China Pakistan Economic Corridor

(CPEC)

Introduction
Nanjing >Kashgar>Gilgit > different routes through KpK, Punjab and Sindh>
Gwadar Baluchistan> Indian Ocean> Strait of Hormaz

Gwadar>Afghanistan>Central Asia>Russia > Europe

 CPEC connects Gwadar to Kashgar which is the one of the main objectives
of China and Pakistan by building Gwadar port and western route.
 It is also famous for the development as a free trade port which is the head
quarter of Gwadar district.
 In 2011, Gwadar was titled the winter capital of Baluchistan Province by the
government of Baluchistan. Gwadar has 600 km long coastal belt with
beaches and bays.
 It is 624 Km far from the Hormaz strait is said to be important route of oil
tankers bound for Japan and western countries out of Persian Gulf. Sea port
of Gwadar is significantly important for Middle East China as well as South
Asia.
 Gwadar is the hub of central Asia and gateway to Persian Gulf. It has
naturally got endless importance.
 Currently, 60% of China’s oil is transported by ships from the Persian Gulf
to the only commercial port in China, Shanghai, and a distance of more than
16,000 kilometers.

 The journey takes two to three months during and by Using Gwadar port
instead will reduce the distance of these ships must travel and will also
enable oil transfers to be made year-round

 China Pak Economic Corridor, an economic plan, an institution to boost up

the economic strategy of China and Pakistan, CPEC is one of the most
important agreement that enhance the economic integration of both
emerging nations.

 The economic plan would connect China to Middle East nations for the due
purpose of economic well-being.

 It will also become one of the benefiting factors for Pakistan to bring
industrial development and overcome economic crisis, because the economy
of Pakistan is key factors for to be stable to ease the internal crisis.
 The main theme of this Game changing project is to bring economic
development, and expand the market production of China in every nock
and crony of the world.
 CPEC projects in the energy sector involve foreign direct investment and
commercial borrowing from Chinese financial institutions, either by
majority foreign-owned joint ventures or Chinese investors.

 Financing of non-CPEC energy projects ranges from private domestic

financing to private commercial as well as government concessional
borrowing from international financial institutions.
Spatial layout

 The CPEC's core zone and the radiation zone, presents the spatial layout of
“one belt, three axes and several passages”.
 By “one belt” we mean the belt area composed of the core zone of the
CPEC, including Kashgar, Tumshuq city, and Atushi city and Akto county
in Kizilsu Kirghiz autonomous prefecture of Xinjiang, China, as well as
Islamabad, parts of Punjab, Sindh, Khyber-Pakhtunkhwa, Baluchistan, AJK
and Gilgit Baltistan.
 The “three axes” refer to three horizontal axes connecting Lahore and
Peshawar, Sukkur and Quetta, and Karachi and Gwadar.
 The “several passages” refer to several railways and highway trunk lines
from Islamabad to Karachi and Gwadar.

Historical background of CPEC

The project was launched on April 20, 2015 when Chinese President Xi
Jinping and Pakistani Prime Minister Nawaz Sharif signed 51 agreements
and Memorandums of Understanding valued at $46 billion. (This has
reached to $62 billion).
The goal of CPEC is both to transform Pakistan’s economy—by
modernizing its road, rail, air, and energy transportation systems—and to
connect the deep-sea Pakistani ports of Gwadar and Karachi to
China’s Xinjiang province and beyond by overland routes.
(Xinjiang borders the countries of Mongolia, Russia,
Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, and India,
and the ancient Silk Road ran through its territory.)
This would reduce the time and cost of transporting goods and energy such
as natural gas to China by circumventing the Straits of Malacca and
the South China Sea.
The announcement of joint space and satellite initiatives between Pakistan
and China, spurred by CPEC, followed in 2016.
CPEC is part of the larger Belt and Road Initiative—to improve
connectivity, trade, communication, and cooperation between the countries
of Eurasia—announced by China in 2013.
Silk Road
Silk Road, also called Silk Route, ancient trade route, linking China with
the West, that carried goods and ideas between the two great civilizations
of Rome and China. Silk went westward, and wools, gold, and silver went
east.
China also received Nestorian Christianity and Buddhism (from India) via
the Silk Road.

The Importance of Strait of Hormaz

Strait of Hormaz is a leading waterway that connects the oil rich Persian
Gulf to Gulf of Oman and Indian Ocean.
It is estimated that, Hormuz is around 48 to 80 kilometers wide. It is a gate
way that pursues oil producing countries of the Persian Gulf.
According to Lehman, (2015) “the strait can take over approximately 88%
of the oil of Persian gulf for the rest of the world like USA , Asia ,and
Western Europe and around 20% of the oil that it carries About 35% of sea-
borne oil.”
Secondly, one of the main importance’s of the Strait of Hormuz is that it
bears almost 3,000 Vessels that contain fishing boats and oil tankers.

Similarly, the key factors of CPEC are to bring China connected to Strait
Hormuz since it has a huge impact on global economy due to rich oil. The
purpose of Building Gwadar port is to reach Middle East and Gulf of Oman.

Using this route China not only expands her production but also reach to
import oil from the route.
Being historically important it will help China with Gwadar port to have an
access to the world oil for the sake of growing her economy.
CPEC: A GAME CHANGER

1. Economic Aspects of CPEC

2. Growth in GDP
3. Export
4. Inflation
5. Employment
6. Energy production
7. Connectivity
8. Income distribution
9. Infrastructure

Pakistan can also access the central Asian republics through Afghanistan.
Being geographically important, Pakistan made great steps to penetrate
Central Asian Market by building Qasim sea port of Karachi and Now
Gwadar port.
In the race of economic competition, Pakistan can edge economic
development by building infrastructure. The location of Pakistan is very
much important for China to reach Arabian Sea and Indian Ocean through
the way of Karakorum.

The total committed amount under CPEC ( $ 50 Billion , later reached at

$62 billion level)
Two  broad  categories:  $35bn  is  allocated  for  energy  projects  while 
$15bn is  for  infrastructure, 
Gwadar development, industrial zones and mass transmit
scheme. The entire portfolio is to be completed by 2030.
Foreign investors’ financing comes under foreign direct investment; they
are guaranteed a 17pc rate of return in dollar terms on their equity (only
equity portion, and not the entire project cost). 
The loans would be taken by Chinese companies, mainly from the China De
velopment Bank and China Exim Bank, against their own balance sheets. Th
ey would service the debt from their own earnings without any obligation
on the part of the Pakistani government.
CPEC’s second component, i.e. infrastructure, is to be financed through gov
ernment-to the loans amounting to $15bn. 
As announced, these loans would be
concession with 2pc interest to be repaid over a 20‐ to 25year period. This a
mountdebt servicing would be the Pakistan government’s obligation.
Debt servicing payments 
would rise by $910 million annually on account of CPEC loans (assuming 
a 20‐year tenor)
“every year the country receive 36,000 ships transit due to which the
annual trade of Pakistan found to be 38 million”
Energy projects that would add 13180 MW to the national grid by 2022 and 
are at various stages of execution. ( in pipeline)
Over a period of 15 years the annual average investment under CPEC would 
amount to $ 3 billion only or 6% of annual investment budget of the county

According to the IMF ( extract of their report of 2017 )the peak 
outflows  on  account  of  CPEC  debt  servicing,  profit  and  dividend 
repatriation  and increased imports would reach $ 3.5 to
5billion in 2024/25 and gradually declining in the  long run. 

Export revenus in 2024 should rise to $ 40 billion and this additional
amount arising  from  the  CPEC  related  outflows    can  be  absorbed 
without much  stress  on  the  balance  of  payments  provided  we  continue 
to  ensure  that  exports  grow  at  least 10  percent annually.
The foremost singular contribution that has already made a significant and vi
sible difference is the addition of 10,000MW to the generation capacity in Pa
kistan in a span of four years, It has overcome chronic energyshortages, alter
ed the fuel mix, and substituted plants with 61 percent efficiency factor in pl
ace of those operating at 28 percent bringing down the cost to consumers. 
Electricity outages had cost the economy about 1.5 to 2 percentage points of 
GDP.
The second area which would benefit Pakistan is the construction of 
highways and railway line linking Gwadar  with  Kashgar  and  the  Mass 
Transit  systems  within  big  cities.
The 
rehabilitation and upgrading of Main Railway Line with High speed trains 
would relieve 
the businesses of high cost of domestic transportation of goods to and from 
Karachi as at  present bulk of the freight is carried by trucking fleet.
The Western route would open up the backward districts of Baluchistan
and Southern KP and integrate them with the national markets. 
The communities living along the route  would  be  able  to  produce  and 
sell  their  mining, livestock and poultry,  horticulture, 
fisheries output to a much larger segment of consumers
Their transportation costs would 
become lower, the proportion of perishables and
waste would go down, cool chains and  warehousing  would  become 
available  and  processing  would  become  possible  in  the  adjoining 
Industrial zones. 
Large trucking fleet and containers with greater frequency and reduced turna
round time may help in the scaling up of operations. 
Fibre optic network would allow the citizens of these deprived districts acce
ss to latest 3G and 4G broadband internet connections. 
Out of total commitment of $ 50 billion, seventy percent or $ 35 billion
would be coming to Pakistan in form of Foreign Direct Investment.
 
The Chinese companies are following the established IPP policy of the Govt
which is applicable to all domestic and foreign investors under which they 

Are allowed 17 percent return on equity in US dollar terms. Infrastructure pr
ejects would be financed by long term concessional loans averaging Interest 
rate of 2 percent and grants. 
It is estimated
that the total annual outflows on both these counts would average between 2.
5 to 3 billion dollars annually.  How would this amount be repaid?  
The 
 Losses to national income due to energy shortages amounted to $ 6 billion a
nnually.
AS these shortages are eased and efficiency gains are realized the national in
come would rise at least by $ 6-7 billion per annum. 

Resumption of higher growth rate of 6 to 7 percent would not only suffice of
repay these obligations comfortably but also
have ample resources available for new investment.

 Exports  had  stumbled  from  $  25  billion  to  21  billion  again  because 
of  outages.  These are now beginning to grow in double digits.
 It is estimated that a 14 percent growth rate of exports would be able to fina
nce the additional foreign exchange burden of all the repayments on account 
of CPEC.
The benefits of this investment would be exclusively appropriated by Pakista
n’s industries and households that would no longer face load‐shedding
while the country would record a 2pc annual rise in GDP growth
Job Opportunities :
The CPEC has already created about 70,000 direct jobs since 2015, and
about 60,000 of those jobs have gone to the local people. And by 2030, up to
800,000 people are likely to be employed in various CPEC projects.

Source  

1. Cpec and Pakistan Economy: An Appraisal by Dr Isharat Hussain

2. Measuring the Impact of China Pakistan Economic Corridor on
the Socio-Economic Aspects of Pakistan: A Quantitative Research
Highlighting the Public Opinion by Muhammad Faisal Sultan
 3. China-Pak Economic Corridor (CPEC): Economic
Transformation-Challenges and Opportunities for the Local
Residents By Tariq Ali

Social Aspects of CPEC

 Confucius school will influence the Pakistan’s culture
 Apprehension about becoming of more chinese as inhabitants of Pakistan

Neo-Colonialism: Debt Trap

 Some countries and observers are trying to belittle its enormous potential
benefits by labeling it a “debt trap”.
 Since the CPEC is entering the next phase of its development, those opposed
to it are trying to impede its progress using a two-pronged strategy-
 First, deceiving the public by misquoting the CPEC’s financial figures and
achievements in the media.
 Second, raising the specter of past militancy in Pakistan to mislead investors
into believing the country is still a volatile investment destination.
 Despite Pakistani government departments issuing innumerable
clarifications, along with the real facts and figures about the CPEC, the
international CPEC cynics are bent upon calling it a “debt trap”.

Debt Trap or Debt Reliever

 Analyzing the CPEC’s financial figures shared by the Chinese embassy in

Islamabad, For instance, only $5.9 billion of the $18.9 billion funding
provided by the Chinese companies so far for infrastructure projects
constitute loans with a 2 percent interest payable from 2021.
 The rest of the sum is meant for energy projects funded by Chinese
companies and other partners.
 Also, $143 million has been provided as interest-free loan for the
construction of Gwadar East Bay Expressway in Pakistan’s Balochistan
province.
  $29 million as a grant to fund welfare projects.
 This means loans are being used to fund less than 20 percent of all CPEC
projects-and more than 80 percent of the projects are funded via different
financial modalities according to international rules.
 Since the CPEC loan of $5.9 billion is hardly 6 percent of Pakistan’s total
external debt and liabilities of $99.1 billion, how can it be called a “debt
trap”?
 The loans from the International Monetary Fund, World Bank, Asian
Development Bank and other international lending institutions form a major
part of Pakistan’s total external debt and liabilities.
 The CPEC has not only attracted more Chinese investment in Pakistan but
also transformed the country from an investment-dry to an investment-
friendly destination.
 For instance, in February, Saudi Arabia signed memorandums of
understanding worth $10 billion to invest in Gwadar oil refinery apart from
an additional $10 billion worth of other deals

Source: CPEC a Debt Reliever, Not a ‘Debt Trap’ for Pakistan by Yasir Masood

Social Implication of Gwadar Port

 It will at the end would fascinate transportation and trade shipments with the
connectivity of very nearly twenty countries comprising Central Asian
region (CARs) or landlocked countries along with Afghanistan.

 The port will make available all of these countries a very non-stop route to
sort out trading between each other’s. The key factor of CPEC is fascinating
regional development.

 CPEC including Gwadar port project plays the key role eradicates poverty
and brings economic opportunities for the people of region.
  Basically, region of Gwadar remains backward due to lacking education and
employment opportunities. Implementing Gwadar port project by China
would facilitate the region to overcome economic crisis.
 The people of the region will be getting multiple opportunities to have a new
life style in case they remain the equal share holder of the project.
 The Gwadar Development Authority (GDA) is indicated with the
accomplishment of this master plan. The key part of its current work
program is to do fast-track construction of roads, supplementary
infrastructure and public buildings.
 The provincial government has launched multiple development projects
including the industrial parks located east of the city.

Challenges
- Geopolitical and security risks: At the crossroads of Great Powers

 The geopolitical environment is inherently unstable in South Asia. World

powers' adjustment of their policy towards this region might add to the
uncertainty.
 The mix of international, regional, national and extremist factors might
cause disruptive activities, threatening the security of the CPEC building.

-The restraints of natural and geographical factors

 Southern Xinjiang of China suffers from a weak industrial base and limited
economic scale. Because of the special natural and geographical conditions
in China-Pakistan border area, the construction, operation and management
of major infrastructure projects is costly.
 The Indus River valley in Pakistan is comparatively economically advanced,
but with high population density and limited resource carrying capacity,
while the western area is poorly developed and troubled with harsh natural
conditions.
- Restraints to economic growth prospects

 Pakistan needs to address major bottlenecks to economic and social

development to sustain economic growth momentum.
 The energy, infrastructure, administration and governance issues, besides
unbalanced regional economic and social development, and external sector
vulnerabilities need to be monitored to avoid any possible challenges to
CPEC.

CPEC AND ENVIRONMENTAL ISSUES

 Energy projects of CPEC
 In the midst of energy crisis, projects are important
 Energy is being generated from traditional coal-fired power plants
 Causes great amount of carbon dioxide emissions
 Leads to a number of respiratory problems, acid rains, global warming and
other hazards.
 Road Network Projects causes: Deforestation and Vehicle Trafficking
 For example, in Abbottabad, Nowshera, Lower Dir, Sawabi, Mardan and
Malakand where more than 54,000 trees were chopped down to give way to
CPEC road Networks.
 Vehicle Trafficking : massive CPEC road projects which is expected to carry
up 7,000 trucks per day and release up to 36.5 million tons of carbon
dioxide.

Source :

CPEC: An Assessment of Its Socio-economic Impact on Pakistan

Ashmita Rana