Is The CPEC Failing?

The CPEC is one of the six Economic Corridors that China is creating in cooperation with other countries in the context of the One Belt, One Road initiative to improve transportation & intensify trade.

The CPEC should pass through Pakistan to connect China's landlocked Xinjiang province with the Arabian Sea and it pursues multiple objectives. First, Xinjiang hosts significant natural resources but is economically poor and affected by discontent among the local Uighur population. With CPEC and other region focused projects, China wants to develop the area so to improve its living conditions, exploit its economic assets and make of it a crossroad for East-West trade. Secondly, China wants to open an alternative access to the ocean.

Today, cargoes sailing to and from Europe as well as oil tankers from the Middle East need to pass through Malacca and other straits, which are extremely vulnerable chokepoints that could easily be blocked by the US Navy. This would be catastrophic for China, which consequently wants to have an access to the sea that avoids these exposed passages.

Finally, CPEC will foster relations with Pakistan. The two countries are already primary partners, and the project will create closer ties by increasing economic interdependency and by improving the living condition of locals. A solid bilateral partnership is also mutually beneficial considering their relations with India. But especially for Pakistan, having China as an ally is extremely useful to keep India at bay but the contrary it is also true, even though Beijing tries to downplay the existing problems with New Delhi. To reach these strategic objectives, China plans to build a series of infrastructure projects in Pakistan. Up to now, it has already invested at least 60 billion US dollars in the initiative which includes motorways, railways, ports, electric power plants, pipelines and more. Several Special Economic Zones will also be established. All these projects will be connected one with the other to some degree, with the aim to create economic prosperity and link Xinjiang with Pakistan's southern shores.

A particular relevance has been given to Gwadar, located in south-western Pakistan along the coast next to Iran. It will be the endpoint of CPEC, and one of its main centres. In particular, Gwadar's harbour is being expanded and upgraded. It will be transformed into a smart port surrounded by a Special Economic Zone that will host a large industrial area. It will be served by a new international airport, several facilities to improve the local living conditions, and it will be linked with the rest of the country and with China by road and train.

The port became partially operational in November 2016, when a joint Sino-Pakistani truck convoy successfully travelled from north to south across Pakistan and reached Gwadar where the containers were shipped to overseas destinations.

Yet, the remaining projects are still under construction. As far as other components are concerned, nine of them are already operational. These include a coal-powered electricity generation plant in Karachi and a similar one in the Punjab region, several wind farms and the Quaid-e-Azam solar park, one of the largest in the world. Another 13 facilities are being completed and are scheduled to become soon operational. Yet, there have been some setbacks as well. Combined with Pakistan's shaky financial condition, this has raised doubts over the general tenure of the CPEC project.

The first aspect to consider is that Pakistan's political and financial situation is not very promising for the future of CPEC. Former Prime Minister Nawaz Sharif was a supporter of the project, but in August 2018 he was substituted by Mr. Imran Khan, who on the contrary has criticised the initiative out of concerns over corruption and lack of transparency. He has also complained that the billions of dollars that China is investing in the country bring little benefit to Pakistani workers, as the facilities are almost entirely built by Chinese nationals. This does not mean that he has rejected CPEC, but he is certainly less enthusiast about it than his predecessor.

In addition, Pakistan is crossing troubled waters in financial terms. According to The Express Tribune, a Pakistani newspaper, the country owes $40 billion to China. This has raised the alarm over a debt trap meaning that China may exploit its financial leverage on Pakistan to exert political influence. In this regard, it is true that Pakistan's net public debt is estimated at 67.6% of GDP, that its external debt amounted to $82 billion at the end of 2017, and that the federal government must face a chronic penury of foreign currency which is a problem when having to repay external debts.

Therefore, there are doubts about Pakistan's financial tenure in the immediate future. The country received various loans from the IMF in the past, but it has rejected the latest $8 billion bailout plan. Instead, Mr. Khan's government preferred to demand financial aid to a few friendly countries, notably U.A.E, the Saudi Arabia & China. This has already brought some fruits.

An agreement has been reached between Islamabad and Abu Dhabi for a support package worth $6.2 billion, with three billion scheduled to be sent shortly. Similarly, Saudi Arabia's Prince bin Salman will soon sign a deal for building a $10 billion oil refinery in Gwadar, thus adding further significance to the port city. Cooperation in other sectors will also be discussed. In regard to China, the situation is more complex.

Bilateral relations remain good, but there are growing concerns about the completion of CPEC, at least in all of its parts. In the context of its troubled financial situation, Pakistan has recently announced its withdrawal from the Rahim Yar Khan power station, on the basis that electricity production capability is already sufficient and that consequently the project will not be economically viable. Yet, this may be a political excuse to hide the real problem, namely that there are not the funds for it.

In addition, there are delays in the construction of the smart port in Gwadar. In this regard, Chinese companies have allegedly warned that Pakistan will need to pay to cover the additional costs caused by this postponement. These events have created much speculation about the completion of the CPEC as a whole, especially in India, where major newspapers like the Times of India have reported such news.

As a matter of fact, there is a sensible degree of strategic rivalry between Beijing and New Delhi, who perceives its northern neighbour and its close ties with Islamabad as a potential threat. On its part, China has responded to the recent events along a double line.

State-sponsored media like the Global Times have published articles where they reassure the solidity of the Sino-Pakistani partnership and about the determination of both sides to end the works on CPEC. At the same time, they have accused other countries of being jealous and of having aggressive intentions.

It is clear that the message was a response to the news about the recent setbacks of the CPEC project reported by Indian media. By explicitly addressing the recent reports by Indian news channels, the Global Times has also downplayed the entity of Pakistan's China-owned debt and have suggested third parties not to meddle in this issue all while affirming that India will also benefit from CPEC.

According to such Chinese articles, which cite the China's embassy in Pakistan as a source for the figures, Islamabad does not owe $40 billion to Beijing. Instead, they claim the debt only amounts to over $6 billion, including interest. Apart from this, the security aspect should also be mentioned.

The recent cancellation of the Rahim Yar Khan power plant and the delays over Gwadar's smart port suggest that there may already be complications in this sense. Yet, unless Pakistan enters in a serious financial crisis or faces a collapse of the state, it seems that the project will be competed at least in part.
That said, the other certain thing is that CPEC and China's presence in Pakistan is not viewed positively
by India, and in geopolitical terms this is probably the most relevant aspect.