INTRODUCTION

Pakistan is a country gifted with unlimited natural resources and has been independent from around seven
decades. The country has been through many ups and downs, but it has always fought hard from challenges.
Pakistan has faced many challenges since its independence like separation of its part, refugees, terrorism and
economic challenges also. One of the main problems that the country faced was poor economy of which the
country always tried to get over.

Foreign direct investment is considered as a blessing for any country to fulfil its finance need especially the
developing countries which lacks finance to fund its development projects. Pakistan is also trying to raise
investment level since its liberal investment regime of the late 20th century. But after suffering from deadly
terrorism the FDI inflow also went down but the country is working harder to raise the investment level.

China as one of the good friend of Pakistan has launched one of the largest investment program for Pakistan
under which it is going to fund the infrastructure and power projects in the country which will help the country
to get over the power shortage crisis and will also fulfil the infrastructure needs. China is not only a friend for
Pakistan it is also a trading partner of Pakistan. This trade has significant impact on the GDP of Pakistan. The
trading relations between both countries are older than their current existence by the Silk Road that is now
planned to more strengthen by constructing China Pakistan Economic Corridor.

RELATIONS OF PAKISTAN AND CHINA

Pakistan has been through many good and bad times since its formation in which few friend countries
celebrated and grieved with Pakistan. The top friends of Pakistan include USA, Saudi Arabia, United Kingdom,
China and many others. Among these friends, China is a friend which has always supported Pakistan in its
matters. Pakistan and China enjoy brotherly relations and keep supporting each other. A friend in need is a
friend indeed is a widely used quote which is fully able to describe the friendship of Pakistan and China. China
has never left Pakistan in its bad times and has supported it in all means whether it is technology, finance or
skills. It is not the case that China is giving, and Pakistan is taking. Both the countries are providing somehow
equal benefits to each other. Pakistan has supported China’s interest in getting the SAARC membership while
China has supported Pakistan’s interest in getting the Shangai Cooperation Organization (SCO) membership. It
is true that the position of China is much stronger in terms of economy than Pakistan, and China is dominating
the world market.

However, Pakistan may not be as stable in quantitative terms as China is, but Pakistan has got a very good
location in the world and in geostrategic way it is very important. Some critics often interpret reason behind the
good relations between Pakistan and China is that both are against India which has lead them to share interest in
all the manners whether it is diplomatic policy, armed forces or the economy. This criticism also however
cannot be avoided as the relations of Pakistan and China became friendlier in the 1960s after the China India
and India Pakistan war. But it is also the fact that the relations of Pakistan and China become stronger after
China supported Pakistan in other manners also like in the nuclear program which built the trust of Pakistan
over China.

China has been supporting Pakistan in economy throughout its friendship. The results of the long Pak-China
friendship are the agreement between China and Pakistan to build an economic corridor with a large
investment. This corridor is expected to get Pakistan’s economy on track and Chinese economic position more
stable.

SILK ROAD TO CPEC

The Silk Route from Asia to Europe was the most important of routes for international trade until the 13th
century. Attempts to revive this trade route have been made by many countries in Eurasia at different points of
time. Russia was the first country to construct the longest rail section in the world in 1916. Russia’s attempt at
integrating transportation corridor in the Eurasian landmass has been given different names. This railway route
was called the Trans-Siberian Railway line back then, but today it has been renamed as ―The Trans Asian
Railway, The Northern East-West corridor, The Eurasian Land Bridge or the New Silk Road. A project called
the Transport Corridor Europe-Caucasus-Asia (TRACECA) initiated by the EU in 1998 is also a significant
contribution in this regard. The official TRACECA website of the European Union has nicknamed this project
the Silk Road of the Twenty First Century. However, the most recent and the most extravagant of efforts in this
regard have been made by China with its OBOR project which was initiated in 2013.

China aims at collaborating with all the countries along the historical Silk Road to build an effective trade
corridor in the Eurasian region. The Ancient Silk Route from Asia to Europe was never a single route but a
collection of paths (i) both land and maritime (ii) all over Asia; trade along these routes were free as the
division of Asia only came by later with colonialism.

The immense opportunity for trade and development in the Eurasian area was first realized by Kazakhstan’s
President, Nursultan Nazarbayev, when he talked of a Eurasian Union in 1994.The idea however did not gain
much attention until China’s President Xi Jingping promulgated it for the first time on 7th of September, 2013
at Kazakhstan‘s Nazarbayev University in a speech titled ―People-to-People Friendship and Create a Better
Future. Since then the idea has been celebrated and expanded by many. In 2014, the Silk Road vision was
enhanced by a two days seminar titled, The Silk Road Economic Belt International Seminar: An Opportunity to
Work, Share, Prosper, and Succeed Together, which was held in Urumqi, capital city of the Xinjiang on June
26th, 2014.

The main propositions of the Silk Road Economic Belt are:

 To encourage friendship and harmonious relation in the region.
 To fight against terrorism, extremism, separatism, drug trafficking and organized crime.
 To strengthen relation between Shanghai Cooperation Organization and Eurasian Economic Community
 To strengthen policy communication amongst the members of the silk road economic belt
 To develop roadways and start trade canal the pacific to the Baltic sea
 To encourage trade assistance

After the 2014 Conference, President Xi Jingping formally disclosed his Silk Road vision in the Boao Forum
for Asia, an annual economic dialogue held in China’s Hainan Province. An action plan for the Silk Road
project was issued by China’s Foreign Ministry and Commerce Ministry. President Xi Jingping also stated that
China is not shy of its elaborate plans, and that trade between China and other countries along the Silk Road
would surpass
2.5 trillion U.S. dollars in a decade or so.

The Silk Road Economic Belt is only the first half of China’s One Belt One Road project. Either by land or by
sea, China seems determined to expand its trade networks. The Maritime Silk Road (MSR) is also referred to as
the Silk Road Economic Belt’s ―twin half. The MSR is China’s plan for economic cooperation from the
Pacific to the Baltic Sea. The plan involves building infrastructure on this stretch to work as a convenient trade
corridor. The aim of the MSR is to connect China’s ports to those of South Asia’s i.e., from South China Sea
through the India Ocean to the Persian Gulf, Red Sea and the Gulf of Aden. The Chinese Government has
contributed $40 billion to this fund and the Asian Infrastructure Investment Bank (AIIB) is also expected to
extend financial support to the project. At present, the Silk Road project is mainly concentrating on the railway
line from Europe to China via Central Asia, Kazakhstan-China International Logistics Company of port
Lianyungang and the China-Pakistan Economic Corridor.

GENESIS OF THE CPEC

The CPEC is a comprehensive 15-year development project between Pakistan and China spanning 2015-2030
that entails the linking of Gwadar Port to China’s north-western region of Xinjiang through highways, railways,
oil and gas pipelines, and an optical fibre link. Strategic energy cooperation between the two countries had been
implemented before the proposal of the conception of the corridor. During the former Chinese Premier Wen
Jiabao’s visit to Pakistan in December 2010, the National Energy Administration (NEA) of China and the
Ministry of Petroleum and Natural Resources of Pakistan issued a Memorandum of Understanding (MoU) on
the establishment of energy working-group mechanism. The first meeting of this group was held in August
2011, during which both sides had a thorough exchange of views on the development of electricity, coal, oil,
gas and new energy industries. A cooperative programme was generated to help Pakistan alleviate energy
shortages at the second meeting in Pakistan in May 2012. The group was absorbed in the framework of the
CPEC in 2013. At the third meeting in January 2014, both the countries reached consensus on nuclear power,
electricity, coal and renewable energy, and agreed to set up a research team to promote energy cooperation for
the construction of the
CPEC, mainly including coal exploitation, oil and gas extraction, mining and transportation, electric wire net
arrangement, etc.

It is worth mentioning that Pakistan Army had already explored the possibilities of an inter-linked road network
in 1997. President Xi Jinping envisaged the project in 2013, however, its idea was floated in Pakistan during the
visit of China’s Prime Minister Li Keqiang in May 2013. Although Pakistan had just undergone General
Elections in 2013, Premier Li met Pakistan’s Caretaker Prime Minister, President Zardari and Prime Minister
designate Nawaz Sharif to reach important consensus on planning and constructing the CPEC. In February
2014, Pakistan’s President Mamnoon Hussain visited China to discuss the plans for an economic corridor in
Pakistan. During Prime Minister Sharif’s visit to China in July 2013, the construction of the CPEC was
reiterated. April 2015 was a historic month for Sino-Pakistan relations when Chinese President Xi and Pakistani
Prime Minister Sharif signed an agreement worth US$46 billion for the CPEC.

DIMENSIONS OF THE CPEC

Financial Dimension

The CPEC as a project merits study vis-à-vis its various dimensions. The financial aspect is of prime
consideration. In November 2014, Chinese Government announced that it will finance Chinese companies to
build energy and infrastructure projects in Pakistan as part of the CPEC. Documents show that China has
promised to invest around US$33.8 billion in various energy projects and US$11.8 billion in infrastructure
projects which will be completed by 2017. The deal includes US$622 million for the Gawadar Port. Under the
CPEC agreement, US$15.5 billion worth of coal, wind, solar and hydro energy projects will add 10,400
megawatts of energy to the national grid of Pakistan.

On April 20, 2015, Pakistan and China signed an agreement to commence work on the US$46 billion
agreement, which is roughly 20 per cent of Pakistan’s annual GDP,20 with approximately US$28 billion in
immediate projects and the rest allocated for projects in the pipeline. The deal includes a US$44 million fibre
optic cable and will add 10,400 megawatts to Pakistan's energy grid through coal, nuclear and renewable energy
projects.

Technical Dimension

This dimension includes developing the basic infrastructure in which, the first phase involves development at
the Gwadar Port and the construction of an international airport, which will be carried out by 2017 with the
participation of Chinese companies. The Karakoram Highway (KKH) connecting the two countries is also
being widened, while the rail network between Karachi in southern Pakistan and Peshawar in the north will be
upgraded. The two countries also plan a fibre-optic communications link between them. There are certain early
harvest projects, which will be completed at an early date. The Western Route, which starts from Gawadar and
goes to Kashgar in China via Baluchistan, KP and Punjab, will be built on a priority basis and most of its
sectors would be completed by December 2016 as dual carriage way at the outset. Eventually, there should be a
motorway linking Gawadar with the rest of the country along the western route after operationalisation of
Gawadar Port as traffic on the Western route will increase substantially. A total of 51 MoUs were signed in
diverse sectors between China and Pakistan during the visit of President Xi to Pakistan on April 20, 2015.
Major projects under the corridor umbrella are as under:

Major Projects of CPEC

Project Details
Gawadar Port Completed
It has been handed over to China for 40 years starting 2015
Upgrading of Karachi-Peshawar Main Feasibility study underway
Line
Khunjerab Railway Feasibility study underway
Karachi-Lahore Motorway (KLM) Approved
It is under construction since 2015. The project is expected to be
completed by the end of 2017. After its completion, Karachi will
relate to Sukkur, Multan, Lahore, Faisalabad, Rawalpindi,
Islamabad, Peshawar, by a high speed, controlled access 6 lane
highway where commuters can travel at 120 km/hr. The network
of Pakistan motorways will be connected to Karakorum Highway
near Rawalpindi/ Islamabad. Hazara Motorway will be connected
to M-
1 and M-2 near Islamabad.
Havelian to Khunjerab Rail track Approved
Hazara Motorway (E-35 Expressway) Under construction
It connects with M-1 and M-2 at Burhan, near Islamabad/
Rawalpindi. This motorway connects Havelian, Abbottabad and
Mansehra with Burhan. It will be a 120 km high speed, controlled
6 lane road. The project is expected to be completed before the end
of 2016
Iran-Pakistan Gas Pipeline Under construction,
Iran's part of the pipeline is complete.
Gawadar-Ratodero Motorway Under construction
It is approximately. 820-km long, and expected to be completed by
December 2015
Economic Corridor Support Force Completed
Armed division of the army for security of workforce that costs
US$250 million has also been raised.
Havelian Dry Port Feasibility study underway for the container port
Orange Line (Lahore Metro) Approved
Upgrading of Gawadar International Approved
Airport
China-Pakistan Joint Cotton Bio-Tech Approved
Laboratory
Gawadar-Nawabshah LNG Terminal and Approved
Pipeline Project
700 MW Hydro-Electric SukiKinari Approved
Hydropower Project
Port Qasim 2x660MW Coal-fired Power Approved
Plants
720MW Karot Hydropower Project Approved
Zonergy 9x100 MW solar project in Approved
Punjab
Jhimpir Wind Power project Approved
Thar Block II 3.8Mt Approved
A mining Project
Thar Block II 2x330MW Coal Fired Approved
Power project
Development of Private Hydro Power Approved
Projects
Dawood Wind Power Project Approved
Hubco Coal-fired Power Plant Project Approved
Cross-border Fibber Optic Data Approved
Communication System Project, a digital
terrestrial multimedia broadcast pilot
project at Murree

Corporate Deimension

The 15-year project is being executed in four phases:

First Phase: 2018 – Early Harvest: The first phase of the economic corridor is focused on the “Early Harvest”
scheme of the CPEC, which will be completed by December 2017. It will bring transformational change by
solving the problems of energy and infrastructure sector. In this phase, the road connectivity would also be
completed to interconnect not only all the provinces but also the entire region.

Second Phase: 2020: Second phase of the CPEC envisages the construction of cross-border optical fibre cable
system between China and Pakistan; textile garments industrial park projects in Pakistan; numerous ventures in
the energy sector yielding power from various sources comprising hydel, coal, wind, solar and nuclear,
entailing the development of coal mining projects, construction of dams and the installation of nuclear reactors;
besides creating a network of roads, railway lines and oil and gas pipelines. Agreements have been made to
construct a new airport, Eastbay Expressway, fully equipped hospital, technical & vocational training institute,
water supply and distribution, infrastructure for free-zone and export processing zones, port related industries,
refineries, and marine works.

Major Chinese companies investing in Pakistan’s energy sector will include China’s Three Gorges Corporation,
which built the world’s biggest hydro power project, and China Power International Development Ltd. Under
the agreement signed by the Chinese and Pakistani leaders at a summit in Beijing recently, US$15.5 billion
worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of
energy to the national grid.

An additional 6,120 megawatts will be added to the Regional and Global Scenarios of the national grid at a cost
of US$18.2 billion by 2021. The transport and communication infrastructure — roads, railways, cable, and oil
and gas pipelines — will stretch at about 2,700 km from Gawadar on the Arabian Sea to the Khunjerab Pass at
the China-Pakistan border in the Karakorum. Starting in 2016, the Chinese companies will invest an average of
over US$7 billion a year until 2021, a figure exceeding the previous record of US$5.5 billion foreign direct
investment (FDI) in 2007 in Pakistan.

Third Phase 2025: The third phase of CPEC mostly comprises of 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 per cent of Pakistan Railways traffic. In addition to the Main Line 1
(railway), upgrades and expansions are slated for the Main Line 2 and 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 Gawadar by 2030.

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 US$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.

Fourth Phase Long Term 2030: Longer term projects under CPEC also call for construction of the 682-
kilometre-long Khunjerab Railway line from the city of Hevellian to the Khunjerab Pass on the Chinese border,
with extension to China’s Lanxin Railway in Kashgar, Xinjiang. The railway will roughly parallel the KKH and
is expected to be completed in 2030. The cost of the entire project is estimated to be approximately $12 billion
and will require five years for completion. A 300-million-rupee study to establish final feasibility of
constructing the rail line between Hevellian and the Chinese border is already underway. A preliminary
feasibility study was completed in 2008 by the Austrian engineering firm TBAC.

Special Economic Zones: Beyond the initial phase, there are plans to establish Special Economic Zones (SEZs)
in the Corridor where Chinese companies will locate factories. Extensive manufacturing collaboration between
the two neighbours will include a wide range of products from cheap toys and textiles to consumer electronics
and supersonic fighter planes. Planning Commission of Pakistan is expecting 27 SEZs to setup across country
under CPEC by introducing Gwadar SEZ as first model based on area of 3000 acres on special discretion of
China. The distribution of SEZs will be as follows: eight SEZs in Khyber Pakhtunkhwa, seven in Punjab and
Baluchistan each, three in Sindh while Gilgit-Baltistan and Islamabad will have one, one each (DAWN, Jan
2016).

Once completed, the CPEC with a sound industrial base and competitive infrastructure combined with low
labour costs is expected to draw growing FDI from manufacturers in many other countries looking for a low-
cost location to build products for exports to rich (The Organization for Economic Cooperation and
Development) OECD nations. Regional and Global Scenarios of the CPEC Borrowing the concept from
corporate China, the establishment of SEZs along the CPEC where Chinese factories will be located is likely to
boost the manufacturing sector.

Logistic Dimension

To provide overall policy guidance on the CPEC, a Project Management Unit (PMU) has been set up in the
Planning Commission and a functional unit in the Prime Minister’s Office and concerned ministries. The PMU
will take all relevant ministries and organisations on-board including ports and shipping, railways,
communications, IT and telecom, Board of Investment, Information Broadcasting and National Heritage,
Economic Affairs Division, Petroleum and Natural Resources, Federal Board of Revenue, National Highway
Authority, Civil Aviation Authority, international development partners and the private sector to work together
in achieving the desired objectives.

ADVANTAGES FOR CHINA

As already mentioned above, while CPEC is surely monumental for Pakistan, it at the same time also carries
several advantages for China. Primarily, it constitutes an integral part of China’s broader vision to assert itself
as the leading economic power through the OBOR initiative that seeks to physically connect China to its
markets in Asia, Africa, Europe and beyond. The New Silk Road will link China with Europe through Central
Asia and the Maritime Silk Road to ensure a safe passage of China’s shipping through the Indian Ocean and the
South China Sea. CPEC will in effect connect China with virtually half the population of the world. Access to
the Indian Ocean via Gwadar will enable China’s naval warships and merchant ships to bypass Malacca Strait
and overcome its ‘Malacca Dilemma’. In fact, development of Gwadar Port and improvement of the
infrastructure in the hinterland would help China sustain its permanent naval presence in the Gulf of Oman and
the Arabian Sea.

While the new silk roads are bound to intensify ongoing competition between India and China – and to a lesser
extent between China and USA – practically they will always be assets on the ground benefitting all regional
stakeholders; and thereby strengthening and cultivating increased Chinese influence in Central Asia and the
Asian continent and the world in general.

ADVANTAGES FOR PAKISTAN

Foremost, CPEC brings much needed investment in the Pakistani economy, which if harnessed prudently will
the harbinger of new opportunities and help it in spurring inclusive growth, creating jobs and reducing poverty.
The scale of capital investment coupled with Chinese expertise of undertaking large-scale projects makes CPEC
a potential ‘game changer’ indeed and cements China’s role in securing Pakistan’s stability and security.

Chinese investment under CPEC will not only expand the GDP, but also act as a catalyst to Pakistan’s GDP
growth. A consistent inflow of large-scale Foreign Direct Investment (FDI) will greatly help Pakistan to
improve its perception cum image with other investors. It will signal that the country is open for business and a
safe and productive place to do business in.

With the economic Corridor becoming functional, Pakistan’s geostrategic security interests will become
directly aligned with those of China, thereby releasing much of the pressure currently being exerted from next
door South Asian countries. Pakistan may be in a better position to engage other developed economies once its
own economy is performing better. CPEC is also likely to have a natural rollover effect on further improvement
in Pak-China defence and nuclear cooperation. The success of Sino-Pak partnership is also likely to attract
Afghanistan into the CPEC fold and if this happens, development can have a positive impact on relations with
Afghanistan. China,
Pakistan and Afghanistan, all have a shared interest in stabilising Kabul, because the main threat to the
realisation of the OBOR vision comes from terrorist groups operating out of the Af-Pak domain.

CPEC in the long-term may also kick-start SAARC, as other South Asian economies are bound to get attracted
to the benefits of connectivity to this expanding economic train. In many ways CPEC provides the advantage of
being an ‘early harvest’ programme where people of Pakistan will not have to wait too long to see its positive
results. A significant chunk of people-centric projects such as the Orange Line, Yellow Line, power plants and
road networks will be operational before 2020 and as their outcome starts pouring in and improving lives of
Pakistanis, the public belief in CPEC will strengthen giving it more impetus and longevity.

CPEC if dealt judiciously can be a big unifying force for Pakistan. It is also God-sent opportunity for Pakistani
businesses and the corporate sector to meaningfully connect to perhaps the most robust economy of the world
and that too with one with whom we share borders. China today has a GDP of USD 18 trillion on PPP
(Purchasing Power Parity) basis. It has one of the largest foreign currency reserves of USD 3.6 trillion that
gives it the strength to create its own resources for investments home and abroad. It is the largest exporter in the
world with USD 2.34 trillion annual exports and the third largest importer with annual imports worth USD 1.96
trillion. It is the largest trading partner with more countries than any other economy of the world, including
USA. China today leads as one of the main financiers of the developing world – recently creating the AIIB
(Asian Infrastructure Investment Bank) – and its overseas investments today exceed USD 20 trillion.

The fact that China is opting to place its bets on Pakistan as one of the key pivots in its OBOR vision,
effectively means that with the right management and leadership skills Pakistan can emerge as the main
corridor to not only China and Central Asia, but also the aspiring South Asian economies. If we can get our
house in order, access to the rich Chinese market comprising of 1.5 billion people, immense knowledge and
innovation, and world’s largest pool of capital deployment, can provide us with the opportunity we have always
dreamed of. CPEC provides Pakistan with a chance to learn from the Chinese and to even involve them, where
necessary, to resurrect state- run enterprises. China today presents the best model on how to combine private
sector entrepreneurial juices with state power and resources.

IMPACT OF CPEC ON VARIOUS SECTORS OF PAKISTAN

Based on various estimates, CPEC will have wide ranging positive impact on economic growth. How Pakistan
benefits from CPEC will depend on how it continues with economic policies and reforms to remove structural
weaknesses and tackles the problems of corruption and bad governance. To recap, the three major components
(sectors) of GDP are: Agriculture, Industry and Services. The expected impact of CPEC on each of these three
sectors is analysed as follows:

Agriculture Sector

According to the Pakistan Economic Survey (2014-15), share of the agriculture sector in GDP is around 21 per
cent, it accommodates roughly 44 per cent of the labour force, and its share in exports is 65 per cent. The four
sub-sectors of agriculture are: crops, livestock (animal husbandry), fishing and forestry. The share of livestock
in agriculture is nearly 56 per cent, which is about 12 per cent of GDP. It is followed by the crop sector which is
40 per cent in agriculture. Cotton, wheat, rice, and sugarcane are the four major crops in the country. The
remaining share in agriculture (roughly 4 per cent) goes to forestry and fishing sub-sectors. Even though the
agriculture sector faces many problems, the key concerns are low yield (low output per acre), below potential
output of livestock (meat and milk), and absence of a cold chain storage system for fishery and fruit and
vegetables. As a result, huge value addition either remains untapped, or it is wasted.

The CPEC plan of activities highlights that agricultural development of China and Pakistan will take place on
the principle of comparative advantage and mutual benefit. The economic and technical cooperation between
the two countries will aim at:
1. Improving Labour Productivity
2. Resource Utilisation and Land Productivity
3. Agricultural Industrialisation
4. Extension of Industrial Chain
 5. Improving Competitiveness of Agricultural Products
6. Increasing Local Employment Opportunities
7. Improving Farmers’ Income and Reducing Poverty.

The plan has highlighted ten areas of interventions: engineering research, production, processing, storage and
transport, infrastructure construction, disease prevention and control, water resource utilisation, land reclamation,
agricultural information, and agriculture product-market development. To ensure that objectives are met,
seventeen projects are proposed with details on development idea, function and positioning, project layout, and
development content. These are:
1. Biotechnology-based Seed Breeding Demonstration Project
2. Grain, Fruit and Vegetable Processing Project
3. Storage and Distribution Equipment Construction Project
4. Water-saving Modern Agriculture Demonstration Area
5. Livestock Breeding Project
6. Livestock and Poultry Breeding-base Cleaning Project
7. Livestock and Poultry Product Processing Centre Project
8. Fishery Production Demonstration Project
9. Aquatic Product Processing Centre Project
10. Fishing Port Infrastructure Upgrading Project
11. Agriculture Mechanisation Demonstration & Machinery Leasing Project
12. Fertiliser Production Project
13. Disease Prevention and Control System Project
14. Water Resource Utilisation Project
15. Land Reclamation Project
16. Agricultural Information Project
17. Agriculture Market Development Project

The NDRC/CDB 2015 document provides the time sequence of construction and hints about G to G
(Government to Government) and B to B (Business to Business) collaboration requirement. The impact analysis
crucially depends on how quickly counterpart experts in specific areas are assigned, public-private partnerships
developed, and alignment of federal and provincial governments takes place. The demonstration projects alone,
unless replicated, are not expected to raise agricultural growth in any substantial way.

Industrial Sector

The share of industrial sector in GDP is around 20 per cent. The four subsectors within the industrial sector are
mining and quarrying, manufacturing, electricity/gas generation and distribution, and construction. The
manufacturing sub-sector has the largest share of 65.5 per cent in the industrial sector. Its share in GDP is 13.3
per cent and it employs 14.2 per cent of the labour force. The contributions of mining and quarrying and
construction sub-sectors in the industrial sector are 14.4 per cent and 12 per cent, respectively and in GDP their
shares are 2.9 per cent and 2.4 per cent, respectively. Even though Pakistan has a large and diversified industrial
base, yet the share of basic and high-tech industries that represent modern industrial strength is quite small.

The CPEC plan document has identified establishment of Industrial Parks in and around node cities. Even
though many industries are expected to gain from this undertaking, the gains in the following industries are
expected to be substantial:

Textile Industry: The garment and textile industry will be developed in Kashgar Economic Development Zone
through importing raw materials from Pakistan. On the other hand, textile and garment centres or EPZs
(Economic Processing Zones) will be built in Lahore and Karachi. To enrich cotton textile varieties, investment
is expected to focus on producing top grade cotton yarn, printing and dyeing fabrics, jean fabric and knitted
fabric. Household Appliances Industry: Because of improvement in living conditions of Pakistani people, the
demand for refrigerators, freezers, washers, air-conditioners, TV sets, and microwave ovens etc. will improve
gradually. A Chinese household appliance industrial park is already operating in Pakistan and anther one is
proposed to be established within the short-term plan through joint ventures. The objective is to move away
from assembling imported parts to producing them locally.
Cement and Building Material: According to an estimate, approximately 4 per cent of total project cost of
CPEC is expected to be spent on cement. This translates into PKR 190 billion, which is 19 m tonnes for the life
of CPEC. Similar gains may accrue to marble and granite industries.
Automobile Sector: Assuming current road density of registered motor vehicles, CPEC road projects may
result in additional demand for 800 thousand automobiles over the next 15 years.
Petroleum and Petrochemical Sectors: Large quantities of bitumen/asphalt will be required in CPEC road
construction/ restoration projects. The refinery sector will benefit as the current local production of bitumen/
asphalt is around 180 thousand tonnes. The demand for petroleum products is also expected to increase
substantially.
Steel Industry: The usage of steel in civil works, rail tracks, pipelines (LNG) is expected to be high during the
construction phase of the projects. Cable and electrical goods and optical fibres will also be required during the
construction phase. Refineries and oil and gas marketing firms supplying fuel stand to gain. A continuous need
for vendor and repair outlets will encourage local participation and some segment of the population may gain
from new economic activity.
Mineral Exploitation: Two projects (Saindak Copper-Gold Mine Project, and Dudder Zinc-Lead Mine
Project) already have Chinese involvement, others may follow as the Corridor gets materialised.

Services Sector

Share of the services sector in GDP is around 59 per cent. Its six subsectors include wholesale and retail trade
(WS&RT), transport, storage and communication (TS&C), finance and insurance (F&I), housing services,
general government services (GGS), and other private services. The WS&RT sub-sector has the largest share
(31 per cent) in the services sector, followed by TS&C (23 per cent), other private services (17 per cent), and
GGS (13 per cent) etc. Despite the significance of this sector in the modern-day world and its enormous
potential in Pakistan, we have yet to exploit its full potential and accrue benefits from it. In fact, some of the
recent tax policy initiatives have adversely impacted the growth momentum of these sub-sectors.

Banking and Insurance: Financial cooperation among banks and other financial institutions is critical under
CPEC as USD 51 billion are expected to be financed mainly from Chinese banks. Deposit base of local banks is
USD 90 billion. Loans outstanding are USD 46 billion. Loans by local banks to CPEC are likely to be USD 8-9
billion. CPEC spread over 15 years can result in direct additional 2-3 per cent per year loan growth of the
banking system. Indirect impact can be over and above this due to increased economic activity. All major
Pakistani banks are likely to benefit from CPEC but those which have already established links with Chinese
banks would gain more. Approximately USD 30 billion worth of projects will be insured locally and
internationally. All local insurance companies are likely to benefit as additional insurance premium of PKR 2
billion annually, which is 4 per cent of total gross premium of insurance industry is expected.
Communication: CPEC has huge investment plans for development of infrastructure including a network of
highways, railways, airports and sea ports. Fibre-optic connectivity is also part of the programme. This sector
stands to gain the most.
Domestic Trade and Commerce: Though the project design is not forthcoming on trade and commercial
activities, it is perceived that domestic commerce will gain from the network of roads and
railways.
Ownership of Dwellings (Housing): Construction of housing units along the economic corridor has vital
importance.
Coastal Tourism: This area has enormous potential under CPEC. Coastal tour line is Keti Bundar-Karachi-
Somiani-Ormara-Gwadar-Jiwani. Similarly, building landmark hotels, golf courses, high-end nursing homes,
race courses and a hot air balloon facility along coastal city tourism zone hold tremendous potential.

CHALLENGES AHEAD

There are positive signs that the CPEC will change the economic and strategic environment in the region.
Notwithstanding, there are challenges that the project might face, such as the external and internal challenges.

External Challenges
It includes the super power rivalry, regional power play, the geographical constraint of the CPEC and the
Chinese stance towards them.

Superpower Rivalry: The ongoing confrontation between China and the US is likely to affect the CPEC project
negatively. Its regional allies and the US may use selective elements of national power to reverse the Chinese
gains. At the global level, the US considers Chinese rise, its economic prowess and harmonised neighbourhood
policy of President Xi as a shrinking space for itself and its status as a super power diminishing. In this Asian
century and the global economic competition, who will lead the world, is a great worry for the sole Super
Power. In the historical perspective, in 1980s, the US wanted to have military post in the strategically
significant coastal areas of Pakistan, adjoining the Persian Gulf. The former Soviet Union, before its break up,
also tried to get access to the Indian Ocean.10 With new realities and redefined goals of international powers,
the post-2014 scenario, both regional and the global powers including China, US and India, are expanding their
sphere of influence in the regional politics of South and Central Asia.

The long years of bilateral relations between the US and Pakistan have been vacillating between good to
average and, at times, at the lowest ebb. These twists and turns in the bilateral relations have their anchorages in
the Cold War and the wider politics of South Asia. Contrary to Russia, Europe and America, the Sino-Pakistani
relationship has developed into healthy economic cooperation, strapping strategic partnership and people-to-
people mutual contacts. This strengthening of bilateral relations between China and Pakistan have been
inscribed in the hearts of the people.

Undeniably, in the face of adversarial relations with India, Pakistan wants to build a time-tested friendship and
seeks a trusted ally in the form of China to keep the Indian regional designs at bay. Both the US and India are
against the Chinese development of Gwadar Port and now construction of the CPEC. To counter the
significance of Gwadar Port, India provided technical and financial assistance to Iran for the construction of
Chabahar Port. India’s growing influence in this region is a cause of concern for both Pakistan and China. In
the past few years, both the US and India have Domestic and External Dimensions of the CPEC collaborated
with regional countries like Bangladesh, Sri Lanka and Myanmar to reduce the Chinese influence.

Indian Conflict: India is against with the development project, the government of India trying to fail the
project. India is worried about the huge investment of China in Pakistan CPEC as well as Chinese help for
Pakistan in producing plutonium at the Chinese-built Kyushu reactor; as well as the eight submarines sold by
China to Pakistan worth approximately $5 billion, which give a significant jump to Pak Navy’s sea capability.
After the completion of CPEC Pakistan will be the trade hub in the region after Gwadar port starts functioning
fully, and duty free economic zones are set up. India considers the strategic partnership between the China and
Pakistan as a threat and on many occasion convinced China to drop the CPEC idea. However, China has firm
believed to stand with Pakistan and complete the CPEC. India had also reservation on the handing over the
Gwadar port to China and financed the militant group to create the chaos in Baluchistan which is rich in oil and
gas resources.

Regional Power Play: Among the external factors, Indian rivalry is quite clear. Right from the very start of the
Gwadar Port in 2002, India has been creating irritants and disinformation about the project. India tried to
counter the project through several ways by provoking Iran for the construction of Chabahar Port, and by
providing financial and technical assistance and construction of roads in Afghanistan linking it with Central
Asia. It is not a secret that India fuelled militancy in Baluchistan by sponsoring the separatist groups. Currently,
India is showing its concern over the CPEC claiming it will pass through Gilgit-Baltistan, which India believes,
is the part of the disputed territory of Jammu and Kashmir.

It is also a fact that there is a strategic competition of India with China and a historical rivalry with Pakistan.
Thus, it is not only spreading disinformation about the CPEC but also extending support to militancy and
terrorists in Pakistan. However, Indian rivalry and a series of hurdles being created should not deter Pakistan
and China from undertaking this strategic project. Rather, the opposition should give impetus towards the
speedy implementation of the CPEC. Perceived negative impact of the project on regional countries would be
that, regional countries like Iran, UAE, and India, may join hands against the project and Gwadar Port, which
will subsequently lead to a confrontationist approach.
Geographical Constraints of the CPEC: The geographical constraints of the 3000 km long planned route must
be considered. The absence of proper roads and railway linkages will create a need for significantly
improvising the road and railway network which will bear its additional cost of material and manpower. It is to
be understood that as it is necessary to build the required infrastructure and to invest in construction of the
required routes, it is also essential to maintain them in proper condition to guarantee smooth functioning and
prevent additional loss of money in repair work. The length of this route signifies the importance of detailed
planning and careful consideration of its all aspects to prevent unnecessary maintenance costs.

Apart from the south, the geography of the northern Pakistan also presents a challenge to the CPEC. The
widening of KKH will somewhat reduce the problem being faced but this does not address many local issues
such as construction of the nearby Diamer-Bhasha dam. There is also no clarity on how the rugged
mountainous region of the northern Pakistan will be effectively utilised for the CPEC without costing too much
on maintenance. Further work is needed on this aspect to determine the practical feasibility of this project.

Chinese Stance and Interests: China as the global economic giant is enjoying significant influence in the
region. It is likely to become the world’s biggest economy by 2020. Being a major factor in global politics,
China exerts its influence in the Indian Ocean, based on two main factors: 1) to maintain its historical linkage
with the area; and 2) to safeguard its own sea routes. Chinese current strategic thinking revolves around the
security of its energy imports. Since, oil trade and energy resources are key factor for the Chinese economy and
trade, therefore, it seeks to overcome the security and maritime hurdles it faces in its traditional route through
the Strait of Malacca, as explained earlier. China desires to have alternative trade routes in order to conduct the
oil and energy resource trade smoothly and without major security threats.

With the view to prepare to confront the challenges of modern warfare, China has already revised its doctrine
and based on high-tech equipment it is procuring, manufacturing and developing its naval forces as a blue water
navy. China also has procured an aircraft carrier from Russia and is working on another in order to be effective
in the Pacific and the Indian Ocean. While strictly maintaining its policy of non-interference, China is aware of
security threats, emanating from the South and East China Sea as well as from the larger Indian Ocean.
Furthermore, the US deployments in the region have been viewed with major concerns by China, mainly for the
safe passage of the Chinese energy imports.

Internal Challenges

Besides external challenges there are internal challenges as well. These are:

Security Vulnerabilities: Besides social aspects, there are security vulnerabilities attached to various routes and
segments from Gwadar to Khunjarab, due to sectarian, ethnic and nationalist fault-lines. The major
vulnerabilities, province wise are as follows:

Baluchistan: The vulnerability in the province is mostly because of remoteness and exploitation by dissident
and sub-nationalist elements, which carry out attacks on non-Baloch populace and kill even those locals who
are not in line with their “mission.”
Southern Punjab: Criminals and members of banned organisations like TTP, LeT etc. taking refuge in remote
areas of southern Punjab remain vulnerable.
Khyber Pakhtunkhwa and Gilgit-Baltistan: Inhospitable and sparsely populated mountainous areas in the
proximity of South Waziristan and tribal belt in the north of Dera-Ismail Khan remain vulnerable to terrorist
activities. In Gilgit-Baltistan, sectarian issues remain exploitable.

Capacity of the State: Besides external dimensions, the fate of the CPEC will depend on whether the State of
Pakistan is able to fulfil its side of the bargain. The corridor will involve a series of complicated infrastructure
and investment projects needing more than political will to execute. Currently, there exist numerous
organisational and infrastructural shortcomings in governance and accountability structure of Pakistan. At the
level of state, the following pre-requisites need to be put in place:
i. An institutional mechanism for implementation of the project and effective public- private-sector
entity, that can collaborate seamlessly. There is no way to do this through shadow structures unless the
whole government is mirrored in a set of parallel institutions.;
 ii. An effective and efficient in-built mechanism for safeguarding Pakistan’s interests and overseeing
through a monitoring system and continuously evaluating various stages of the project’s
implementation;
iii. Adequate internal transport linkages with the corridor;
iv. Qualified management for controlling operations of Gwadar Port and city;
v. Border Management Authority and a congenial legal framework, custom policies, and regulations
between Pakistan and China for facilitation of business community.

Tax and Power Tariff Issues: China is unpleased to the concerns over issue of tax, power tariff and electricity
price with Pakistan along with the implementation process of CPEC energy project in Pakistan. China has
expressed serious reservations over the hurdles and delaying tactics purportedly being employed by the Federal
Board of Revenue (FBR). According to the agreements, under the CPEC, the imported equipment would be
exempt from sales tax and withholding tax. However, the approval procedure from FBR is proving time
consuming, which is negatively impacting on construction project timelines in Pakistan. The Chinese
authorities also point out that the decrease in tariff for renewable energy will negatively impact of CPEC
project, and they feel unpleased with the situations.

Lack of quality of Labour Force: The adequate quality labour force is also challenged to maintain a high
degree of excellence and on time completion of the CPEC.

Provincial Concerns: Following are the major provincial concerns regarding the construction of CPEC:

Baluchistan issues: Baluchistan is the largest province of Pakistan according to its area and the smallest in
terms of population. When measured against socioeconomic standings of other provinces, Baluchistan is the
least developed. Its society is still plagued with tribal structures. The province is rich in resources, but the small
and unskilled population due to the negligence of authorities is a hindrance in utilizing those resources to the
maximum. The failure of provincial governments to enhance the capacities of the population and its institutions
has also significantly contributed to under development of the province. PILDAT Working Paper (2012)
highlighted that Baluchistan’s literacy rate stands at 51.5% and requires serious attention. A thin rate of
urbanization and a high unemployment index of 20% have also caused a low annual growth rate. Data suggests
that Baluchistan has had a flimsy growth performance over the past decade and its GDP per capita is also the
lowest when compared to other provinces.

The militancy driven province of Baluchistan poses a potential threat to get the benefits from the CPEC project.
Baluchistan is a conduit to connect the deep-water port of Gwadar with the city of Kashgar. The dissent Baloch
consider the CPEC project injustice to the people of Baluchistan and deprivation to the local Baloch. The
separatists carried out attacks on gas pipelines, trains, and Chinese engineers were killed to spread the terror to
damage the project success. Their mission is to keep Baloch nations deprived of the mega opportunities of
CPEC. Other nationalist leaders of Baluchistan province are opposing the CPEC, Brahamdagh Bugti, and the
leader of the outlawed Baloch Republican Party (BRP), strongly opposed the CPEC and Gwadar port and
demanded a referendum decide the future of Baluchistan under the auspicious of UN. These miscreants
involved in the kidnapping and killings of the Chinese worker's tankers carrying fuel to Chinese company
working on the mining project. They are trying to target the management of a Chinese state-owned company.

Khyber Pakhtunkhwa Issues: Some political leaders of Khyber Pakhtunkhwa (KPK) also opposed to CPEC
which is a significant challenge for the mega multibillion dollars project. The main problem of the opposition is
changing being made in the original plan of this corridor by the federal government which will divert most of
the economic benefit to Punjab only. The original route which is western route would be followed by building a
road from Khunjerab to Gwadar via Mianwali, Dera Ismail Khan, Dera Ghazi Khan, Khuzdar, and Turbat. The
KPK government and the political government are against changing the original Gawadar-Kashgar route and
demanded that government should stop modifying the project and said that the changes would divide on the
issue.
The Sikandar Sherpao (Qaumi Watan Party Parliamentary Leader) discussed the issue of change in the original
plan of the project and says it will be injustice for the peoples of KPK who have already been affected due to
the high rate of terrorism.