and enforcement agencies should take steps and
bring the peace in areas where militants have safe heavens. Political stability and political
mutual understanding on issue can impose positive impact on project and it will become
source of economic development.

Pakistan’s political parties on maintaining friendly relations with China which suggests that
in principle there should be no major political issue and politics in the way of the construction
of the China-Pakistan Economic Corridor. With an exception of minor segments among
nationalist parties in Baluchistan, Pakistan’s regional parties look towards China in a positive
manner to reservation of bilateral issues. Similarly, Pakistan’s military establishment, which
is also a key stakeholder in policymaking processes in Pakistan, considers China a trusted and
valuable partner in bilateral military, economic and strategic areas of engagement and
cooperation. Every political party that comes into power in Pakistan holds continuously high-
level meetings with the Chinese government to discuss the political and strategic prospects
that are helpful in strengthening bilateral relations and cooperation.
Pakistan Muslim league Nawaz Take initiative of this flagship project. Other provinces like
KPK think Federal Govt. did not give them their Right in term of development and
infrastructure project and energy related issues. Baluchistan Govt. and Sindh Govt. also have
concern on the route of corridor because three different route passes from different areas and
other province especially Baluchistan think they are neglecting the Baluchistan. All the
stakeholder and the parties should engage their public and eliminate their issues so that
successful project of CPEC can become game changer not only for Pakistan but also for
region.
China has experienced an unprecedented economic and social development. It maintained an
average nearly 10 percent GDP growth for the past thirty years, which is the fastest sustained
expansion by a major economy in the history. The projects of CPEC would connect the
Western Chinese province of Xinjiang with Gwadar port in Indian Ocean through an oil and
gas pipeline along with a planned high-speed railways and highway network. China imports
nearly 52% of its oil supplies from the Middle East and due to increasing domestic
exploration by America. He distances for Middle East oil supplies to China would be
shortened to a 3000 kilometers overland road as compared to the existing 12000 kilometers
by sea. Research studies show that the CPEC is cost effective causes less Green House Gases
(GHG) emission and takes shorter time in transporting energy supplies to China as compared
to BCIMEC. CPEC would provide the shortest time frame of just 6 days for the energy
supplies to reach Chinese border through a pipeline as compared to 32 days via the current
marine route and 19 days via proposed BCIMEC. In just two years of 2011-12, China
produced as much cement as US did during the entire 20th century. He main factors of this
surplus capacity are the domestic investment driven growth model, market saturation and the
stimulus programs implemented in a 2008 financial crises. His massive and rapid investment
growth has built up significant capacity in manufacturing, construction and transportation
industries. Construction of Highways, railways, economic zones and energy projects by
Chinese Companies as part of the CPEC would contribute quite important to the overcapacity
problem in the critical areas and generate positive economic indicators for China. He 13th
five-year plan outlines China’s ambition to make Xinjiang become an important gateway to
the West, Central and Southern Asia. It will play an important industrial hub for the supplies
coming from South Asia and Middle East. He western province of Xinjiang can become an
engine of growth by exporting machinery and finished goods to the South and Central Asian
markets through the corridors and import much needed energy supplies and the raw material
needed for its economic growth. Feedback on the first consignment of Sea food arriving from
Indian Ocean to Xinjiang through CPEC reported that the goods were 10% cheaper than
those brought from Eastern Coastal Cities of China.
The new route will enable China to import such important supplies as oil from the Middle
East and Africa in ten days as opposed to 45 days shipping time.166 Also, the new route is
expected to reduce the transportation costs to one-third of the current levels. China can save
about US$6 million every day, amounting to $2 billion very year, if it uses the CPEC route
even for only 50 percent of its oil import. In addition, CPEC will help China secure the future
supply routes of energy and trade goods. In addition, CPEC will help China secure the future
supply routes of energy and trade goods.

CPEC is not only a trade route between one states to another, but it is a complete set of
economic, industrial connectivity between Pakistan and China. CPEC and its projects are
going to expand and change Pakistan’s trading activities at higher standards. Each of the
three major categories of CPEC projects, Gwadar port related developments, land
transportation infrastructure, and energy development are very important in con text of every
aspect. CPEC is a game-changer for Pakistan. It has potential to increase Pakistan's GDP
growth to 7.5 percent. It can add millions of new job opportunities. It is expected that the
CPEC can add almost 20 lacs job opportunities. The CPEC will open doors too many
economic opportunities, these opportunities will not be only for Pakistan but will physically
connect China to its markets in Asia, Europe and beyond. Almost 80 percent of the China’s
oil is currently transported from the Middle East through the Strait of Malacca to Shanghai,
(distance is almost 16,000 km and takes 2-3 months). However, if Gwadar port becomes
function, the same distance will be reduced to less than 5000 KMs.

CPEC include massive investment in Pakistan this will change destiny of Pakistani people.
Better communication facilities and industrial zones. These thing will boost the Pak economy
and create mew job opportunities. CPEC will enable Pakistan to do trade activity with.
CPEC will also upgrade infrastructural facilities in Pakistan. It will provide better road
facilities. It is proposed that the motorway which starts from Karachi to Lahore and leading to
Peshawar will be upgraded. The quality of roads from Gwadar to other cities of Pakistan will
be improved. Train routes in Pakistan are also proposed to be upgraded so that better logistic
support can be achieved once CPEC project is fully implemented. Pakistan is facing energy
crisis since last more than 10 years. Due to the issue, Pakistan’s economy is badly suffered,
its business and trade is affected, and social projects are effected. Now, this issue need to be
resolved. It is suggested CPEC projects that various power plants will be installed in Pakistan
to resolve energy problem. It is good news for people work on projects has started and energy
related issues will be solving soon.

Infrastructure, trade and economic activities roads motorway and energy related project to
solve energy issue. According to energy plan different energy and power houses will be setup
to resolve problem this energy will be used for business and investment. Pakistan’s economy
will boost and access supply of electricity and power houses enhance trade. Job
opportunities for people will create and unemployment will be reduced.

All the author and researcher agree on point that CPEC is beneficial for both china and
Pakistan. It will bring investment infrastructure trade and economic activities in the region
and we prove a game changer for both the nations. If Gwadar port become functional it
provides a lot of opportunities of foreign investor and general public of Pakistan and our
GDP will grow and people will get a job.

Liberalism:

In the concept of CPEC development, we can explain this research paper in both term
liberalism and realism. Liberal school of thought argue that CPEC is based on Chinese five
principle of peace coexistence. It is a win -win situation for both the countries china and
Pakistan. CPEC will provide china a secure and shorter route for trade and easy access to
market. On the other hand, Pakistan will receive a huge amount of FDI and economic
benefits. Industrial zone and economic factor will boost the Pakistan economy.

Realism:

While realist school of thought argue that it is own economic interest major economic policy
is based on their own interest. We see the both ideas and theory that support and their point of
view.

Hypothesis:

H0: there is a no relationship between security concern and CPEC.

HA1: there is a relationship between security concern and CPEC.

H0: there is a no relationship between political instability and CPEC.

HA2: there is a relationship between political instability and CPEC

H0: there is a no relationship between Chinese economy and CPEC.

HA1: there is a relationship between Chinese economy and CPEC.

H0: there is a no relationship between Pakistan economy and CPEC.

HA2: there is a relationship between Pakistan economy and CPEC.

Research methodology:

 Type of study:

Our study is quantitative and we analyze the secondary data in this research collected from
different sources like government published figure and published research articles and
papers.so we tried to fill the existing research gap by analyzing both Govt. published data and
research articles.

 Source of data:

Our data is secondary data we gather these facts and figures published by Govt. level and by
analyzing the different research papers published by different researchers. After studying this
data, we analyze what factor effecting on CPEC. How CPEC give impact on economy of
both countries. Our fact and figure are also collected from government level because
government of Pakistan published many facts about this project.

 Data collection tools:

Data collection tools in this study based on observation and different research papers and
articles our data collection tools.

 Unit of analysis:

In this research study we gathered data and study about CPEC and draw a conclusion how
this flagship project changes the lives of both nations and effect to economies of both
countries. According to this study our unit of analysis is country level we analyze which
countries influenced by this project. Our collected data is from published articles and from
government fact and figure.

 Sampling techniques:

In this research our sampling technique is non probability sampling – convenience sampling.
We gather data from those subjects that are conveniently available to provide it.

 Questionnaire:

Our questionnaire does not exist because our respondent is not students, individuals, general
public. We analyze secondary data and fact and figure collected from government of Pakistan
and research articles and after analyzing all this material we conclude after research model.

 Empirical support to our research:

We are providing empirical support to our research different researchers also saying the same
thing that we are trying to say after analyzing our model of CPEC. Security impact on CPEC,
Sabahat Jaleel (2015) in articles describe the security challenges. What threat and challenges
effect on CPEC? Our study also analyzes internal and external threat and issues on both
economies and CPEC. Khalid Manzoor Butt Annam Abid Butt in their articles describe the
effect of CPEC on Pakistan economy and their benefits our analysis is also that this flagship
project will prove game changer for Pakistan.
Conclusion:

Finally, we concluded about china Pak economic corridor project we saw benefits challenges
on this flagship project and security issues on both countries and region. Hence we concluded
following after studying and analyzing different writer and researcher.

 Terrorist and militants using different method to stop this Mega game changer project
including suicide bombing because they do not want to see the development of
Pakistan and this less developed region.
 Many areas of Baluchistan where insurgency and difficult to go there. Extremist
activities in makran and adjacent areas are biggest threat for infrastructure.
 TTP and BLA and other foreign funding terror organization continue sly hitting and
the construction sites.
 Military Forces acting as protections of CPEC are giving much relief to transporters
regarding security concerns. All the political parties are on one page regarding this
economic development however they have concern on route on CPEC and
infrastructure, industry, economic zone, development and energy related project.

These issues can be resolved by mutual understanding:

i. This project of CPEC will connect the Western Chinese province of Xinjiang with
Gwadar port
ii. Chinese western province will be developed and business opportunities will be come
and china Will get shortest access to European and middle east market and Chinese
export to other countries will be enhance and china will have dominant position on all
over the world.
iii. The new route will enable China to import such important supplies as oil from the
Middle East and Africa in ten days as opposed to 45 days shipping time.
iv. New route is expected to reduce the transportation costs. Cpec will provide secure
future supply of oil and other products.
v. CPEC will route will pass through different areas of Pakistan and become source of
economic development, industrial zones in different places will be established and tax
 free business will be possible. These activities will enhance the economic activities
and Gwadar become trade hub for business community.
vi. Energy related project and coal and thermal power plant would solve the electricity
problem in Pakistan it is especially for Baluchistan will prove fate changer and their
concern will be reduced.
vii. Massive investment and trade activities will boost the economy and growth rate of
Pakistan. Unemployment will be reduced. People will get job. Job opportunities and
market growth will be positive indicator for Pakistan.
viii. Pakistan will connect to china Middle East and European Union through this
remarkable project.

References:

1. Pakistan security challenges impact on Cpec. Sabahat Jaleel 9january –June 2018).
2. Musrat abid and Ayesha ishfaq (2015)
3. Journal of Political Science XXXIII (2015) Khalid Manzoor Butt Annam Abid Butt
4. Dr. Butt is the Editor-in-Chief of the journal; In Charge, Department of
Political Science; and Director, Centre of Excellence China Studies,
GC University, Lahore (khalidmanzoor63@hotmail.com)
5. China in Baluchistan: CPEC and the Shifting Security Landscape of Pakistan
(Harrison Akins) Harvard University.
6. Journal of the Research Society of Pakistan Volume No. 56, Issue No. 1 (January -
June, 2019 Hafez Ullah Khan * Regional Security Threats to CPEC: A Strategic
Overview.
7. The Government: Research Journal of Political Science Vol. VI Dr. Ayesha Bashir
shah
8. BBC (2012). China Urges Pakistan to Expel Uighur Islamic Militants, BBC, 31May
2012.