Has CPEC reached its potential?
INSPIRED by President Xi’s vision of regional connectivity and people-centric development model, the China-Pakistan Economic Corridor (CPEC) is an important part of the Belt and Road Initiative (BRI) and its flagship project with Gwadar Port as the Jewel in the crown of CPEC
Traditionally, China and Pakistan have cooperated closely at the strategic and political levels. With CPEC the strategic partners are making efforts to expand their bilateral collaboration economically as well. The construction of the CPEC is a milestone that signifies this shift. CPEC is undoubtedly a “game-changer” not only for Pakistan but the entire region. Connecting Gwadar Port to China’s Xinjiang Uygur Autonomous Region, through a network of highways, railways, pipelines to transport goods, technology, oil and gas and fibre optic cable for flow of knowledge, presents enormous opportunities to people from Gwadar to Kashgar and beyond.
The strategic concept of connectivity between Pakistan and China originated with the decision to build the Karakoram Highway (KKH) to link the two countries through an all-weather highway. Thus the concept has been in the works for decades however, the two sides inched towards translating the concept into concrete reality with another strategic decision in 2001 to construct deep sea port at Gwadar. The vision and the financial package for linking KKH to Gwadar port with a network of roads and bridges and reviving the energy sector of Pakistan and project layout of CPEC was agreed during the visit of Chinese Premier Li Keqiang to Pakistan in May 2013.
Today CPEC has become the unambiguous symbol of the enduring friendship between Pakistan and China and holds a pivotal position in the development agenda of Pakistan. CPEC has huge strategic significance for Pakistan and the completion of its first phase has already helped Pakistan lay a strong energy and road infrastructure for subsequent development of industry, agriculture and human resource. So far the implementation of the first phase has provided over a hundred thousand jobs to local population. In the future, with the completion and full operationalization of the second phase involving the setting up of SEZ’s, it is expected to bring prosperity to around three billion people of the region, including China, South Asia, Central Asia and the Middle East.
Pakistan and China consider these development initiatives a potential source of stability and prosperity for both countries. From a Chinese perspective, cooperation in the areas of security and economics are closely intertwined and improvements on one side can improve the other. It is almost as though security and economics are two separate wheels on the same vehicle and both need to be spinning to move things forward. We believe economic development can strengthen Pakistan’s internal stability, thus reinvigorating the economy through investment in infrastructure projects as well as the construction of oil and gas pipelines. We hope this will create a certain level of stability within Pakistan and in turn stabilize China’s western periphery, particularly the province of Xinjiang.
More broadly, the CPEC has to be understood in the context of Pakistan and China’s strategic interests in East Asia and the way the United States has challenged them. Faced with such difficulties, China hopes it can expand its strategic space by heading west and for Pakistan a strategic relationship and connectivity is seen as essential for the socio-economic development of Pakistan. Pakistan serves as a crucial bridge between China and Central Asia, South Asia and the Middle East. This is why China is willing to pour vast amounts of resources into the economic corridor—based on the logic of improving security through economic development.
Likewise, Pakistan has realized that no other country places such high strategic importance in its economic relationship with Pakistan as China does. According to Pakistan’s development agenda 2025—a blueprint for economic development published in 2014 by Pakistan’s Ministry of Planning, Development and Reform—Pakistan aims to advance from being a lower-middle-income nation to an upper-middle-income nation by 2025-6. To achieve this goal, Pakistan hopes to attract increasing amounts of foreign investment and is working to improve its overall economy and governance system.
China’s logic behind this strategy is that fundamentally improving Pakistan’s economy will help alleviate the challenges posed by political extremists, radicals and jihadists. China and Pakistan share the belief that economic development can help stabilize Pakistan and improve its domestic security situation. China and Pakistan regard the CPEC as a new source of potential synergy between their respective national development strategies, which may help the two countries translate their close political cooperation into multifaceted economic cooperation, attain mutual benefits and achieve win-win outcomes. For the economic corridor to reach its potential, however, there are security and political challenges in Pakistan that must be addressed.
With the first phase of CPEC comprising major infrastructure and energy projects nearing completion, the focus has rightly shifted to the second phase. This includes the development of Special Economic Zones, Sustainable development, poverty elevation, agriculture, health care and knowledge. Proper establishment and successful running of the SEZs are of critical importance for the second phase of CPEC to take off and contribute to the long awaited socio economic development of Pakistan.
The benefits of a successful SEZ programme include employment generation, infrastructure development and the development of allied industries through backward linkages, which are not generally covered under Regional Trade Agreements. If the RTA and SEZ policies are synchronized, it can lead to cross-country linkages and the establishment of regional manufacturing and services networks that use SEZs as hubs. The upcoming SEZs in Pakistan like Rashakai SEZ need to attract investment and relocation of industry in sectors like engineering, pharmaceutics, IT, manufacturing， food processing，energy, jewellery, leather footwear, textile apparel etc.
For Pakistan developing world-class infrastructure inside SEZs should be a priority. The government needs to take a proactive role to ensure that SEZs are developed to attract the best enterprises from China and foreign countries. Badly developed SEZs will only attract substandard enterprises. Improving the business environment is essential to maintain the attractiveness of SEZs. There is an urgent need to streamline the single-window systems, which would require broader consensus with the state governments and various line ministries
SEZs in Pakistan face several challenges that are easily manageable if a central, clear and uniform policy is adopted for SEZs throughout the country. Presently the barriers faced by SEZs include; Institutional Mechanism and Its Implications; Challenges Related to Land Acquisition; Location; Sharing of Infrastructure and the Business Model; Barriers Related to Fiscal Incentives; Challenges Related to Shifting of Existing Units from DTA to SEZ; Challenges Related to Backward and Forward Linkages; It is therefore, important to remember that in order to make SEZs a Success Story, Pakistan must address these impediments on a war-footing.
