China investing in Pakistan in infrastructure projects

In November 2014 Pakistan and China signed 19 agreements and Memorandum of Understandings (MoUs) to further boost the bilateral ties between the two countries in various fields, including energy and basic infrastructure sectors. Earlier a meeting between Prime Minister Nawaz Sharif and his Chinese counterpart was held in Beijing where both the leaders discussed bilateral relations and the regional situation.

These agreements signed between the two countries include solar power production at Quaid-e Azam Solar Park, easy loan for laying optic fibre between the two countries, mining of 65,00,000 metric tons of coal in Thar Block-2, a 870 MW SukhiKinari hydropower project, a 1320 MW Sahiwal power project and MoU for 100 MW Jhimpir wind power project.

Speaking to media representatives after the meeting, Nawaz Sharif said the Pakistan-China Economic Corridor Project will prove a game changer in the region. He also expressed the confidence that his visit to China would help resolve energy crisis in the country, adding that resolution of energy problem will bring progress and prosperity to Pakistan.

The projects include coal, solar and wind based electricity generation units. An investment of US$35 billion is anticipated in the energy sector. These projects would generate 23,000 MW whereas the total generation of electricity in the country till date is only 21,000 MW.

China intends to invest US$50 billion in energy and infrastructure projects in Pakistan till 2017 of which $15 billion investment is anticipated in infrastructure projects only. These included Lahore-Karachi Motorway, Karakorum Highway and expanding the capacity of Gawadar Port. In the transportation sector, the railway line from Karachi to Peshawar would be modernized and upgraded.

In a briefing minister for planning and development informed the cabinet that during the visit of the prime minister of Pakistan to China in July last year, an agreement was reached on the establishment of an "Economic Corridor". He added that because of hard work during the last six months and confidence of the Chinese government on Pakistani leadership, the number of projects has increased.

Pakistan-China economic corridor project is likely to get funding from the Asian Infrastructure Investment Bank (AIIB).The bank is being set up on the proposal of Chinese President to support the developing countries for construction of their basic infrastructure. In this connection, twenty-one countries including Pakistan are willing to join AIIB and have signed a memorandum of understanding (MoU). The countries signing the MoU includes Bangladesh, India, Kazakhstan, Kuwait, Malaysia, Oman, Pakistan, Qatar, Singapore, Sri Lanka, Thailand and Uzbekistan, besides Pakistan and China.

The name ‘Corridor’ suggests a gateway or a passage that connects the two countries, continents or regions. This ‘economic corridor’ will not be the first in history. The use of sea and land routes has assisted in the globalization process of opening Asia, as early as the 19th century. Suez Canal, opened in 1869, acted to aid the empires of great powers during the time. The canal through the Sinai Peninsula made trade and empire faster but also economical. The world’s superpower of the time, Great Britain, made great strategic use of it, by transport of goods, officials and soldiers to Bombay and other key colonial hubs in an easier and affordable manner. Similarly, Pakistan and China’s economic corridor sets out to achieve the same goals in a cooperative and democratic manner.

The project received a major boost when control of Gawadar was transferred to China’s state-owned China Overseas Ports Holding in February 2013. Built by Chinese workers and opened in 2007, Gwadar is undergoing a major expansion to turn it into a full-fledged deep-water commercial port. Pakistan and China have signed agreements for constructing an international airport at Gwadar, upgrading a section of the 1,300-Kilometre Karakorum Highway connecting to Islamabad and laying a fibre-optic cable from the Chinese border to the Pakistani city of Rawalpindi. With the development of the corridor Central Asia, traditionally an economically closed region owing to its geography and lack of infrastructure, will have greater access to the sea and to the global trade network. The Pak-China Economic Corridor Secretariat was inaugurated in Islamabad on August 27, 2013.

Physically, the corridor is a 2,700-Kilometre highway that stretches from Kashghar to Gwadar through Khunjrab. But in essence, these road and rail links will further strengthen the bond of brotherhood, as highlighted by the two governments. China Pakistan Economic Corridor from Kashgar to Gwadar will integrate the economies of the two friendly countries. The project envisages establishing several economic zones and physical links connecting Pakistan and China. Both the countries believe that this economic corridor will benefit new emerging regional cooperation in South Asia. This project is set out to transform the future of the region, driven by economy and energy, and the building of pipelines and ports with roads rail infrastructure.

Pakistan serves as an important ally for China in the South Asian Region. Pakistan’s geographical location puts it on the main route connecting China and the Middle East and China and Central Asia. For economic and strategic connectivity with these regions, China requires safe passage through Pakistan especially after China’s growing share in world trade.

Chairman of the Pakistan-China Institute, Senator Mushahid Hussain Sayed believes that the economic corridor will play a crucial role in regional integration of the ‘Greater South Asia’, which includes China, Iran, Afghanistan, and stretches all the way to Myanmar. A strong Pakistan is valuable as it warrants that Indian claim of regional hegemony will not go unchallenged. He opined that the Pakistan-China Economic Corridor is of immense importance for the revival of Pakistan’s economy, resolution of energy crisis and strengthening the Federation through development and infrastructure.

Pakistan-China Economic Corridor is strategically important for both China and Pakistan keeping in view the growing regional trade and investment collaboration. It is a win-win opportunity for Pakistan and China and the agreements of early harvest projects during Prime Minister Nawaz Sharif visit to China have great significance. These projects would be completed within a span of two to three years time and these include rail, road network besides several long and short term energy projects.

Pakistan is the first South Asian country to sign a free trade agreement and currency swap agreement with China and is also the largest destination of Chinese investment in South Asia. China is Pakistan’s second largest trading partner and fourth largest export market. China-Pakistan Economic Corridor has the potential to turn Pakistan into a hub of regional cooperation. If Pakistan uses this opportunity wisely and is able to reap the economic benefits this corridor has to offer, it can greatly enhance its regional power and prestige and prove a more valuable long-term ally for Beijing.

Beijing would be investing between $30 billion and $40 billion in Pakistan to develop the much-awaited Pak-China Economic Corridor (PCEC) which the logistics experts believe would enable China to significantly reduce the cost of its 70-million-TEUs containerized trade with Europe.

According to All Pakistan Shipping Association (APSA) Chairman Aasim Siddiqui once developed the proposed corridor would cut the conventional 19,000-mile Sino-Europe shipping route by thousands of miles.

Rendering PCEC to be of “immense importance” for the economy of Pakistan, Siddiqui told an intermodal Europe exhibition held recently in Rotterdam, Netherlands, that if transported through PCEC, the shipment of containerized cargo from Europe to western China would take about 9,000 miles only.

“Sino-Europe bilateral trade involves around 225 million TEUs. If only 10 percent of this huge containerized trade goes through Pakistan we would see our transport industry grow by three fold,” said Aasim.

The APSA chief says this 10 percent, which would add at least 7 million TEUs to Pakistan’s containerized trade, was a conservative figure and the potential figure might be up to 20 plus percent.

Work on the significant project, however, had been lingering for quite some time because the Chinese government had been planning to link Gwadar Port with western parts of China through constructing a new road network.

Pakistan has suggested to Chinese that instead of building new one they should tape Pakistan’s existing communication network and build an expressway to link Gwadar-Ratodhero Road to the national highway.

The two sides have decided the formula to make a matching investment on the expressway project. Under the formula a third lane would be added to the two-lane national highway road network to save money to be spent on the development of a new trade route. Matching funds would be made as the economic interest of two countries is common.

To reap the “trickled down” dividends of the Sino-Europe future trade, Pakistan would have to build local infrastructure through developing cargo villages, dry ports, attracting fresh investment in trucking field and so on.

It is believed that even Kazakistan is pro-actively working to benefit its geo-strategic location by developing a rail network to link Shanghai with Eastern Europe. They have run the train which would take 16 days to commute between the two destinations.

The corridor would have a “slow trickle-down effect” on Pakistan’s economy. The APSA chairman during the Rotterdam’s event claims to have received “encouraging” response from international intermodal transport service providers to establish business alliance with Pakistan for the development of PCEC.

Prof GaoJianlong, president of the Xinjiang Academy of Social Sciences, told reporters at a seminar held in Urumqi, (Xinjiang Autonmous Region) that AIIB was supposed to finance the mega projects like Pak-China economic corridor, which is a development project that would connect Gawadar Port to China’s northwestern region of Xinjiang via highways, railways and pipelines to transport oil and gas.

Chinese Prime Minister was among the first advocates of the project. As per policy of the Chinese government wants to offer equal development to all the regional countries. After completion, the Pak-China economic corridor will serve as a primary gateway to trade among China, Middle East and Africa through Pakistan. Particularly, the oil from the Middle East could be offloaded at Gawadar, which is located just outside the mouth of the Persian Gulf.

The oil would be transported to China through Pakistan. Such a link would vastly cut the 12,000-kilometres route that Mideast oil supplies must now take to reach Chinese ports. According to a deal signed in July, the project includes construction of 200 kilometers long tunnel, which will link both the countries and facilitate trade and commuters.

As per the plan, special economic zones would be established along the economic corridor, and Chinese companies have shown willingness to set up industries in the zones.

The MOU specifies that the authorized capital of AIIB is 100 billion US dollars and the initial subscribed capital is expected to be around 50 billion dollars. AIIB will be an inter-governmental regional development institution in Asia. It is expected that the Prospective Founding Members will complete the signing and ratification of the Articles of Agreement (AOA) in 2015 and AIIB will be formally established by the end of 2015. The proposed Asian Infrastructure Investment Bank will bring benefits to all parties involved.

China could contribute 50 per cent of the bank's capital. This shows China's determination to establish the bank but the final investment is open to adjustment, depending on how many countries participate. By economic weight, China is still expected to hold the biggest share.