CPEC Future Prospects and Challenges
This postulation is devoted to Allah, my Creator and my Master, and envoy, Mohammed (May Allah favor and give him), who showed us the motivation behind life. My country Pakistan, the hottest womb; Allama Iqbal Open University, Islamabad; my second wonderful home; My awesome guardians, who never quit giving of themselves in incalculable ways, My dearest friend, who drives me through the valley of dimness with the light of trust and support, My cherished siblings and sisters; especially my dearest sibling, who remains by me when things look disheartening, My beloved Parents: whom I can’t compel myself to quit loving. All the general population in my life who touch my heart, I commit to this research.
The global economy paradigm is shifting from the West to the East while China is the torch bearer in this context with its master stroke OBOR project. The beauty of this unique project is that it provides a new trade corridor and a new route to at least 60 countries. If we make an educated guess, then about 80% of the world population would get benefit from this project. This project can be divided into the “Silk Road economic belt” and the Maritime silk road”. For the disbursement of funds, five financial institutions are opened so that the complete burden should not fall on China. Now it has been a proven fact that the US, a few Western countries, and India are lobbying and conspiring against the OBOR project.
The most important project of this initiative is CPEC as it gives China access to the most important geostrategic location of Gwadar which had always been a dream of Russia and NATO for their strategic, military, and economic interests in the region. The only project which gives landlocked countries access to the sea. CPEC certainly can be a game changer due to its potential of creating mass industrial productivity, exports, and job creation not only for Pakistan but for the entire South Asian region.
Due to various factors, there are always chances that mistrust may prevail between Pakistan and China, which can have a direct impact on Pakistan’s economy. The economy plays a fundamental role in the development and strengthening of any country, but unfortunately, Pakistan was unable to stabilize this sector for decades. As soon as the situation becomes better, another incident of unrest happens. Attacks like the Dasu hydropower plant in Khyber Pakhtunkhwa or Serena Hotel Quetta are preplanned efforts of our enemies like India to destabilize the project. Although, it has been accepted by Chinese think tanks on various occasions that the security situation has improved in Pakistan during the recent few years.
Chinese huge $62 billion investment in China-Pakistan Economic Corridor (CPEC) project in Pakistan creates numerous prospects and challenges for the economy and stability of Pakistan. CPEC is part of China’s One Belt and Road Initiative (OBRI), which connects different countries and encourages global economic Initiatives. CPEC includes energy, agriculture, tourism, Gwadar port, communication, connectivity infrastructure, and many other different types of projects. Currently, CPEC’s first phase is completed and now the second phase has begun. CPEC can play the most important role in the future direction of the Pakistani economy. CPEC is very beneficial for the people of Pakistan and China. This review study on the prospects and challenges for the economy of Pakistan from the perspective of CPEC is evaluating the recent scenarios, which sees the potential and evaluation of areas on economic activities and potential threats, which can be countered by the governments of Pakistan and China on a regional and global level. This study also highlights the difficulties, which are creating by India to impose sanctions on the economic products of Pakistan through the platform of (the Financial Action Task Force) FATF and harm the projects of CPEC. The findings revealed that Pakistan must promote the CPEC, counter CPEC propaganda, and integrate with the plan to create a smoother image of Pakistan, achieve national cohesion and reduce radicalization. Moreover, China and Pakistan should work together to break the shadow of distrust.
China and Pakistan have long maintained diplomatic and military ties. However, close economic cooperation is a more recent development. The flagship project of China’s ambitious Belt and Road Initiative (BRI) — the China-Pakistan Economic Corridor (CPEC) — is expected to provide $40 billion in Chinese investments to Pakistan. CPEC is not only a strong economic boon for Pakistan’s economic growth in the next three to five years but also an opportunity for Pakistan to stabilize its society and reshape its image from a fragile state to an emerging economy in Asia. From a geopolitical perspective, CPEC is also regarded as a game-changing project in South and Central Asia. The prospect is promising, although the detailed opportunities and challenges CPEC faces still need to be carefully evaluated. Although CPEC is a bilateral project between China and Pakistan, it has already drawn interest and worry from other stakeholders in the region, including the United States and India.
Pakistan is important not only for the stability of South Asia, but for US national interests (including Afghanistan policy), China’s regional interests, global counterterrorism, and the stability of the Muslim world as well. CPEC acts as a game-changing opportunity for Pakistan’s development and its future role in the region. With the implementation of CPEC and the emerging commercial attractiveness of Pakistan and the South Asia region, Chinese and US economic and security interests in Pakistan and the region are converging.
Pakistan has about 200 million people and is the second-most-populous Muslim-majority country in the world. It shares borders with India, China, Afghanistan, and Iran, which are all important players in the stability of the region and the world. As a nuclear country, Pakistan’s influence should not be underestimated. The country has a number of extremist groups and global terrorist organizations and has sacrificed soldiers, civilians, and treasures fighting terrorism. Pakistan is still a fragile and internally divided state with a promising yet troubled economy.
US strategy and policies towards Pakistan need to be reoriented and reshaped. Pakistan and South Asia have long posed a challenge for US leaders, and that challenge has become one of the priorities of the Trump administration, as evidenced in the newly-announced strategy for Afghanistan and South Asia.
CPEC offers a number of opportunities, the first of which is economic development. The large influx of investments will work as a strong economic incentive for Pakistan’s government and social sectors to improve the business environment and enhance commercial attractiveness for more foreign investments, which will not only benefit Chinese investors engaged in CPEC, but will also benefit all foreign investors in Pakistan, including the United States. Industrialization in Pakistan will also help to create jobs for the country’s large, under-employed population, turning a social and fiscal burden into an economic and developmental driver.
A second opportunity that CPEC could provide is stabilization and improved security. With planned infrastructure, energy, and manufacturing investments, CPEC will create more private-sector opportunities and offer a realistic pathway out of poverty for Pakistan’s people, especially those extremely poor who otherwise may be tempted to fight as mercenaries for the Taliban or ISIS. Economic development will help to maintain domestic stability and enhance security in Pakistan for the medium to long term. Combined with strengthened governance and improved capacity, Pakistan will have greater political willingness and capability to fulfill its security commitment and responsibilities for global counterterrorism.
Finally, CPEC could contribute to the further integration of South Asia. The core vision of CPEC is to improve infrastructure to facilitate interconnectivity. The project is expected to connect China, Pakistan, Iran, Afghanistan, and Central Asian countries together, integrating a market of two billion people and stabilizing the region. CPEC will empower South Asia to enjoy the full benefits of region-wide trade, stretching from Iran to China.
Despite the many opportunities that CPEC potentially affords, clearly, there are challenges too. First, CPEC could be an opportunity to enhance governance, but for CPEC to succeed in the first place Pakistan’s political and social governance is vital. By the end of 2016, almost all of Pakistan’s political parties as well as the different provincial governments formed a political consensus in support of CPEC. But, with the large number of foreign investments expected, there must be a fair and efficient allocation of development benefits. This will be a test of Pakistan’s political and social governance capabilities.
Second, security will remain a challenge. For now, the Pakistani government and military have arranged more than 10,000 security forces to protect the people and projects of CPEC while a long-term and sustainable security mechanism is built.
Finally, there is geopolitics. The complaints that China’s promotion of CPEC blurs the distinction between political strategy and commercial interests demonstrate that the other main players in the region like India may try to contain CPEC and dismiss the potential cooperation opportunities brought by the project. With the concern that an empowered Pakistan will threaten India, India may provoke Pakistan, trapping the two states in traditional hostilities and losing the focus on economic development.
Implications of CPEC
CPEC is intended to strengthen and diversify Pakistan’s role in South Asia, activate Pakistan’s role in the global value chain, and integrate the whole South Asia region. The project also works as a benchmark or complementary project for existing US cooperation programs with Pakistan. China, the United States, and the global community should make full use of their respective resources to stabilize Pakistan and support its economic development as a new emerging economy in Asia. US support for CPEC, or simply no containment of China’s engagement in Pakistan and the region, will also reduce the trust deficit between Pakistan and the United States.
Moreover, the US government can also encourage or facilitate US companies’ entry and business in Pakistan, helping them to create a better business environment. With such facilitation, American high-end manufacturing companies like GE, Caterpillar, and top consulting firms like McKinsey will be able to seize the emerging commercial opportunities with CPEC in infrastructure, energy, manufacturing, and other industries and become beneficiaries of CPEC-driven business opportunities in Pakistan.
CPEC in particular offers a win-win situation for participating nations and it has a strong component of social development, poverty alleviation, and demographic uplift, unlike similar programs offered by other international donors. CPEC would not impact its balance of payments in Pakistan at any stage. The payment schedule is very relaxed. It’s about geo-economics and the establishment of a non-exploitable economic system. Another point is that CPEC is a transparent project with all its details present on its websites. The projects of CPEC are not only confined to specific areas but its network is present throughout the whole of Pakistan.
Although it’s correct that Pakistan has a risky security environment, Pakistan has taken various positive steps in this regard raising two “Security Divisions” in Pakistan Army, incorporating special paramilitary forces, increasing the intelligence apparatus, and improving local police networks.
There are eight main core areas linked with CPEC which are ‘integrated transportation system’, ‘information network infrastructure’, cooperation in ‘energy related’ fields, ‘trade and industrial parks, ‘agricultural development and poverty alleviation, ‘tourism’, ‘social development and non-government exchanges’ and lastly ‘financial cooperation. CPEC is now attracting other countries around the world who are also expressing their desire to join it.
In present circumstances, the CPEC projects must be completed as soon as possible so that Pakistan’s geographical location can be truly exploited. Our narrative-building part is weaker in International media as India and other lobbies are floating a huge bulk of anti-CPEC stories with fake facts and figures, we have to give a proper rebuttal and our side of the story must be backed with verified facts and figures. Another point to be focused on is that a prosperous Balochistan would strengthen CPEC’s foundation. This is a real game-changer and we have to engage the maximum countries of in the world in this project to get moral, social, and financial support.
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Conclusion & Recommendations
PAKISTAN and China have been trying their best to stimulate the China-Pakistan Economic Corridor (CPEC) since its inception.
But unfortunately, some pseudo-intellectuals paid by NGOs and self-centric media outlets have been playing in the hands of foreigners to pollute the real spirit of CPEC. It seems that they do not have any sense of nationalism but plenty of notorious agendas.
While Prime Minister Imran Khan and a Pakistani delegation were in China to attend the opening ceremony of the Beijing Winter Olympics one of the leading media houses of the country intentionally published a report by the Asian Development Bank titled “Economic Corridor Development in Pakistan: Concept, Framework and Case Studies” and thus circulated negative sentiments against CPEC, the lifeline of Pakistan’s economy and guarantor of its future as described by Premier Imran Khan.
The said report indicated flaws in the country’s strategic geopolitical potential and suggested improvement in regional and international economic connectivity to get any benefit from CPEC and termed structural reforms vital to achieving optimal benefits.
However, greater regional connectivity always depends upon geopolitics and CPEC stands for geo-economy.
Thus this report’s assumption is not correct. It further elaborated that if CPEC is successfully implemented; Pakistan can harness its strategic geopolitical location, improve its regional and international economic connectivity, enhance industrial development and become an economic hub for Central, South, and West Asia.
By saying this in complicated manners it intentionally undermined CPEC’s real potential by attaching its efficiency and efficacy with structural reforms of private sector development thus purposefully creating doubts about the strategic orientations of CPEC.
The report observed that tax reforms are essential to broaden the tax base and enhance the perceived fairness of the tax system. Infrastructure built under the CPEC should be fully utilized to expand trade and regional cooperation.
It seems that the timing of this report and consequently its publication in the country has some close liaison between the hidden enemies of prosperity and people alike who tried to portray CPEC as an average project.
Moreover, the absurd correlation of CPEC with the domestic tax system, reforms, and other segments of the national economy is rather misleading and misconceived. Thus intentionally CPEC was put in the line of fire.
The study says Pakistan should transform its economy through export-led growth. In this connection, CPEC would play a very important role in the country by establishing Special Economic Free Zones and relocating Chinese firms.
Thus CPEC has a direct correlation with the export capacity-building mechanism of the country because the economy works in integration, not isolation. The report pinpoints many policy flaws in the macro-economy of the country which actually has nothing to do with CPEC, its utility, orientation, scope, and significance.
CPEC is a concept and cooperative model to stimulate different sectors of the economy. CPEC is a holistic approach to developing the national economy. Moreover, it is a platform that provides important inputs for rapid growth in the country.
CPEC has nothing to do with the poor export performance of the country or low productivity and a lack of competitiveness.
It surfaced because of an unfavorable trade policy environment, wrong economic and financial assumptions, and inconsistent policies of the government.
Furthermore, CPEC is not answerable to an overvalued exchange rate and escalation of tariffs on imported raw materials and intermediate goods that resultantly contributed to a fall in exports, resulting in a consistently large trade deficit, which stood at $32.8 billion in FY2019. On the contrary, CPEC stimulated the energy sector and geared up infrastructural development and thus further consolidating the economic conditions of the country.
It may further enhance the manufacturing capacity of Pakistan. The current economic meltdown is the result of various complicated reasons in which CPEC does not play any negative role.
In addition to this, the increase in interest rates to 13.25pc in 2019 substantially raised the cost of capital to firms which may further dampen investment and exports. Thus CPEC does not have any role in the monetary policy of the country.
It is suggested that the government should expedite the development of the nine special economic zones (SEZs) planned along the CPEC routes and focus on labor, capital, technology, knowledge, innovation, and structural transformation
. Moreover, more focus should be given to the development of the agriculture sector in CPEC phase II so that a balanced economic policy would be implemented.
The said report indicated that for urbanized and industrialized, challenges such as infrastructure deficits, overstretched public services, and environmental stress should be addressed as soon as possible.
However, CPEC phase-II initiation of green projects, agriculture development, climate change engineering, and ecological development would provide an ideal platform to curb these irritants of the economy in the country.
On the contrary, Pakistan and China signed a five-year Industrial Cooperation Framework Agreement (ICFA) to re-energize the CPEC during the recent visit of PM Imran Khan and thus successfully negated all misconceptions and misperceptions about CPEC.
According to the text of the ICFA, Pakistan has agreed to take responsibility for the Chinese lives and property, in addition to providing “special beneficial support for water and power supply that are necessary to develop SEZs and provide efficient and favorable policy support for Chinese enterprises which are intending to invest or have already invested in the Pakistani SEZs”.
The signing of the ICFA under CPEC is the first “serious” step by the government during the past three-and-a-half years to put the multi-billion initiative of President Xi back on track.
Pakistan will facilitate Chinese businesses in an efficient manner in accordance with domestic law.
It will also improve the domestic business environment, provide policy support for Gwadar Free Trade Zone, Rashakai SEZ and other SEZs, guard the safety of enterprises and employees investing in the country, provide special beneficial support for water and power supply which are necessary to develop the SEZs and provide efficient and favorable policy support for Chinese enterprises which are intending to invest or have already invested in the SEZs.
In wide-ranging talks with Chinese Premier Li Keqiang, Prime Minister Imran Khan underscored the importance of Pakistan and China working together to promote shared objectives of peace, stability, and development in Afghanistan and regional connectivity.
During their meeting, the Premiers of Pakistan and China reviewed the entire gamut of bilateral ties including discussions on the bilateral economic and trade relations, the onward march of CPEC, and important issues of regional and global concern.
PM Khan appreciated the transformational impact of CPEC on Pakistan’s infrastructure, energy, socio-economic development, and improvement in the livelihoods of the people.
He underlined that Pakistan was committed to the high-quality development of CPEC through its mutually reinforcing industrial, trade, health, digital and green corridors.
To conclude, CPEC has become a strategic asset that badly needs a specific national narrative to mitigate all false news. The healthy contribution of the Press, not the puppetry journalists, sensible policymakers, and not pseudo-intellectuals is the need of the hour.
Economic flaws, financial crunch, and imbalanced spells of development may be streamlined with the successful completion of CPEC projects, especially in energy (green), agriculture, social development, AI, ICT, and health. Thus national unity must be our mantra.
- Official CPEC website (Government of Pakistan)
- Samrez Salik, Muhammad (2018). “China-Pakistan Economic Corridor: A Perspective from Pakistan”. Asian Journal of Middle Eastern and Islamic Studies. 12(2): 142–154. doi:1080/25765949.2018.1481619. S2CID 158441766.
- Husain, Khurram (15 May 2017). “Exclusive: CPEC master plan revealed”. Dawn.com. Retrieved 15 May2017.
- Rafiq, Arif, “The China-Pakistan Economic Corridor: Barriers and Impact,”United States Institute of Peace, October 2017.
- “China-Pakistan Economic Corridor: Opportunities and Risks”, International Crisis Group, 29 June 2018.