The China Pakistan Economic Corridor (CPEC) and its Effects

Published on 29 Sep, 2017

The strategic development and framework of roads, railways, oil & gas pipelines and sea routes, the China Pakistan Economic Corridor (CPEC) is one of the biggest economic projects in South Asian. Stretching from China to Central Asia, South Asia, Middle East, Africa & Europe, it’s an integral part of China’s “One Belt, One Road” initiative. Once complete, it will connect Kashgar in China with Gwador port in Pakistan through a network of roadways, railways, pipelines and energy infrastructures.

China and Pakistan have formed a Joint Corporation Committee (JCC) to promote the CPEC, with groups comprising of long-term planning, energy, transportation infrastructure, industrial co-operation, and the Gwadar Port.

The CPEC has already boosted economic and trading activities between China and Pakistan, and the volume of trade has increased to $16 billion over a period from 2009-2010 to 2014-2015, according to Pakistan Economic Survey 2014-15. According to Pakistani Prime Minister Nawaz Sharif, the $46 billion China-Pakistan Economic Corridor (CPEC) would be a ”game-changer” for Pakistan as well as the entire South Asia region.

There is, however, a lack of transparency of investment in terms of the split between debt, equity and kind. Pakistan also has to take security measures to ensure the CPEC’s success, as it passes through Pakistan’s volatile province of Balochistan.

Investments Under the CPEC

Open to FDI, Pakistan’s leg of the CPEC is driven mostly by economic and business interests for both the countries. The various types of investment under the purview of CPEC are listed below:

  • Brownfield Investments
    Such investments are done in main assets and enterprises such as Shanghai Electric’s upcoming takeover of Karachi’s electricity utility (KE). It also includes investments in building new assets and capacity such as coal-fired power generation projects that are under construction. China is also acquiring a stake in the Pakistani stock exchange. The Chinese have also shown interest in Pakistan’s airline and banking sectors.
  • Lahore’s Orange Line Metro Train
    The Pakistan provincial government’s development programme has financed the funding for land acquisition. It is procurement by the Punjab government.

The CPEC Will Benefit Both Countries

Pakistan is emerging as a viable investment opportunity for other countries.

China, South Korea, Central Asia, the Middle East, the UK, the US, and the Netherlands are looking for opportunities to invest in Pakistan by increasing their presence in the country. Pakistan’s 2017 GDP projections have been elevated to 5.2% as per the Asian Development Bank. According to the American Business council, about 78% of companies in America are keen to invest in Pakistan, favoring a long-term outlook, and are likely to boost FDI levels in the country. According to Pakistani officials, more than 2.3 million jobs are likely to be generated by CPEC projects in Pakistan between 2015- 2030. The close political co-operation between Pakistan and China will act as a catalyst in economic co-operation, thus creating a win-win for both the countries. Favorable development between China and Pakistan are a possible source of stability and success for both nations, while co-operation in the areas of economics and security are carefully twisted from China’s perspective, as improvement in one area can lead to development in other.

CPEC to Uplift Major Economic Change

Around 17 projects costing approximately US$ 16 billion are either completed or are nearing completion right now. This has been a boon to Pakistan in terms of stability, and the country’s economic development received a shot in the arm through growing FDIs. CPEC infrastructure is providing connectivity through the country with highways and railways, furthering allied and industrial sectors as well as boosting productivity.

The CPEC could be an indicator of major economic change not only in China and Pakistan, but also South Asia. Investments to the tune of US$46 billion will change the economic and security outlook for Pakistan in a few short years, developments that could potentially benefit neighboring regions as well. The CPEC is making Pakistan an energy adequate country by focusing on producing electricity through more cost-effective means. As the CPEC is expected to face a multitude of problems on its way, both China and Pakistan have to come forward and overcome the problems and challenges in order to foster mutual economic development and growth.

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