Pakistan's road to China

With investment slumping and exports declining, Pakistan is increasingly banking on the China Pakistan Economic Corridor (CPEC) to drive future growth. The International Monetary Fund (IMF) and the State Bank of Pakistan have both billed the corridor as the best bet to lift growth for Pakistan, which has picked up marginally to 4.7 percent last fiscal year but remains far short of the target of 6.5 percent needed to absorb new entrants into the labour force.

On Sunday, November 13, the first two vessels carrying goods brought from China for exports were seen off from Gwadar port amidst much ceremony and fanfare.

For many, this was the beginning of a new chapter in Pakistan's history, the herald of 'a new dawn' in the words of Prime Minister Nawaz Sharif, as the country went tighter into the embrace of China.

The corridor is a mix of various projects designed to promote connectivity between the landlocked Eastern province of Xinjiang in China, and Pakistan's rich and largely unspoiled coast.

It envisages a network of roads running from Kashgar all the way to Karachi and Gwadar in the south of Pakistan. Karachi is already a bustling commercial city of 20 million with two large functioning ports that serve all of Pakistan's trade requirements.

But Gwadar has lain empty in a middle of a massive barren desert for decades.

Long identified as a potential deep sea port, with a draught up to 11.5 meters which can grow to 14 meters with a dredging programme, Gwadar has been touted by successive governments as an alternative to Dubai and Mumbai ports as a way station for shipping bound for China.

It was built under the Musharraf regime but no shipping lines were prepared to utilise it, so the four cranes installed there rusted over the years. In 2013, the government took the port out of the hands of Port of Singapore Authority which had been the operator since 2007, and gave it to China Overseas Ports Holding Company Limited. By 2015, the Chinese company was ready to announce commercial operations and in March, the government approved a sweeping package of tax exemptions for it and all of its contractors and subcontractors working in Gwadar.

The first vessels departed from the port in November, but it is unlikely that any more commercial cargoes will go through the port in the near future. The convoy of almost 150 trucks carrying Chinese goods that filled the first containers to be loaded from Gwadar for an outbound journey was organised by the Pakistani government, with strong security and incentives to use the port and the connecting roads, known as the western route.

Commercial parties are reluctant to use the port and the roads of the western route due to security fears and higher costs due to the longer distance involved compared to Karachi. In addition to Gwadar port, the corridor envisages thousands of kilometres of new roads and highways that will link the northern border of Pakistan and China with the coast on the south.

Three routes lead towards Gwadar, while existing routes to Karachi are being upgraded.

From the outset, the massive land acquisition and construction contracts involved in these projects, as well as the benefits of road links, sparked heated politics within the country over the inequitable sharing of the benefits from the project.

The Pakistan Tehreek-i-Insaf (PTI) party, headed by the charismatic cricketer turned politician Imran Khan, which rules the northwestern Khyber Pukhtunkhwa (KP) province, passed five resolutions demanding that the western route, parts of which run through the province, be given priority in the construction timeline, eventually taking the matter to court in November of 2016.

The ruling party from Sind, the Pakistan People's Party (PPP), played along with the protests, but never escalated it to the level that the PTI did. Both argued that the central province of Punjab, the most populous and ruled by the party of Mr. Sharif was taking a disproportionate share of the investments planned under CPEC.

The protests have begun to die down, partly due to Chinese government coaxing, and partly because the ruling party moved to placate the discontented groups. But with the politics ebbing away, security fears remain.

The western route runs through the insurgency torn province of Balochistan.

A long running counter insurgency being run by the army has successfully brought down the number of attacks on military convoys, but the terrorists have moved to attacking 'soft targets', like lawyers groups or shrines, in attacks that have produced dozens of casualties.

In addition to the port and road links, CPEC also consists of a series of power projects being set up by state owned Chinese companies in collaboration with private and public counterparts in Pakistan.

Of the total USD 46 billion investment planned to enter Pakistan under various CPEC projects, USD 18 billion is investment on commercial terms for energy sector projects along the project. Another USD 9 billion is for roads, two-thirds of which is concessional loans, and the remaining as commercial loan or investment on commercial terms. Together, this USD 27 billion of investment is coming under the 'early harvest' projects which are expected to be commissioned around 2018.

The remaining is part of a longer-term vision.

The government is counting on the energy projects to overcome power shortages that have hobbled Pakistan's growth rates for almost a decade now.

Under the early harvest projects, almost 10,400MW of power generation capacity is supposed to be installed in Pakistan using Chinese resources, which will have to be repaid on commercial terms with the price built into the power tariff at which the state will procure the electricity generated.

Some of these projects, however, have already started to fall through. And what is left is attracting growing critical comment for the price tag that comes attached with them. The IMF warned in its latest report that outflows 'could add up to a significant level', estimating that outflows on CPEC related government borrowing could reach 0.4 per cent of GDP per year over the longer run. It calls for reforms to strengthen the external sector of the economy in order to prepare for these obligations once they arrive.

But the government remains largely unfazed by the critical commentary or the political wrangling. The Prime Minister declared that 'all enemies of CPEC are enemies of Pakistan' during his remarks at the ceremony held at the port with the two cargo vessels in the backdrop on November 13 in Gwadar. Pakistan will make every effort, he went on to claim, to take its place in the One Belt One Road project being pursued by China.

The security challenges remain, and a special CPEC security force has already been created under the army specifically for the task of providing protection to Chinese investments and trade convoys.

The politics have receded into the background for now, while the costs are too far into the future for anybody to worry about. Pakistan's road to China is a bumpy one, but according to many of its supporters, it is also the only road for the country now that the Americans are preparing to leave the region for good.

The writer is Assistant Editor of Dawn, Pakistan.