Evolution of China-Pakistan Economic Corridor
Pak-China relationship cannot be expressed or comprehended in a usual manner or in the frame of diplomatic theories. It is an inimitable bond in many aspects and every aspect has its own dynamics and values. Howbeit, from the beginning, one thing remains constant – the trust and brotherhood. History witnessed several events where both countries remained committed and stood shoulder to shoulder with each other. Pakistan was the first among Muslim countries and 14th among the global community to recognize People’s Republic of China. Since January 4, 1950, Pakistan stood by People’s Republic of China and disengaged with Taiwan. Pakistan provided air space to China in 1960s for global connectivity, when it was going through the harsh sanctions by Western countries.
Pakistan also showed firm commitment and support when the USSR started to disengage with China and border conflict started between the two countries. Pakistan reinforced the Three World Theory by Chairman Mao. The establishment of contact between China and USA to break the ice is a milestone event in history. It laid the foundation of China-USA relationship, which helped both the countries economically. Pakistan also assisted China to have its legitimate seat at the UN and UN Security Council, which was occupied by Taiwan.
China has never forgotten the assistance of Pakistan during its most difficult times. Chinese leaders and people always keep it very close to their heart and express it verbally and practically. China always stood firm with Pakistan in every field and at every occasion. China and Pakistan have kept improving their economic, social, cultural and security ties during the course of recent history. The beauty of cooperation with China is that it tries to build the capacity of Pakistanis and impart the skills of doing business, industrial or defence production. China aided Pakistan in building the Heavy Mechanical Complex Taxila, which is now a leading defence production facility. China also assisted Pakistan in developing Heavy Forge Factory, Pakistan Aeronautical Complex, Pakistan Ordnance Factories and production facilities for navy etc. But JF-17 Thunder is a prime example amongst all cooperation in the field of defence.
The two countries also continued to expand cooperation in diverse fields. Pakistan and China signed Scientific and Cultural Cooperation Agreement in 1976 and Education Exchange Agreement in 1983. Economic cooperation is another area which always remained in discussion. Howbeit, the economic relationship took a new turn in the 2000s. President Musharraf visited China in 2000 and asked the Chinese leadership to expand our economic linkages in a comprehensive manner. China responded positively and started to engage in continuous consultation to find ways for a mutually beneficial economic cooperation. President Musharraf also requested China to invest in Gwadar. Subsequently, the Chinese Vice Premier Wu Bangguo was present at the inauguration of Gwadar Port in 2002.
The economic cooperation continued to grow due to special efforts of the leadership of both countries. In 2003, President Musharraf and President Hu Jintao agreed to expand the economic linkages basing on values of brotherhoods. It was further discussed that both countries would work to find ways to benefit from the geographical and political advantages. The 2003 Beijing Declaration which was signed by President Hu Jintao and President Musharraf is a comprehensive document, which outlines the future direction of cooperation. It encompasses almost all areas of economic and social development. The major areas identified for cooperation were:
▪ Science and technology
It was also decided that the both countries will remain engaged to find ways of cooperation in the fields of telecommunication, water conservancy, electric power, aviation and space technology, computer, automation, metallurgy, IT, medicine and health, petrochemistry, biotechnology and peaceful utilization of nuclear power, industrial zone, human resource and export zones etc. The decision was also taken that the government officials and higher leadership will continue to visit each other for strengthening the relationship further.
In continuation of this commitment in 2006 President Hu Jintao visited Pakistan. He signed two very important agreements: 1) Free Trade Agreement, and 2) Framework Agreement on Energy Cooperation. President Zardari also kept the spirit alive and visited China many times. He kept looking for new avenues of collaboration. In 2013 Prime Minister Li Keqiang came to Pakistan and agreed on a comprehensive framework of cooperation, which was built on the contours of Beijing Declaration 2003. The efforts finally culminated into CPEC in 2015. President Xi Jinping, during his visit in 2015, signed the CPEC and announced that China would invest in Pakistan to give a boost to the economy and development of the country. It was a landmark event, as Pakistan was starving for investment and no one was ready to invest in Pakistan due the War on Terror. Even our allies in the War on Terror like USA, NATO countries and other friends were hesitant to invest. In such circumstances China came forward and proved that China and Pakistan are ‘Iron Brothers’, not in rhetoric but in reality.
Progress and Performance of CPEC
CPEC has been designed in a phase-wise manner. The first phase was designed to benefit from the low hanging areas and meet the urgent needs of Pakistan like energy and infrastructure. The second phase is all about the industrial cooperation. The purpose of the second phase is to help Pakistan graduate from primary to secondary economy. A long-term plan has been developed to meet the future demands, especially in the areas of fourth industrial revolution. The previous government immediately launched CPEC and started to implement the first phase.
It is heartening to know that CPEC started to deliver benefits from the first phase. This first phase helped Pakistan in many ways. First, it assisted Pakistan to overcome the menace of load-shedding, which was impacting every sphere of economy and society. Load-shedding was a common phenomenon all over Pakistan in 2014-15, even cities like Islamabad, Karachi, Lahore etc., were going through the worst phase of load-shedding. Industry and business sectors had to suffer the worst impacts. It was imposing a huge economic and social cost. According to Vision 2025, the annual loss in 2015 due to load-shedding was about USD 4-5 billion. It does not include the social impact, which has many dimensions including the mental health issue. Secondly, it also helped to expand the transport infrastructure, which was in a bad shape. In 2012 it was estimated that Pakistan needed USD 1.2 billion to rehabilitate the transport infrastructure. CPEC not only helped to rehabilitate the infrastructure but also to build new infrastructure.
Third, Gwadar Port is another big contribution of the first phase of CPEC. It has multidimensional benefits. It will reduce the burden on Karachi port and city. It will be an engine of growth for Balochistan. It will also act as a regional hub for connectivity and transit trade, especially with Afghanistan. Fourth, it also has been estimated that the first phase created more than 75000 jobs, especially in marginalized areas like Gwadar and Thar. Thar, once a reference point for hunger and child mortality, is rapidly turning into an energy hub. Women are equally benefiting from the opportunities, especially in Thar. It is a huge contribution to the job starving market of Pakistan.
The contribution of second phase on long-term would be multifaceted. It will help to revive the economy and bring back Pakistan on the development path, if implemented in accordance with the long-term plan. The second phase has been designed to create massive employment, livelihood opportunities and social development through industrialization along with agriculture, social development and cooperation in science and technology. Private sector from both sides will spearhead the industrial cooperation. The preferred mode of cooperation would be joint ventures between Pakistan and Chinese industrial groups. The role of government would be as a facilitator for its smooth implementation.
Special Economic Zones (SEZs) have been designed to foster the process of industrial cooperation. Both governments have started work to establish nine Special Economic Zones. SEZs are spread across the country. The pace of work is picking up on SEZs after the establishment of CPEC Authority which is focusing on the provision of basic facilities like water, sanitation, and infrastructure etc. Although, the work on all SEZs is going on but Allama Iqbal, Rashakai and Dhabeji are in advance stages. It is encouraging that a big number of Chinese companies are showing interest in the SEZs and looking towards building close cooperation with Pakistani companies.
Expansion of areas of cooperation is another prominent feature of this second phase of CPEC. Both governments are trying to include new areas of cooperation. In the pursuance of this vision, the cooperation has been expanded to agriculture, science and technology and social development sectors. Two MoUs were signed in March 2020 to strengthen cooperation in agriculture and, science and technology during the visit of President of Pakistan to China. Although, President of Pakistan visited China to show solidarity, as China was struggling to overcome COVID-19, China used the visit to show the deep-rooted brotherhood by offering to sign the MoUs. Timing is also important because the world was struggling to sustain the shocks of COVID-19 and economies were in a nosedive. Trade and services sectors were observing the worst shocks and investment was drying up from the international market. In these circumstances both countries decided to expand their cooperation, which highlights the uniqueness of this relationship and the care for each other.
Agriculture MoU, 2020 would be helpful in tackling the present challenges, needs and lay down the foundation for modernization of the agriculture sector to meet the future demand of food and raw material. It is the outcome of continuous pursuance of Pakistani leadership for assistance in agriculture sector. It also outlined the direction for future collaboration. Besides it is a living document and can be amended according to the need and changing dynamics. Pakistan and China have created different groups and mechanisms like China Pakistan working mechanism, sustainable agricultural cooperation, joint agricultural working group and agricultural cooperation under the CPEC framework. The purpose of groups and mechanisms are to accelerate the process of execution and materialize the agreed points of collaboration.
The identified areas of cooperation are: technology, R&D, scientific knowledge, disease control, supply chain management, certification and trade etc. The areas have been selected in accordance with the needs of Pakistan. It is a well-known fact that Pakistan needs support in numerous fields to tackle the multidimensional problems of the sector including productivity, supply chain and better inputs. It is expected that the research and development will help to enhance productivity of agriculture, as we know low productivity has been haunting Pakistan for a long time. National average of yield of major crops: wheat, cotton, rice, maize and sugarcane is 2.26, 1.87, 2.88, 1.77 and 48.06 tons per hectors respectively. It is even lower than the progressive farmers in the country. The major contributing factors for low productivity are research and extension services, along with other factors. It has been calculated that research gap for these crops’ yield is 34 percent, 33 percent, 12 percent, 19 percent and 64 percent respectively.
Hence, both governments concentrated to enhance the research and scientific capacity and capability through mutually agreed programs. China will also be offering scholarships to Pakistani students for studying in top-notch universities of China to have first-hand knowledge of the latest developments in the sector. Currently almost 28000 students are studying in China and many of them are pursuing studies in the agriculture sector. These students will play a leading role in enhancing the research and technical capacity of Pakistan. They will not only bring back scientific knowledge, but the market know-how of China as well. Moreover, specialized vocational training institutes will also be built in Pakistan in the long run. In the short run, China will impart trainings through agricultural vocational institutes in China.
The MoU on Science and Technology has been drawn to cater future needs and demands. The guidance has also been abstracted from the principles of Fourth Industrial Revolution and its elements like robotics, artificial intelligence, big data and computing. The MoU will be implemented in a phase-wise manner in accordance with capacity of human resources and the state of development of economy. Pakistan is cognizant of the fact that the country is lagging behind in science and technology. Although Pakistan has islands of excellence, but system and infrastructure does not support the evolution of culture of R&D, knowledge production and application of ideas. It led to poor state of knowledge and weak culture of R&D, which has hindered the development of science and technology base of the country. Thus, both countries have adopted a systematic approach to implement the MoU. The systematic approach gives hope that it will be a win-win cooperation.
Social development is another area of expansion of CPEC. Pakistan was very much concerned about the poverty, low skill level and scarcity of livelihood opportunities. China extended the hand of collaboration to alleviate poverty and skill development for decent livelihoods. China has announced that it will provide more than USD 1.1 billion for social development projects. The areas for cooperation include skill development, poverty reduction programs, health, education, capacity building, agriculture and housing. In the first phase of social development China is providing USD 100 million for each of agriculture, health and housing sectors in addition to skill development aid to the government of Pakistan. China is also helping Pakistan in eliminating locusts. It also provided funding for building a specialized hospital to fight COVID-19 in 2020.
Apart from the government of China, Chinese companies are also investing in social development of Pakistan. For example, Chinese Overseas Port Holding Company (COPHC) has built a school with the capacity of 1000 students in Gwadar. It is a major intervention as the area was in dire need of an educational institute. COPHC also joined clean and green campaign of government of Pakistan and last year it has planted 400000 plants in Gwadar. Furthermore, it has committed to plant one million plants in the next five years. COPHC also helped Gwadar and Balochistan government during COVID-19 by providing medical supplies and food to people. Huawei is another company which is providing assistance in building capacity in the technological sector. It has established different capacity building centers in universities. Most recently it has signed an agreement to build capacity of 3000 students in collaboration with Higher Education Commission of Pakistan. Three Gorges Cooperation, Jack Ma Foundation and many companies also helped Pakistan during COVID-19. It is a good example of people-to-people cooperation and care for each other.
Negative Propaganda Against CPEC
Propaganda against CPEC started even before the inception of this project. It is unfortunate but nevertheless a reality. The campaign started by USA and India by tagging CPEC to geo-strategic motives. USA started to pressurize Pakistan one way or another. India jumped in to capitalize on the situation and brought in baseless allegations. The campaign continued to grow, and different elements were introduced. First, it was criticized on the allegations that it will impact the environment due to coal power points without realizing the share of coal energy in national energy mix of Pakistan (11 percent). They also ignored the investment on renewable energy sources e.g., wind, solar and hydropower under the CPEC. The review of global data shows that the share of coal in electricity for USA is 23.4 percent, Germany 35.4 percent, India 77 percent, South Korea 44 percent, South Africa 88 percent, and Indonesia 58 percent. These are just a few examples, there are many more.
The other favorite allegation or instrument of propaganda is labor issues. It was highlighted that Chinese firms are bringing in Chinese labor and there is no scope for Pakistani labor. It is a baseless allegation as through this project already 75000 jobs have been created in Pakistan. It is expected that it will create around 4 million jobs till 2030.
The latest points of contention doing the rounds on the propaganda front are corruption and debt trap. USA and many Western allies are portraying CPEC as debt trap. They are trying to convince people that it would be beyond the capacity of Pakistan to pay it back. They are also blaming CPEC for debt crisis of the country, which has no relevance. The debt crisis is mainly due to Western countries and International Financial Institutions. CPEC is basically an investment program with some loans and export credit facilities. It also contains a huge social development program.
There can be many reasons of this propaganda but the most prominent are: vested interests of Western countries, India, fear of the rise of China and hegemonic aspirations of USA. However, the campaign also got momentum due to lack of proper engagement strategy and weak information and data sharing mechanism by the government of Pakistan.
The implementation of first phase of CPEC, ongoing work on the second phase and expansion of CPEC are good signs of progress. The results also highlight the many success stories like creation of jobs, share in national GDP and many others. The World Bank studies also have predicted that the future benefits would be much more if the project is implemented in its true spirit. The Common Transport Infrastructure, A Quantitative Model and Estimates from the Belt and Road Initiative, The Belt and Road Initiative Economic, Poverty and Environmental Impacts, The Belt and Road Initiative Economic, Opportunities and Risks of Transport Corridor presented a positive future picture. According to reports, GDP can be increased by the factor of 6.43-14.03 percent, and welfare gains can be 5.18-10.5 percent. However, there are many lessons which need to be considered for devising better tools of implementation and achieve better results. The learning from lessons and practical implementation will also help to mitigate propaganda.
▪ There was a need to create a dedicated body for the smooth execution of CPEC. The government and relevant institutions took the lesson with seriousness and created the CPEC Authority. Despite opposition from different corners, government remained committed and did not compromise on the decision. The CPEC Authority is proving the government right by delivering on multiple fronts. It has achieved many milestones within a short period of time. CPEC Authority started its work by settling the outstanding issues. It resolved the problems of Karot HPP, Kohala, Gwadar energy project, Azad Pattan, Shanghai Electric etc. The authority is also assisting the government and private sector to resolve the matters of taxation, incentive policies and timely execution of projects. The Authority is taking lead to expedite the work on SEZs, especially in the provision of utilities, services and ensuring good incentive policies. Services, utilities and incentive policies determine the success or failure of any SEZ. It has made sure that the funds for the utilities and services should be released on time in addition to incentive policies for investment in SEZs. The Authority is also working to expedite the work on social development projects in the sectors of agriculture, education, training, skills and poverty alleviation.
▪ The second lesson is that there is a need to tackle red-tapism and multiplicity of institution to tackle a single job. On the one hand these factors are causing delay in the execution and meeting the important deadlines and on the other hand creating enormous problems for the private sector. Business community hesitates to invest in such circumstances. We have observed that a number of private companies visited Pakistan to explore opportunities to invest in CPEC and SEZs but majority of them could not make a decision to invest due to red-tapism and multiplicity of institutions. Private companies have to face many ministries and departments to get simple permission to start a business let alone the operational requirements. Although, Pakistan’s ranking on the Ease of Doing Business table has improved, but practical results are still awaited. Hence, it is suggested that if the government wants to attract investment then it should urgently address these issues.
▪ Politicizing of CPEC will not serve the interest of Pakistan. It will only strengthen the hand and serve the interests of opponents. CPEC is already facing smear campaigns. It is impacting the smooth implementation of CPEC. Hence, all stakeholders should come out of the mentality of undermining the efforts of other parties or institutions. They can continue to take credit for their work, but they should avoid undermining the work of other parties and institutions. Moreover, it is a well-established fact CPEC is not the work of any single government or party. It is the fruit of long-standing friendship of Pakistan and China. The history of CPEC shows that the journey started in 1960s and consolidation started in early 2000s during the government of President Musharraf. The Beijing Declaration 2003 provides the complete blueprint of CPEC. Free Trade Agreement (FTA), Framework Agreement on Energy Cooperation, were signed by President Musharraf and President Hu Jintao in 2006. President Zardari continued the work and visited China (officially and un-officially) to enhance bilateral cooperation. The previous government also contributed and the CPEC project started during his government. Cooperation is still ongoing under the present government. So, the political parties and other stakeholders should learn from this and come out of credit game mentality.
▪ There should be mechanisms to engage the youth of Pakistan in CPEC projects. It is good to note that CPEC Authority has already started to engage youth and launched an internship program. Although, the Authority has started with 100 vacancies, it can be increased in the future. However, it is suggested that government should also work to devise engagement programs for the madrassas and uneducated youth. Their engagement would be a game changer. It will provide livelihood opportunities to millions of people. It will also help to counter extremism and violence, as most of the time these young individuals are exploited by interest groups.
▪ We need to understand the China’s governance, development and foreign policy are aimed to smoothly implement CPEC. The working style of China is different from the Western countries – China tries to keep things low and avoid pomp and show. Second, China keeps people at center to make any economic or development decision. Thus, Pakistan should concentrate to develop projects under CPEC which have direct relevance with the lives of people. We already observed this in the form of cooperation in agriculture and social development sectors. Pakistan just proposed and China immediately signed the cooperation documents. Third, the approach of China for bilateral cooperation is based on two-way consultation on the basis of hard facts and figures. Hence, Pakistani officials need to be well prepared for any type of talks on bilateral cooperation.
▪ Data sharing would be key to mitigate the propaganda against CPEC, Pakistan and China. In the absence of data and information, speculations and rumors rule the market. We have already observed this trend in the case of CPEC. We can find a number of propaganda articles or documentaries, which are based on fiction not facts. The propaganda campaign was focused on maligning China by terming CPEC as a debt trap, interference in domestic issues of Pakistan, labor from China and many more. Owing to this propaganda campaign people started to question CPEC and its utility for Pakistan. It is good to note that government has learned from the past mistakes and is now working to improve on the data sharing. CPEC Authority has introduced new mechanisms to share data and information. It is also working to erect a dedicated desk to cater the needs of data and information sharing.
▪ Pakistan is in dire need to create good livelihood opportunities for the millions from the marginalized class. Pakistan and China have started to work on this. As a result of continuous work of both countries, CPEC has included agriculture and social development sectors as prime areas of cooperation. It is expected that these areas will help Pakistan to create decent livelihood opportunities. The investment in skill development under social development cooperation will help Pakistan to meet local demand of skilled labor and export the labor. The cooperation in agriculture sector will help enhance the export potential of Pakistan by improving productivity. It will a good step to improve the status of farmers. These actions will serve as positive interventions to tackle the issue of poverty in Pakistan.
▪ All parties and institutions should avoid discussing the role of China for their mileage. It needs to be understood that China is a friend of “The State of Pakistan”, not any political party, group or individual. We have witnessed in the past that China continued to work with Pakistan irrespective of who is in power. China will never take sides and treat everyone equally.
The writer is Director, China Study Center, SDPI and also teaches digital diplomacy, negotiation skills and conflict transformation at Foreign Services Academy.
E-mail: [email protected]
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