CONTENTS

 1 - Introduction 2
 2 - Historical Background of Pak-China Relations 3
 3 - China Emergence as Global Leader 4
 4- China-Pakistan Economic Corridor 5
- Table-1: Estimation of Local Component in CPEC 6
- Table-2: Routes of CPEC 7
 5 - Components of CPEC 9
- Pakistan’s Energy Sector 9
- Transportation Infrastructure 9
- Special Economic Zones 9
 6 - CONCLUSION & RECOMMENDATIONS 10
 7 – References 11

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Introduction:
Sustainable growth and development in China during the last four decades has assigned the
country a special status in the world economy. The financial crisis of 2007-08 not only
strengthened the Chinese economy but also enhanced its role and say in global governance.
Though China has started redefining its role in the 1990s, war on terror gave it an ample
time to think and devise its strategies in accordance with the new world scenario. During
this period when the world was engaged in war on terror and was hit by financial crises,
China increased its trade and international recognition, revisited its old relations, and
ventured in new partnerships and friendships. President Xi Jinping for the first time raised
the slogan of constructive engagements across the world.

South Asia, being the neighbour of China, has a special significance in enhancing the agenda
of constructive engagements, which is now evident from the active engagement of Chinese
leadership in South Asia. Mr. Xi visited South Asian countries, and announced huge
investment packages and trade enhancement programmes for them. China has become
actively involved in Afghanistan for peace building and development.

In line with its defined strategic order, China has now started working more closely with
Pakistan in areas of new investments and partnerships. The process started way back in the
1990s; however, a joint declaration in this regard was the concrete outcome after a meeting
between President Hu Jintao and President Gen. Pervez Musharraf in 2003 at Beijing
(Fmprc, 2003). The declaration highlighted the areas of cooperation for future. A joint
statement in 2006 further strengthened the cooperation when Free Trade Agreement (FTA)
was signed during the visit of President Hu Jintao to Islamabad in 2006.

It gradually expanded the trade volume between Pakistan and China from $1 billion in 1998
to $15.15 billion in 2015 (VANDEWALLE, 2015). This enhanced cooperation then laid the
foundation of China-Pakistan Economic Corridor (CPEC).

These days, CPEC is a hot topic and the most debated subject in Pakistan, South Asia, and
Asia and to some extent in other parts of the world. In Pakistan, there is confusion about
the corridor’s route, as provinces have shown their concern over it. South Asian countries
are divided on the subject while some look at it as an opportunity for development and
prosperity. Others look at it as an alliance against their interests. Asian countries and global

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community have mixed opinion. Keeping in view all the perceptions, this paper demystifies
the confusion and presents the facts.

Historical Background of Pak-China Relations:

Pakistan and China have been enjoying cordial and friendly relations since 1950. The first
decade of relations was not as smooth as it were after 1960 especially after the China-India
war, and Pakistan India war. At first, Pakistan was reluctant to accept China due to
differences between communist and capitalism blocs. The two countries also did not know
much about each other, which hindered their bilateral cooperation. Fortunately, at that
time the then minister for foreign affairs, Sir Zafarullah Khan, had some knowledge about
Chinese mindset, which paved the way for Pakistan China relations (Chaudhri, 1987).

Relations between the two countries later strengthened after the devaluation of Indian
currency in 1949, which impacted Pakistan’s economy badly. Pakistan was importing coal
for its nascent industry, but the devaluation halted the trade leaving Pakistan with no
choice except to enter into an agreement with China on barter trade of coal for cotton.
Pakistan also supported the permanent seat of China at United Nations Security Council
(Arif, 1984). Relations further enhanced after the two countries signed a trade agreement in
1953 (Dixit, 1987).

Signing of SEATO and CENTO in 19954 and 1955 respectively created some suspicion among
Chinese, as they conceived it as a threat to regional and national security. However,
Pakistan clarified China that it only signed these as a safeguard against the threat from India
(Syed, 1974). Pakistan also utilized the Bandung Conference to clarify the doubts and China
endorsed Pakistan’s seven pillars of peace at the conference (Chaudhri, 1970).

President Ayub Khan’s statement in 1959 about Tibet again created problems for Pakistan
with regard to relations with China (Jain, 1981). Fortunately, the damage was controlled by
the then Foreign minister Zulfikar Ali Bhutto and foreign secretary S. K. Dehlavi. Signing of
agreement on border demarcation by Mr. Bhutto in 1963 gave an impetus to Pak-China
relations. Moreover, China also helped Pakistan during the war of 1965, which brought two
nations very close to each other. However, China’s neutral stand during 1971 was conceived
by many Pakistani leaders as a sign of no interest (Javaid and Jahangir, 2015).

From 1970s onwards, the relations between Pakistan and China strengthened more in all
sectors. China has generously supported Pakistan in military, missile and nuclear program,
and economic sector, even during the sanctions imposed by the US. This led to confidence
building between Pakistani and Chinese policy makers and people. As a result of this long-
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standing friendship, we see a big achievement in the form China-Pakistan Economic
Corridor (CPEC).

China Emergence as Global Leader:

China has been working since decades to restore its lost glory. Since Mao’s time, China has
devised a policy of cosmopolitanism and made it the most important pillar of its all policies.
First, China worked with group of Non-Allying countries and gradually enhanced its role.
Bandung Conference as launching pad and strengthened its relations with many developing
countries. China also remained neutral in international affairs and focused gradually on the
economic development and building economic relations with the world.

The first step on this direction was its economic assistance for South East Asian Countries
during the economic and financial crises of 1990. It was also the beginning of change of
relations with South East Asian Countries (Vaughn and Morrison, 2006). President Hu Jintao,
during his tenure, remained focused on economic development opportunities and building
more close ties. During that period, China emphasized its relations with Middle East, Central
Asia and Africa.

President Xi, gave a new direction to foreign policy and initiated “Constructive Engagement”
policy. Economic engagement was given the prime focus to move forward the agenda of
constructive engagement. Mr. Xi is aggressively pursuing this idea through the Silk Route,
which comprises roads, rail networks and maritime routes. It is also known as “One Belt
One Road”. China is promoting Silk Route as a trade and financial initiative.

However, many experts believe that it is not only a trade or economic initiative but also a
plan for the expansion of China’s role in the world. China is building its leading role in Asia
and beyond for economic and political cooperation through “One Belt One Road” (Wang.
2015). Asian Infrastructure and Development Bank, and Naval bases in different countries
are being quoted as examples. Creation of Asian Infrastructure and Development Bank is
being taken as competitive to existing financial system and supremacy of USA in the
international financial sector (Xu, 2015).

String of Pearls, a term which is being used to describe a series of Sea Ports, i.e. Sri Lanka,
Bangladesh, Burma and Pakistan has been considered as strategic investment to curtail
India (Kabraji, 2012). Construction of Djibouti base is another example. Moreover, recently
China also marked the vast area in South China Sea as its territory and claimed it as part of

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China. USA (State Department) has strongly opposed this move along with South East Asian
partners. However, China is moving ahead on this.

International media, academicians, many western countries and India believe that CPEC is a
strategic corridor, which covers the trade and development needs of Pakistan. It has
become one of the highly debated issues within the country and internationally. Debate has
generated some controversies among different stakeholders in Pakistan, which is negatively
impacting the CPEC progress.

China-Pakistan Economic Corridor:

The history of Pak-China relations can be traced back since 1950. Both China and Pakistan
managed their relationship in a very productive and articulated way. Although confusion
over some issues, especially during the first half 1950s and 1970s, impacted the ties but the
two nations never let them altogether spoiled. Both of them helped each other at the
crucial times. Pakistan helped China to connect to the world. Pakistani air space was opened
for Chinese airline and PIA made travel easy for Chinese.

Pakistan also advocated and supported the admission of China in UN system and
permanent member of UN Security Council. Furthermore, Pakistan played the role of
facilitator to arrange visit of Henry Kissinger to China, which laid the foundation for the visit
of President Nixon in 1972.

On the other hand, China also supported Pakistan during the times of need and helped
Pakistan built its military and economic capabilities, especially Heavy Mechanical Complex,
Taxila in 1968, Ordinance Factory in East Pakistan in 1970 and Aeronautical Complex (Javaid
and Jahangir, 2015). During the sanctions imposed by USA in 1980s, 1990s and 2000s, China
helped Pakistan in every field. USA also left Pakistan after the Afghanistan war and Pakistan
had to face many problems on economic front. At that time China came forward to help
Pakistan. During the 1990s, USA imposed sanction on Pakistan and China after the alleged
deal on missile and nuclear programme. China resisted to this pressure and continued to
help Pakistan.

Andrew Small (2015) was of the view that most of the deals and cooperation were kept
secret in efforts to avoid criticism. He coined a term “Cooperation in Shadows” to describe
the relation. Over the years both countries developed a strong bond of trust. Trust always
has been key element of strong relations. Building on the past, Chinese foreign policy gives

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a special focus to Pakistan in future endeavors of China. China-Pakistan Economic Corridor
is one of the most prominent examples of that.

The two governments had been working on the concept for a long time (almost two
decades). Both countries tried to move on bit-by-bit and smooth the process to implement
the final phase. Joint Deceleration of 2003, after the visit of President Musharraf, is first
document, which outlined the future cooperation plans of two countries. Later, Free Trade
Agreement was signed in 2006, which helped boost the trade. Trade reached to $15.15
billion in 2015 from $1 billion in 1998 (VANDEWALLE, 2015). Further both the governments
have plans to increase the trade up to $18 billion till 2018 (See Annexure).

Former President Asif Ali Zardari also pursued the whole development very actively to
secure CPEC and cooperation from China during the last PPPled government. Present
government has been keeping the momentum and is actively engaged with Chinese
government.

President Xi during his visit inaugurated some projects along with Prime Minister Nawaz
Sharif. Economic significance of the CPEC is very high. It will give an impetus to economic
growth and development. BMA capital did an analysis of CPEC on national economy. First
they disintegrate the total investment in two categories, Local and Chinese investment
(Table-1 and Graph-1).

Table-1: Estimation of Local Component in CPEC

Investment (US$ bn) Domestic Share Domestic Share

(US$ bn)
Energy (Breakup is 33.8
given below)
Coal 7560 MW 8.8 20% 1.8
Wind 200 MW 0.5 20% 0.1
Hydel 1590 MW 4.2 50% 2.1
Solar 1000 MW 1.7 0% 0
Second Phase 6445 9.5 20% 1.9
MW
Mining Expenditure 9 50% 4.5
Road 5.9 80% 4.7
Rail 3.7 50% 1.8
Mass transit in 1.6 50% 0.8
Lahore
Gwadar Port 0.7 50% 0.3

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China Pak Fiber 0 0% 0
Optics
Total 45.7 18.1
Source: BMA Capital Management Limited

Second, they analyzed the potential impact of investment on national GDP. According to a
study, for one unit incremental growth in GDP, there is need for 3.6 units of incremental
investment. CPEC will increase GDP growth rate at 1.5 per cent in next three years.
Moreover, it will also enhance the private investment due to positive environment,
economic opportunities, improved infrastructure, stable economy and generation of much
needed energy. Private investment will add 0.5 per cent to the GDP of country. Cumulative
impact of investment would be 02 per cent during 2016-2018. It is expected that growth
rate during that period would be beyond 6 per cent (Naseem , 2015) per year 1.

Despite this enormous potential, CPEC is surrounded by the controversies on the route.
Baluchistan and KPK argue that the government has changed initial route. Controversy
started to emerge by the end of 2013 and start of 2014. PSDP allocation in 2014-15 made it
sharper and the government remained silent on the issue. Later, the government insisted
that there would be no change in route and maintained this stance for quite a while.
Meanwhile, an advocacy campaign started that there would be two routes, Eastern and
Western, and Western route will be given the priority. Budgetary allocations were/are
contrary to the government claims for giving the priority to western route. Allocation shows
that the government is focusing more on Eastern route and is giving less preference to the
Western route. Dr Qasir, tried to sum up the debate and presented rationale for action on
any route. He did an analysis on basis of land, population and production factors (Table-).
He also included the central route in the debate. According to him, the first presentation on
the subject in 2005 only contained the central route.

Table-2: Routes of CPEC

Central Route Eastern Route Western

Route
Average Population Density 156 262 98

Total Area under cultivation 5829 10322 2933

(000 ha)
Production of four major crops 13754 30928 7430
(000 tonnes)
Source: Dr Qasir Bengali, Paper for Chief Minister of Baluchistan

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He concluded that Eastern route would be costly on the basis of production loss, population
displacement and loss of productive land (Bengali, 2015). He also talked about the Central
route and according to him Central route original route. This route was proposed and
presented by Deputy Chairman of Planning commission, in his first ever presentation to
President Musharraf in 2006. He emphasized on the revival of first route. Moreover, he
proposed that in the present debate of Eastern and Western routes, priority should be
given to Western route or at least it should be treated like Eastern route.

Apart from the importance of CPEC for Pakistan, there is another dimension. It also has a
special significance for China and its future role as great power at global level. China
considers regional connectivity as a fundamental element and first step to rise at global
level. President Xi, during his address to Foreign Affairs committee at Communist Party
meeting in 2014, said that we will give priority to neighbours in our diplomacy on all fronts
(Xi Jinping, 2014). Other part of policy is to build relations with developing countries and
resource rich, including energy rich, countries. It will help china brand as the development
partner and noninterfering ally (Godement, 2014).

President Xi’s visit to Saudi Arabia and Egypt (and Iran will be final destination) is another
step to enhance the periphery of friend, on the lines defined in foreign policy. China has
offered to invest $55 billion to the Middle East as loan for development of industry, road,
infrastructure, and energy exploration. Mr. Xi was present at the opening of joint oil
refinery venture in Saudi Arabia. Both countries have agreed to work on “Comprehensive
Strategic Partnership” framework. However, the most important statement of Mr. Xi was in
Egypt, as he said: “We are not setting up proxies or building a sphere of influence in the
region” (abc, 2016). This is exactly in line with the policy of China to enhance the
constructive engagement. These investments in region will boost trade ties and Chinese
products would be in great demand.

After having a brief look at above-mentioned developments, it would be easy to understand

the importance of CPEC. Strategic location of CPEC is cortical, as it is located at the meeting
point of Road Belt and Maritime Belt (Shah, 2015). It will provide opportunity to China to
establish and strengthen its position in Indian Ocean. It will also help secure the energy
route from Middle East and Africa, which is critical for China’s future development. Route of
energy will also be shortened considerably (Bhattacharjee, 2015). It would also be easy and
cost effective for China to reach the Middle East and North African Markets, along others.

Analysis of facts and figures shows that CPEC is critically important for both countries.
Pakistan needs it to overcome its economic, development, social and energy problems.
China needs it to expand its periphery of influence, consolidate its global presence and
securing future supply routes of energy and trade goods. However, important point to note

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here is that concept was developed by China, as part of its policy “Go Global 2001”. Pakistan
is one of the beneficiaries of Chinese dream. Therefore, it is advisable for Pakistan to remain
focused on development of the country rather than wasting time on petty issues.
Provincialism should not be given the chance to hijack the development agenda by any
stakeholder, including the federal government.

Components of CPEC:
Pakistan’s Energy Sector: The largest component of CPEC deals with Pakistan’s energy
sector. A total of $ 33 billion – or approximately 72 percent – of the proposed $46 billion
investment relates to energy-resource development, including gas and electricity
generation through natural resources such as coal. 8 A further $2.5 billion is also dedicated
towards the construction of pipelines for transporting liquefied natural gas (LNGs) from Iran
to the cities of Nawabshah (Sindh) and Gwadar (Balochistan). This component is vital for
Pakistan’s economy, as decades of war and strife have led to serious deficiencies in its
power-generation capacity. Recent trends have shown that energy shortages alone have
subtracted 2-2.5 percent of Pakistan’s GDP growth. CPEC seeks to address some of these
shortfalls.

Transportation Infrastructure: The second largest component of CPEC is investment in

Pakistan’s transportation network. Specifically, $11 billion – or approximately 24 percent –
of the proposed $46 billion is directed toward enhancing Pakistan’s transportation
infrastructure, including highways and railway networks. This includes the construction of a
1,100 km motorway connecting the coastal city of Karachi (Sindh) with Lahore (Punjab),
which is expected to facilitate economic growth and internal connectivity. In addition to the
construction of new transportation networks, several existing ones will be revamped,
including the Karakorum Highway between Rawalpindi and Kashgar and the main Karachi-
Peshawar railway line. The EXIM Bank, the China Development Bank, and the Industrial and
Commercial Bank of China are among those providing subsidized concessionary loans to
finance these infrastructure projects.

Special Economic Zones: Since CPEC falls under the umbrella of the OBOR, it places
special importance on the promotion of regional connectivity across the Eurasian continent.
Regional connectivity will be promoted through the establishment of SEZs aimed at
facilitating industrial growth in key financial centers and strategically significant locations in
Pakistan. A primary example of such facilitation includes investments in the Gwadar port in
Balochistan, Pakistan’s largest province in terms of surface area. Approximately 380 km
from the Sultanate of Oman, Gwadar’s geographical proximity to the Arabian Sea acts as a
conduit for China to gain access to the Middle East.In addition, a liquefied natural gas

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facility capable of transporting 500 million cubic feet per day to the Gwadar-Nawabshah
portion of the Iran-Pakistan gas pipeline is planned under the corridor. Market-oriented
policies and governmental measures facilitating trade will complement the establishment of
SEZs under the corridor. The establishment of a free trade zone (FTZ) at the port of Gwadar
similar to the FTZs in Hong Kong and Shanghai is an example of such marketoriented
policies planned for implementation. The involvement of the National Development and
Reform Commission (NDRC), China’s top economic planner, in discussions to convert
Gwadar into a hub for market-oriented growth again highlights the importance China places
on CPEC’s economic aspects.

CONCLUSION & RECOMMENDATIONS:

CPEC is a long term profit gaining opportunity for both Pakistan and China. Gawadar Sea
port is actually a transit corridor for business tycoons. Which will change the fate of
Pakistan, poverty will alleviate and educated, skilled and young population will get the
opportunity of Jobs in their home country. But it is only possible when government of
Pakistan will give full security and make the environment conducive for trade. For free trade
and development of Baluchistan it is necessary to give a source of satisfaction to the local
communities and regional bodies. Because due to route formations and other projects
people of Baluchistan feel loss of their cultivated lands and off course production. Political
parties and government of Pakistan should make consensus upon all the strategic and
developmental plans of CPEC.

Government of Pakistan should make an equal opportunity based plan to discuss issues and
reservations of parties. External envision of RAW, ISIS, MOSAD in Pakistan, creating the
environment of terrorism, and economic and social instability and if it would not be
prevented it will surely damage CPEC plans and projects. However, to accomplish the
project and make Pakistan as economically strong country the positive behavior of citizens,
political parties, government and contribution of military alliance is compulsory.

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