CPEC: Business, security headache for China, Pak

Washington: The ongoing over USD 60 billion China-Pakistan Economic Corridor (CPEC) project, which forms a part of Beijing’s ambitious transnational Belt Road Initiative (BRI), is according to a report, turning out to be an economic as well as a security headache for both China and Pakistan.

“For Pakistan, rising debt is imperiling the country’s long-term economic viability. For China, sunk costs in infrastructure assets and personnel on the ground are drawing Beijing deeper into Pakistan’s internal security concerns,” says the report prepared by the Center for Advanced Defense Studies (C4ADS), a Washington D.C.-based non-profit organisation dedicated to data-driven analysis and evidence-based reporting of global conflict and security issues.

The Gwadar Port branded and promoted as a signature Pakistan-China development model Gwadar that will eventually be built into an “industrial powerhouse” with planned manufacturing facilities, a free trade zone and a liquefied natural gas (LNG) terminal, is turning out to be unprofitable, with a ship berthing averaging of one-and-a-half per month.

Add to this is the worrisome and shocking statistic that China gets to retain 91 percent of the port’s profits, as financial and lease control of this port for the next 40 years remains with the state-owned China Overseas Ports Holding Co. Ltd., says the C4ADS report.

It’s surprising that the first-ever container ship arrived in Gwadar only in March 2018.

“The Port of Gwadar is over a decade old. Construction began in 2002 with a 198 million USD loan from the China EXIM Bank and it was completed in 2007, at which point the Port of Singapore Authority (PSA) assumed control of the port’s operations. For six years, China took a largely backseat role, while PSA and the Pakistani government struggled with the port’s development, with no meaningful additions to port infrastructure during this time.PSA abandoned the project in 2013 due in part to Pakistan’s worsening internal security environment.China quickly picked up the port’s operation and has committed over 270 million USD to rehabilitate the port,” the C4ADS report reveals.

The report further states that commercial activity at the Gwadar port is well below its potential. Satellite imagery data analyzed by C4ADS suggests the port relies primarily on transshipments rather than import or export routes, with only an estimated 200 ships calling in on the port between 2008 and 2017.

The C4ADS quoted Gwadar Port Authority Chairman Dostain Jamaldini as saying last month, “We receive one or two ships in 15 days.”

China, according to C4ADS is looking at Gwadar as a long-term economic investment, as an “end-point” on a route stretching from Gwadar to China’s western provinces, a corridor that would shorten China’s energy routes by almost 10,000 miles and bypass the Malacca Strait.

“Shipments from the Pakistani coast to Kashgar in China that previously took a month would be completed in 10 days, and the port’s strategic location outside of the Gulf of Oman, serves as a gateway between Middle Eastern sources of oil and Indo-Pacific sea lanes, thus alleviating the Malacca Dilemma if a proposed oil pipeline were ever built. The corridor also serves another of Beijing’s goals – to bring economic development to inland China.”

The report, however, reveals that the CPEC is bedeviled with major structural impediments, the most significant of which is the threat from militants and insurgents.

“At present, the road from China to Pakistan begins with the Karakoram Highway; one of the world’s most dangerous mountain passes.a route that is regularly closed for snow during several months each year. Much of trade then passes through areas of sovereign territorial disputes and insurgency. In Balochistan, where Gwadar is located, attacks by militants on CPEC projects are estimated to have killed 44 workers and injured over 100 from 2014 to 2016. Once goods finally arrive at Pakistani ports, they typically incur higher dock charges and longer wait times than they would at regional competitors,” says the report.

Ongoing investments by Beijing notwithstanding, another global concern, is the huge number of Chinese entering Pakistan for work.

According to the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), roughly 250,000 Chinese expatriates arrive in Pakistan each year for work.

“The increasing numbers of Chinese citizens; and other interests on the ground are pushing Beijing to take an increasingly direct role in Pakistan’s internal security.”

Chinese Foreign Minister Wang Yi is on record as saying, “How to protect China’s ever-expanding overseas interests is an urgent concern for Chinese diplomacy.”

It is now a well known fact that Chinese officials have quietly interacted with insurgent groups in Balochistan and along the China-Pakistan border to persuade militants to lay down their arms and engage in negotiations with the Pakistan government.

India and the United States share a common view that Gwadar will eventually be used to establish a Chinese naval presence in the Indian Ocean. A U.S. Department of Defense report to the U.S. Congress has specifically revealed that if there is any country that Pakistan would agree with to have military bases on its soil, it would be China.

According to the C4ADS report, “China is rumored to be constructing a permanent air force and naval base in Jiwani, Pakistan, near Gwadar, while observers have noted that Gwadar itself could serve many of the PLAN’s maritime logistics needs. China has officially denied any military intentions driving CPEC and Gwadar. Nevertheless, the Chinese military’s presence in Pakistan is increasing. Under the stated objective of helping secure Gwadar’s security, China has officially stated that it is in the process of increasing its marine forces from 20,000 to 100,000 troops, in part to facilitate overseas rotations to Gwadar.”

The limited transparency on CPEC-related investments puts a cloud over how much Pakistan will eventually benefit.

“If completed as planned, CPEC’s productivity would be equivalent to 17% of Pakistan’s 2015 gross GDP, and as many as 700,000 jobs would be created. As a result, Pakistan could see economic growth of 2.5%. Yet this is highly speculative as few credible studies have been conducted on the structures and economics of CPEC deals. The State Bank of Pakistan’s governor has publicly called on CPEC to be more transparent, saying, “I don’t know out of the $46 billion how much is debt, how much is equity, and how much is kind.”

Available evidence suggests CPEC projects, including Gwadar, disproportionately favor China while unfavorably burdening Pakistan in the long term.

The extent to which these projects will, in the interim, stimulate local employment and investment is also uncertain. According to some reports in local media, Pakistan is allegedly only considering bids for CPEC construction projects that come from Chinese state-owned enterprises, firms which, some Pakistani economists note, rarely subcontract with local partners.

Similarly, the job market for Baloch locals on CPEC projects is reported to be relatively limited, ostensibly because they lack skills. Instead, Chinese businesses allegedly rely on Chinese workers, whose growing numbers are exacerbating an already tense socio-political divide in Balochistan.