By Baqar Abbas Naqvi
Nations thrive when they plan ahead for future. Myopic policy making is metaphorically considered suicidal for nations. Progressive cultures and sustained development efforts leave lasting impressions on timelines of history. China inherits philosophical thoughts from the great Confucius. Pakistan is lucky to have China as its neighbor and can boast of its relations with China with great pride. The neighborhood camaraderie history is full of support, friendship and trust. China and Pakistan recently entered a new era of development when they agreed to develop the China Pakistan Economic Corridor (CPEC), based on an idea of One Belt One Road (OBOR) initiative under which China connects with a number of trading countries in the region.
Planners in Pakistan see a game changer in CPEC. This US$461 billion project is a compendium of projects which are being undertaken by Pakistan with the help of Chinese government and Chinese entrepreneurs. The root idea is to connect western China, especially newly industrialized western Chinese province Xinjiang, with the sea port of Gwadar, through a land route. A short term objective is to translate industrial production in Xinjiang province into exports to world markets via the Arabian Sea, utilizing Gwadar as ‘the’ sea port. It is planned that Chinese city of Kashgar, and henceforth rest of China, will be connected through a land route with Gwadar sea port, from where cargo ships will carry export consignments to western destinations.
China is assisting Pakistan in undertaking a number of related projects in wake of CPEC, primarily addressing Pakistan’s energy and infrastructure needs. The list of projects includes, among other projects, coal-fired energy projects, hydroelectric power projects, alternative energy projects, development of Gwadar sea port, development of new Gwadar international airport, and, a series of three alternative demi parallel roads connecting Gwadar with Kashgar. These roads, or motorways, as they are popularly known, will connect cities of Pakistan falling on the junction nodes. The three corridors are described as the Western Corridor, the Central Corridor and the Eastern Corridor. There is a plan to develop special industrial zones along these routes to promote industrialization in Pakistan. These special economic zones (SEZs) will be developed in underdeveloped areas to provide growth opportunities to those regions and to provide employment opportunities to people from under privileged segments of population. Another objective is to earn valuable foreign exchange through exports originating from these zones. Incentives have been announced to attract investors to these SEZs in anticipation of good returns on investments.
China is among world leaders in global exports, second only after USA2. Its exports reach consumer and industrial markets in Europe, USA and Southeast Asia. In 2016, China’s goods exports to USA alone were $462 billion, while the imports from USA were $115 billion3. Chinese goods exports to Europe were €344.6 billion (US$385 billion), and goods imports from Europe were valued at €170.1 billion (US$190.34 billion)4. In each of the two cases, there was a serious balance of trade deficit which reflects the capacity and prowess of China as a global trading power. For someone in Pakistan, it would be easy to comprehend the magnitude by comparing these numbers with GDP of Pakistan. According the Economic Survey, Pakistan’s total Gross Domestic Product (GDP) for the year 2015 was US$271 billion5. These numbers show the potential which China possesses as a global power.
Pattern of world politics shifted towards surging economic hegemonies after the cold war, and with disintegration of the USSR. Once the USSR fell apart, world became unipolar and USA assumed the role of world’s sole super power. However, with the economic meltdown in Europe and USA in 2008 and with surfacing of China from its economic anonymity, balance of world trade began to take new shape. Chinese exports reaching western markets multiplied manifold, and making good use of Chinese competitive advantages, filled the vacuum left by failing local industries. Economies of scales gave China a competitive edge in costs, and it was not late that Chinese exporters began to eat up shares of other competitors who could not compete with cheaper Chinese products. Economic situation continued to assist Chinese exporters during 2008-2010 when Europe and USA were still recovering from shocks of economic depression. Utilizing its competitive advantage of cheap labour, China out bade other exporters exporting to the west. With rise in demand in overseas markets where little competition was faced from other exporters, engine of Chinese industrial machine leaped forward and reached a level where it appears that its production outgrew the demand in west. Multiple reasons are cited for slowdown in industrial production in China6. It is therefore seriously looking to expand its markets, to explore new export destinations, to outsmart competition by shortening its export sales’ cycles and by cutting down on costs of production for its exports. Chinese planners explored options and alternatives and found one in OBOR initiative.
The plan to start the One-Belt-One-Road (OBOR) initiative first surfaced in 2013 when the Chinese president, in an address at a university in Kazakhstan7, mentioned that China planned to develop a Silk Route which would connect China with many important trading countries of the world. However, it later turned out that the stated new route would soon add a southern corridor through Pakistan which would connect Arabian Sea with the existing Silk Route via Pakistani sea port of Gwadar. The existing Silk Route currently connects Europe with China through a series of land routes. Chinese export are reaching Western Europe via Trans-Siberian land route and take anywhere from 11 to 16 days, depending which leg of route the shipments are dispatched through. There are multiple strings of land routes which form nodes at junctions west of Russia, and they subsequently enter Western Europe. The latest addition to the routes is one through Kazakhstan which by-passes Russia. This particular route was created as an alternative route after Russia and Europe banned each other’s exports when geopolitical tensions between Russia and Ukraine rose a few years ago. The latest planned inclusion in the string of land routes is the connection between China and Europe via Kazakhstan, Azerbaijan and Turkey, which will start sometime in 2017.
Currently, the water route through which China dispatches its exports to Africa, Americas, Middle East, Europe and parts of Asia, is through South China Sea, Strait of Malacca and Indian Ocean. These exports take anywhere from 30 to 60 days to reach their destinations from industrial cities of China. With development of industrial zones in western China, time to reach western global destinations is expected to increase as export consignments will traverse all the way to ports on South China Sea before loading on a ship. This will put Chinese exports at a disadvantage as sales cycles will get longer. Goods going through this sea route can also, potentially, come across bottlenecks in Indian Ocean, South China Sea and Strait of Malacca. Any change in geopolitical scenario may jeopardize Chinese commercial interests as India and USA, both have their military presence in this region. China believes in worry free operations when it comes to commercial interests. Not that it can’t handle any potential threat, but that Chinese planners and thinkers believe in peaceful coexistence, especially when commercial interests can serve their geopolitical interests without resorting to armed conflicts.
Exports are not the only concern for Chinese planners. China imports more than 50% of its oil from countries like Venezuela, Libya, and Angola, and from Arab countries in the Middle East. The regular route for transportation is through Strait of Malacca, connecting South China Sea with Indian Ocean. More than 70% of Chinese oil imports come through Strait of Malacca which also sees 40% of global trade passing through it annually. As mentioned earlier, this region and route has presence of Indian and US defense forces and is prone to uncertainty in situations of a geopolitical conflict. In addition to this, there are blockages due to wreckage and sinking of ships in Strait of Malacca which delays shipments reaching their destinations, either way. The other two options as alternative routes are not viable either commercially or technically. The first option ‘the Sunda Strait” which is near Indonesian city of Jakarta, has shallow waters and heavy oil tankers cannot pass through this strait. The other option “the Lombok Strait” which is near Indonesian island of Bali is used when Strait of Malacca is not open. The Lombok Strait, though 250 meters deep, is not an economically viable route8. Comparing these options with a route through Gwadar sea port, China stands to get the best solution matrix.
Gwadar is a natural deep sea port with a depth of 20 meters and its hammerhead shape provides it with a natural breakwater9. It is estimated that Chinese shipments sent through Gwadar sea port will reach their destinations in much less time as compared to current transit time of 2-3 months, with distance cut down from current 16000 kilometers to less than 5000 kilometers10. For calculation purposes, if Dubai is taken as a reference port, distance of Dubai sea port from Shanghai sea port is approximately 12,260 kilometer for a ship, and takes approximately 14 days. It is only 877 kilometer from Dubai sea port to Gwadar sea port and takes only one day11. The land route from Gwadar sea port to Kashgar is 2030 kilometer whereas from Shanghai to Kashgar is approximately 5000 kilometers12. On a conservative note, there is a simple saving of 15 days on each consignment for Chinese importers and exporters operating from western China. It is not difficult to calculate impact of saving of 15 days’ and 14,000 kilometers on each container for a trillion dollar exporting giant.
Prudent investments are made on basis of smart analyses and calculation of realistic returns over periods of time. In case of China, analyses incorporate geopolitical survival, growth and increasing strategic control in the region. China is investing in developing infrastructure in countries where these transit routes pass. These infrastructure developments are actually a support to the underdeveloped local economies with objective of gaining local political support in areas where these routes sit. China has supported Tajikistan, Kazakhstan and Sri Lanka in the past, and is now cooperating with Pakistan under CPEC. Local support and rehabilitation appears to be a cornerstone of China’s policies. China successfully used this concept in western China where missing economic development initiatives paved good ground for ethno-religious insurgency. As poverty and ignorance are good breeding grounds for extremism and terrorism, insurgency gained momentum in western China. Planners had to revisit the drawing board and came up with idea of industrialization and economic development. Smart economic policies resulted in mushroom growth of industry and increased tourism which resulted in uplift in living standards of local population. Xinjiang is one of the nine western provinces and territories which were given preferential economic treatment in 200113 onwards and it resulted in unprecedented growth in that region. The issue of human rights violation pops up at this stage, which, however, is another debate, though no less important.
Planning for mega projects requires security of returns as well as security of principal investment as a prime objective. Absentee landlordism, a situation where investment is left unattended and unmonitored, is never a smart investing idea. A watchdog and caretaker for monitoring the investments is a prudent safety measure. Similarly, investments without collateral have greater prospects of ending up in a disaster. In the OBOR initiatives discussed here, China is expected to invest up to $900 billion in the belt and road projects in Eurasia involving 68 countries from all over the globe. $46 billion is being invested in Pakistan alone. As smart investors, Chinese planners must have done their calculations on ROIs and geopolitical implications and consequences, and must have planned on how to harness their slowing down manufacturing and exports. The million dollar question at this stage is whether China’s counterparts have done their homework or not? Also, if China needed CPEC so desperately, has Pakistan negotiated a good deal to its true benefit?
There are questions which pop up in Pakistani press and social media about CPEC’s socio-cultural impact and its economic viability for Pakistan. Some of these questions relate to a potential cultural invasion in wake of investments from China. Examples cited are those from China itself when China of ‘80s and ‘90s saw introduction of western culture aided by McDonalds and Coke. China saw a major transformation in those 20 years. Skeptics say that a similar wave may overwhelm Pakistan’s cultural values in a fashion similar to the recent Indian cultural invasion through Indian electronic media. It is feared that this could result in loss of our cultural identity pincered by Indian and Chinese influences. However, one must keep in mind that culture is a dynamic phenomenon which keeps modifying with passage of time and with interaction with other cultures.
There are concerns about the environment too. Chinese industrial revolution of ‘80s and ‘90s resulted in severe environmental pollutions in mega cities in China. Smog effects resulted in rise in respiratory health problems. The questions aim at non availability, or nonexistence of a system or mechanism of checks and balances to keep anticipated pollution in Pakistan under control. There is virtually unenforceable legislation and enforcement paraphernalia for prevention of industrial pollution is practically nonexistent. In China, 1.1 million people die every year due to high pollution and bad air quality. In response to public outcry against increasing environmental pollution, China took measures to curb industrial pollution. In 2013-2014 China closed 103 coal-fired power plants and reduced steel production by 50 million tons. It did improve the air quality index but soon the gains were erased when steel production shot up in 2016 to meet a growing demand14. Looking at energy projects under CPEC we see that there are coal fired energy projects which would generate 9,570 MW of energy15. This means that 70.5% of generated energy will come from coal fired power plants established under CPEC. The pertinent question at this stage would be “why Pakistan is launching coal fired power plants when China closed 103 coal fired plants to prevent pollution?” One must keep in mind that China is currently the leading country polluting the global environment16.
CPEC is an ongoing long term project. It is actually the longest project in Pakistan’s history and the biggest in terms of magnitude. There are questions now, and there will be answers that will come with passage of time. This is actually history in the making and we are the characters playing on world stage. There are hardly any doubts that this is a potential game changer for Pakistan. People from all walks of life, including politicians from opposition parties of Pakistan, agree to CPEC being ‘the’ project that would bring a positive socioeconomic change in the country. The need is to devise a strategy in line with Pakistan’s long term development objectives for a better and prosperous Pakistan.
1 http://cpec.gov.pk/faqs. Dated June 29, 2017
2 https://www.worldfinance.com/videos/why-is-chinas-economy-slowing-down. Dated June 29, 2017
3 https://www.census.gov/foreign-trade/balance/c5700.html#2016. Dated June 28, 2017
4 http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/. Dated June 30, 2017
5 https://tradingeconomics.com/pakistan/gdp. Dated June 26, 2017
6 https://www.worldfinance.com/videos/why-is-chinas-economy-slowing-down. Dated June 29, 2017
7 http://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpfwzysiesgjtfhshzzfh_665686/t1076334.shtml. Dated June 27, 2017
8 https://sites.tufts.edu/gis/files/2013/02/Brutlag_Daniel.pdf. Dated June 29, 2017
9 Mr. Dostain Khan Jamaldini, Chairman, Gwadar Port Authority, Seminar NIM, Karachi. May 24, 2017
10 https://www2.deloitte.com/content/dam/Deloitte/pk/Documents/risk/pak-china-eco-corridor-deloittepk-noexp.pdf. Dated July 01, 2017
11 http://ports.com/sea-route/port-of-shanghai,china/mina-rashid-port-dubai,united-arab-emirates/#/?a=4011&b=0&c=Port%20of%20Gwadar,%20Pakistan&d=Mina%20Rashid%20(Port%20Dubai),%20United%20Arab%20Emirates Dated July 01, 2017
13 http://www.china.org.cn/english/features/38260.htm. Dated June 29, 2017
14 http://news.nationalgeographic.com/2017/05/china-air-pollution-solutions-environment-tangshan/. Dated June 28, 2017
15 http://cpec.gov.pk/energy. Dated June 30, 2017
16 http://www.activesustainability.com/environment/top-5-most-polluting-countries/. Dated July 01, 2017