Economics of China-Pak Trade Corridor: How to Efficiently Operate the Corridor?

Published in All Most Read English

Written By: Dr. Zafar Mahmood

The new economic geography approach maps the economic landscape in a dynamic way and inhabits it with economic agents in production, employment, investment, infrastructure, etc. Thus, by unleashing the hidden growth potential of the region it stimulates socio-economic development. The approach allows the distribution of benefits accruing region-wide in the form of growing trade, investment and economic agents’ contacts.


Trade corridor (henceforth the corridor) connects economic agents along a defined geography. They provide connectivity between economic hubs, usually centred along the corridor, where large endowment of economic resources and economic agents are concentrated.


Modern day economic corridors take advantage of efficient ‘multimodal transport network’ with the help of quality infrastructure, logistics, distribution networks that link production clusters, urban centres, and international gateways. Equally important for the corridor is an enabling policy framework that eases doing business and non-tariff measures to facilitate trade. The corridor promotes growth by removing infrastructure bottlenecks, improving access to markets, stimulating trade and investment and boosting productivity and efficiency through associated network externalities and agglomeration effects. The corridor also promotes inclusive growth by expanding economic opportunities in backward regions and linking them with urban centres and production clusters.

ecoofchinapakcoridor.jpgWithin the above perspective, the $46 billion China-Pakistan Economic Corridor (CPEC), of which the trade corridor is an important component, aims to connect Gwadar Port to China’s Xinjiang province, via a network of highways, railways and pipelines to transport oil and gas. The corridor will run about 2,700 km from Gwadar to Kashgar and will reduce the present distance between the two cities by 9000 km, thus the route will be much shorter and cheaper. It will also open trade routes for Western China and provide China direct access to the resource-rich Middle East region via the Arabian Sea, bypassing longer logistical routes through the Strait of Malacca.


The corridor is an extension of China’s proposed 21st century Silk Road initiative. China has promised to invest around $11.8 billion in infrastructure projects. The agreement also includes $622 million for Gwadar Port. The corridor also includes upgrading of Pakistan's major transport infrastructure, including: Karakorum Highway, Karachi-Lahore Motorway, the Gwadar Port, East Bay Expressway Project and Gwadar International Airport. This massive investment plan if effectively implemented is expected to transform Pakistan into a regional trade and industry hub.


Energy security is a key concern for China. Oil pipelines through Pakistan would reduce its cost of transportation that will be a source of revenue earnings and employment generation for Pakistan. So the alterative trade route, which will cut down the distance and time, will be mutually beneficial for both countries. In this context, China plans to build mega oil storage facilities and a refinery at Gwadar Port, with oil transported to Xinjiang via road and pipeline.


Gwadar’s potential to serve as a transit hub for grain and food storage facilities as well as industrial and processing zones along the corridor would further boost investment opportunities. Besides trade and energy, the corridor would ultimately serve as a gateway for commerce and transport between the South Asia, Central Asia, China and Gulf countries.


Pakistan in the recent past has been growing sluggishly. Its exports-to-GDP ratio is falling. Domestic investors are wary to invest in the country, which dissuades foreign investors to invest in Pakistan. This situation is mainly due to lack of regional connectivity, which results into high trade cost for our traders. This in turn hinders domestic industries to become part of international production networks and benefit from economies-of-scale that are available in international market. Pakistan needs to create more than 1.5 million jobs every year. On the whole, the Pakistani economy is currently under performing. By proactively becoming part of the new strategic regional economy, it can unlock the untapped economic potential of the new entrants to its labour market. In this regard, the corridor is considered as vital for Pakistan’s economic prosperity. To make the corridor a successful enterprise, several underlying economic factors will have to be incorporated in policy formulation. In this regard, following is recommended:


• Ensure complete and strong commitment and support for the corridor by all stakeholders at all levels of policy and decision making, be it private or public, federal or provincial organizations.


• Introduce human resource development and technology development programmes to bridge the existing innovative knowledge gap by involving leading universities and research institutions of Pakistan.


• With initiation of work on the corridor, periodically track its work progress on all the project components to timely resolve issues and overcome hurdles and quickly adapt to the changing needs and priorities. Moreover, put the corridor related issues on the main policy agendas of federal and provincial governments.


• Ensure sufficient and sustained funding support for all the corridor projects for their timely completion.
• Develop effective institutional mechanisms and arrangements to ensure coordinated and sustained efforts among local Pakistani institutions as well as between the institutions of China and Pakistan.


• Charge transit fee on commercial basis to recover the full cost of the corridor and other network services.


• Develop common transit procedures and effectively implement the recently signed TIR Carnets Convention (Transports Internationaus Routiers or International Road Transport), which is to provide simplified and harmonized procedure of international road transport from the starting point of goods in transit to their end point. Make this Convention as part and parcel of Pak-China bilateral trade agreement. Also modernize road haulage fleet and services; this would, however, require capacity building in institutions dealing with the trade and transit trade.


• Initiate work on world-grade trade facilitation system to benefit from the full trade and investment potential of the corridor. In this context, transit trade should be implemented through a system of Automated Import and Export System, Economic Operators’ registration and identification systems, a Single Electronic Access Point, an Integrated Tariff Environment, etc.


• Conclude a comprehensive transit trade agreement with China, which is vital for the success of economic corridor. In this regard, we can learn from the best European practices in transit trade arrangements and facilities.


• Provide investment incentives to foreign firms, regional and international, by providing free trade and hassle free environment. In this regard: encourage investment to produce quality goods for export to regional markets.


• Provide local connectivity to the corridor through feeder links and integration through domestic transport networks.


• Government should create awareness among people living along the corridor to start planning for activities that would be required by local and foreign transporters.


• Proactively plan for the promotion of tourism industry as easy connectivity will attract foreign tourists to visit Pakistan.


• For the overall success of the corridor, Pakistan needs to take collective policy initiatives by approaching the Chinese government; especially in areas where it doesn’t have institutional capacity and expertise. This is because China has vast experience in establishing and operating regional trade corridors.


• Establish export-oriented natural and human resource-based industrial clusters along the Corridor. For this government needs to: (i) provide basic and efficient infrastructure in these clusters to attract domestic and foreign investors; (ii) establish industrial technology enclaves in these clusters to facilitate the innovation process; (iii) diversify production by manufacturing quality and sophisticated products for upcoming regional product market space; and (iv) induce industries to acquire more production capabilities and capacities to enhance their access to regional markets.


All in all, given the current impasse in the Pakistan economy, the corridor is expected to fast revive it. It will strengthen the existing strategic partnership between China and Pakistan. In the time to come, the corridor’s success will induce other regional countries to benefit from this connectivity by joining it, leading to regional peace, harmony and prosperity. It is, therefore, imperative that the whole nation unites to support and work for the success of the China-Pakistan trade corridor.

The writer is a Professor of Economics at School of Social Sciences and Humanities at NUST, Islamabad. This email address is being protected from spambots. You need JavaScript enabled to view it.
On the whole, the Pakistani economy is currently under performing. By proactively becoming part of the new strategic regional economy, it can unlock the untapped economic potential of the new entrants to its labour market. In this regard, the corridor is considered as vital for Pakistan’s economic prosperity. To make the corridor a successful enterprise, several underlying economic factors will have to be incorporated in policy formulation.

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