Business Research Methods

UMAIR AHMED Registration No: 18

ABDURREHMAN ZAFAR Registration No: 38

Arbaz Registration No: 53

Assignment No 1
MCOM 7A
Sir Bilal Ahmad
Respected Sir,
We are thankful to you for allowing us to work on the topic “Impact of CPEC on
the economy of Pakistan and afterwards on the businesses in Pakistan.
“Impact of CPEC on the economy of Pakistan and afterwards on the
businesses in Pakistan”

 Introduction

The geographical nearness of Pakistan and China enhances geo-economics worth to their overall
relationship. To enhance the benefits of their common border, the two sides in 1982 accomplished
the legendary Karakorum Highway (KKH), linking China’s Kashgar to Pakistan’s Islamabad,
through the Khunjerab Pass. Throughout the 2000s, the highway was stretched and modernized to
make it functioning for all kinds of traffic, year round. An internal network of roads connects KKH
with Pakistan’s Gwadar and Karachi ports in the south of the country (Khurram Dastagheer,
2015)

The CPEC will behave as a channel for the novel Maritime Silk Route that imagines connecting
three billion people in Asia, Africa and Europe. A leading project of the one Belt and one Road
initiative as well, the CPEC aims to revive the earliest Silk Road with an emphasis on
infrastructure, and establishes the strategic structure of bilateral cooperation. (Saqib and Qi,
2014).Today, Pakistani–Chinese diplomatic engagement follows a pattern that has been called a
“subtle partnership.” It does “the minimum necessary to preserve Pakistani security from a
distance, but it has sought to avoid all overt entanglements” in Islamabad’s challenges to Indian
primacy in South Asia. Closer economic relations between China and Pakistan risk irking India.
(Arooj Naveed, 2015) While China has been important to the world economy for decades, the
country is now wielding its financial heft with the confidence and purpose of a global superpower.
With the center of financial gravity shifting, China is aggressively asserting its economic clout to
win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural
resources. (Krepon, 2015)

Pakistan’s economy is meager not owing to its less resources but because of corruption at the top
echelon of the country including government and military officials. Still if these corrupt officials
keep black money at home, its economy will grow. The CPEC is going to give Pakistan’s economy
an unconditional boost. Its geographical location gives Pakistan an edge just to take annual rent of
the port and enjoy the life. As compare to this Indian economy is more in bad shape as compare to
Pakistan because Indian economic policy ignores 40% of the population while making any national
economic policy that is increasing poverty in India at an alarming level.(Rana Ejaz Ahmad, 2015)

South Asia is one of the least economically integrated regions in the world – SubSaharan Africa,
the Middle East, and North Africa all have higher intra-regional trade. Intra-regional trade is only
3-5% of the total trade of the region, representing just over 1% of regional GDP, while this
percentage is 7% in East Asia. India’s trade with its neighbors is less than 3% of its total trade.
These challenges have an immense impact on South Asia’s economies. However, China, with the
second largest economy in the world, wants to use its economic influence in the region. The China-
Pakistan Economic Corridor (CPEC) is one of the key components of China and Pakistan’s plan
to improve economy of Pakistan and trade benefits to China ( Zainab Ahmed,2015)
 Background
Pak-china economic corridor is an example of bilateral trade between the two countries. China
and Pakistan have developed strong bilateral trade and economic ties and cooperation over the
years. China has gradually emerged as Pakistan’s major trading partner both in terms of exports
and imports. Bilateral trade and commercial links between the two countries were established in
January 1963. Free Trade Agreement (FTA) between the two countries – signed on November
24, 2006 and implemented from July 1, 2007. Opened for operations in 2007, the control of
Gwadar Port was transferred to China’s state-owned China Overseas Ports Holding in February
2013. Since then, Gwadar is undergoing a major expansion to turn it into a full-fledged, deep-
water commercial port (South China Morning Post, 2014).

It will serve as a primary gateway for trade between China and the Middle East and Africa. The
corridor is expected to cut the 12,000-kilometre route that Middle East oil supplies must now
take to reach Chinese ports (Ibid). Besides meeting China’s needs in energy and developing its
far west region and upgrading Pakistan’s economy, the CPEC is expected to benefit the people of
countries in South Asia, contributing towards maintaining regional stability as well as economic
integration (China Daily, 2013).

Literature Review
China and Pakistan privilege to have an “all-weather” friendship. Their geographical nearness
enhances geo-economics worth to their overall relationship. To enhance the benefits of their
common border, the two sides in 1982 accomplished the legendary Karakorum Highway (KKH),
linking China’s Kashgar to Pakistan’s Islamabad, through the Khunjerab Pass. Throughout the
2000s, the highway was stretched and modernized to make it functioning for all kinds of traffic,
year round. An internal network of roads connects KKH with Pakistan’s Gwadar and Karachi
ports in the south of the country (Ghulam, 2015)

In addition, the precious stone in the crown for China is the development of Gwadar port and
Gwadar region (Saqib and Qi, 2014), as Gawadar port is a vital part of CPEC which would
provide Beijing a firm and trustworthy long-term foothold in the Indian Ocean and adjacent to
the Persian Gulf, efficiently making it a two-ocean power. The CPEC will behave as a channel
for the novel Maritime Silk Route that imagines connecting three billion people in Asia, Africa
and Europe. A leading project of the one Belt and one Road initiative as well, the CPEC aims to
revive the earliest Silk Road with an emphasis on infrastructure, and establishes the strategic
structure of bilateral cooperation. (Saqib and Qi, 2014).

ECONOMIC
Pakistan and China have long-established diplomatic and military ties and are now entering an
epoch of developing an economic relationship with the China-Pakistan Economic Corridor
(CPEC).

The financing and the operation of the Gwadar Port is a clear indication of how necessary it is to
integrate Pakistan and China economically. Increasing economic integration will help fulfill the
national interests of both countries. Chinese Prime Minister Li Keqiang stated, “We hope to
create a giant economic corridor that would not only enhance China’s strategic significance but
would also help in restoring peace and stability to Asia.”

In need of an economic revival, Pakistan (including the province of Balochistan) is going to be

moving towards a stronger economy. Every emerging or growing country faces challenges when
it is in the transition phase of economic development. Every emerging or growing country faces
challenges when it is in the transition phase of economic development. China and Pakistan have
the opportunity to create connections, which if worked as planned and without any disruptions,
will strengthen the Asian economy as a whole. Today, Pakistani–Chinese diplomatic engagement
follows a pattern that has been called a “subtle partnership.” It does “the minimum necessary to
preserve Pakistani security from a distance, but it has sought to avoid all overt entanglements” in
Islamabad’s challenges to Indian primacy in South Asia. Closer economic relations between
China and Pakistan risk irking India. (Arooj Naveed, 2015) While China has been important to
the world economy for decades, the country is now wielding its financial heft with the
confidence and purpose of a global superpower. With the center of financial gravity shifting,
China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth,
promote its currency and secure much-needed natural resources. (Krepon, 2015)

South Asia is one of the least economically integrated regions in the world – SubSaharan Africa,
the Middle East, and North Africa all have higher intra-regional trade. Intra-regional trade is only
3-5% of the total trade of the region, representing just over 1% of regional GDP, while this
percentage is 7% in East Asia. India’s trade with its neighbors is less than 3% of its total trade.
These challenges have an immense impact on South Asia’s economies. However, China, with the
second largest economy in the world, wants to use its economic influence in the region.. The
China-Pakistan Economic Corridor (CPEC) is one of the key components of China’s plan. (
Zainab Ahmed,2015) India’s opposition to CPEC is justified on the grounds of breaching its
strategic autonomy as it will pass through the troubles regions of kashmir. I wonder how
Pakistan has been misused by US and now China. Both have made commitments of Billions of
dollars in aid to resurrect the fragile Pakistan economy. Pakistan has regularly approached IMF
for regular bail-outs and this reflects how badly its economy is managed. Now, with the coming
of China, Pakistan must investigate Chinese invasion in Africa too. No doubt, the commitments
Chinese have made are difficult to achieve, rather will they provide any job to Pakistan locals is
doubtful. ( Samar Tyagi, 2015)

Pakistan’s economy is meager not owing to its less resources but because of corruption at the
top echelon of the country including government and military officials. Still if these corrupt
officials keep black money at home, its economy will grow. The CPEC is going to give
Pakistan’s economy an unconditional boost. Its geographical location gives Pakistan an edge just
to take annual rent of the port and enjoy the life. As compare to this Indian economy is more in
bad shape as compare to Pakistan because Indian economic policy ignores 40% of the population
while making any national economic policy that is increasing poverty in India at an alarming
level. ( Rana Ejaz Ahmad, 2015).

All countries in the world have to seek their interests as top priority. Pakistan’s interests can be
materialized in true sense only if all institutions and political players in the country agree on
“Charter of Economy” as to receive transit money from China will be the minimum benefit.
Where to establish Economic zones, what to export, how to Train manpower to meet the needs of
relevant industries needs a lot of brain storming at our End in Pakistan. (Muhammad Usman
Awan,2015).

SECURITY
In CPEC Gawadar port playing a vital role in establishing this phenomenon because the
financing and the operation of the Gwadar Port is a clear indication of how necessary it is to
integrate Pakistan and China economically. Increasing economic integration will help fulfill the
national interests of both countries. (Arooj Naveed, 2015) conversely, After 9/11, the emerging
security alignment and changing parameters in the geo-strategic balance in the region have
greatly upset Pakistan’s ambition of obtaining the “strategic depth” in Afghanistan and Central
Asia. However Gwadar Port provides both Pakistan and China to strengthen its security vis-à-vis
India. As it said that „the security of Pakistan is adequately established by developing relations
with China to counter India’s hegemonic aspirations in the region. Similarly, the security of
Pakistan, Iran and Afghanistan is interlinked and is indivisible. Pakistan has always tried to
project itself as the only country in the region that can compete with India. In addition Gwadar
port has a great strategic advantage for Pakistan. It provides Pakistan with strategic depth vis-à-
vis India in the Arabian Sea. On the other hand a strong Indian navy and its presence in the
Arabian Sea pose threat to Pakistan’s security. Gwadar port will also provide a strong base for
Chinese ships and submarines. Since Gwadar Port can fulfill its political, security and
commercial objectives vis-à-vis India, China has spent a huge amount on its construction.
(Khan, Z. A.2013) China and Pakistan must guard against hegemony and unilateralism, and
safeguard their own sovereignty and security interests. They must learn the lesson of turbulences
from West Asia and North Africa, firmly safeguard their domestic security and stability, steadily
promote their reform, and oppose the interference of foreign forces in their internal affairs.
(Khan, A. U. 2014).

TRADE ROUTE
China has steadily appeared as Pakistan’s largest trading partner equally in terms of exports and
imports. Mutual trade and commercial links between the two nations were established since
January 1963 when both nations engaged the first bilateral long-term trade agreement (Ministry
of Finance, 2014) Two countries have frequently exchanged high-level visits ensuing in a
variety of agreements and investments in both nations at government level as well as private
bodies (Muhammad and Qi, 2015). Pakistan and China signed a bilateral Free Trade
Agreement (FTA) in 2006 which came into effect in 2007. The agreement was separated in two
parts with Phase I ending in December of 2012 and negotiations for Phase II beginning in July of
2013. The agreement targeted bilateral trade of 20 billion dollars between Pakistan and China at
the end of Phase II. Total trade of Pakistan and China under FTA rapidly increased from US$ 3.5
in 2006 to US$ 14.3 billion in 2013.China was second major importing partner of Pakistan with
share of 16.17% of Pakistan’s total imports in 2013 (Muhammad and Qi, 2015). The China-
Pakistan Economic Corridor (CPEC) is expected to further strengthen trade and economic
cooperation between the two countries. Chinese Premier Li Keqiang emphasized the construction
of the CPEC during his May 2013 visit1 to Pakistan (Tiezzi, 2014). CPEC purpose to connect
Kashgar in China’s Xinjiang Uygur Autonomous Region with the southwestern Pakistani port of
Gwadar (GOP MOFA 2013). The CPEC will behave as a channel for the novel Maritime Silk
Route that imagines connecting three billion people in Asia, Africa and Europe. A leading
project of the one Belt and one Road initiative as well, the CPEC aims to revive the earliest Silk
Road with an emphasis on infrastructure, and establishes the strategic structure of bilateral
cooperation.

Corridor is a trade routes or a belt of land linking two other areas or following a road or river. Or
it is a narrow tract of land forming a passageway, as one connecting two major cities or one
belonging to an inland country and affording an outlet to the sea or a narrow strip of land through
foreign-held territory. A corridor plays a very important role by shortening the distances between
countries and destinations as well as plays a vital role in the emerging and extending trend of
globalization. The project is not only important for Pakistan but also has great importance for
china and the other neighboring land lock countries in the region. The corridor will reduce trade
route of china from 12000Km via sea, to 2000Km via land (i.e. from Kashgar-Gwadar). This
project is an extension of Silk Road project which is considering as the revival of the legendary.
The Silk Road is one of the oldest known trade route in the world. It is about 3000 Kilometers
long, consisting of highways, railways, oil and gas pipelines, and an optical fiber link that will
connect China’sXinjiang province to rest of the world through Pakistan’s Gwadar port. Pakistan
shares a 1,200 kilometers long coast line with the Arabian Sea - a mid-sea which joins the
strategic oil line of Persian Gulf with the Indian Ocean. The corridor will also connect Gwadar
Port in Baluchistan (Pakistan) to Kashgar in north-western China, The project will also undertake
the revival and extension of the Karakorum Highway that links Xinjiang with Pakistan's northern
region Gilgit– Baltistan and Khyber Pakhtunkhwa. The corridor is expected to cut the 12,000-
kilometre route that Middle East oil supplies must now take to reach Chinese ports (Ibid).

GEOSTRATEGIC DYNAMICS
Pakistan could emerge as a hub of commerce and trade in the region with the construction of the
CPEC that would entail establishing several economic and industrial zones and physical road and
railway links connecting Pakistan and China. As the corridor also anticipates having regional
connectivity with India and Afghanistan–although it is still too early to comment whether
regional element of the CPEC will become operational or not–it could also enhance regional
economic and trade cooperation, that in turn would contribute towards regional peace and
stability.

Gwadar holds central place in the utility of the China-Pakistan Economic Corridor because
without making the Gwadar Port fully functional, it would be difficult for China to see the
anticipated corridor as an energy corridor that appears as one of its main objectives behind the
construction of the CPEC. Located near the Strait of Hormuz, which channels about one third of
the world's oil trade, Gwadar could play a key role in ensuring China's energy security as it
provides a much shorter route than the current 12,900km route from the Persian Gulf through the
Strait of Malacca to China's eastern seaboard (Chowdhury, 2014). However, there is the view
that the construction of the CPEC will ‘place Gwadar on the matrix of intense geo-strategic
competition’ (CPGS, 2014). It has been said that Gwadar will also put China and Pakistan in a
strategically advantageous position along the Arabian Sea compounding already existing Indian
concerns that stem from ‘China's involvement in nearby ports such as Hambantota in Sri Lanka,
Sittwe in Myanmar and Chittagong in Bangladesh’ (Chowdhury, 2014). One the other hand as
India is also energy hungry it looks forwards to developing Iran’s Chabahar Port. In October
2014, Indian Prime Minister Narendra Modi’s cabinet decided to develop Chabahar Port, which
many believe is central for India to open up a route to landlocked Afghanistan, where it has
developed close security ties and economic interests (Dawn, 2014a), and to have access to
energy-rich Central Asian States. While Gwadar is located in Pakistan’s Balochistan province,
where a nationalist insurgency is rife, Chabahar is located in the Iranian province of Sistan-
Baluchistan where unrest prevails as well mainly due to certain violent Sunni sectariannationalist
groups operating in the district. If peace and stability is not achieved in Afghanistan after the
drawdown of international assistance forces, and countries in the region, mainly India, Pakistan
and Iran, engage in proxy wars, it could have some implications for internal security mainly for
Pakistan, Afghanistan and Iran that could impact development projects. Pakistan has blamed
India in the past for supporting Baloch insurgents from Afghan soil. Similarly, Iran has concerns
regarding Jundullah–a sectarian insurgent group based and operating in Iran’s Sistan-Baluchistan
province with free cross-border movement into and from Pakistan. But analysts argue that while
Pakistan has struggled to achieve security in Balochistan, Iran has the capacity to enforce its writ
in Sistan-Baluchistan that suggests Chabahar could become functional earlier than Gwadar, if
pursued by India and Iran fervently.

Nonetheless, China has devised a pro-active foreign policy vis-à-vis the Middle Eastern
countries by using the United Nations as a platform to negate the ongoing war in the region
(CPGS, 2014). As far as Iran is concerned, China wishes to resolve the Iranian nuclear issue
through peaceful political settlement. Moreover, when it comes to ties between Pakistan and
India, China has played its part (Ibid). At the same time, for China, Pakistan’s geo-strategic
position is very crucial as it serves as a window into the Middle East. Meanwhile, it has already
expanded its trade, infrastructure and energy links with most of the Central Asian Republicans
(Pakistan-China Institute, 2014). But insecurity and instability in Afghanistan are a major
source of concern not only for China but also other neighboring countries including Pakistan,
India and Iran. China is already the biggest economic investor in Afghanistan with about $7.5
billion investment (Ibid). China has recently enhanced bilateral and trilateral efforts aimed at
strengthening regional cooperation and coordination. It hosted the Fourth Ministerial Conference
of the Heart of Asia- Istanbul Process Beijing on October 31, 2014 with a view to promote
security and stability in the Afghanistan, in cooperation with its neighbors (Arif, 2014). China
has also pushed the matter of Afghanistan’s future after the drawdown withdrawal to the top of
the Shanghai Cooperation Organization’s agenda (Pakistan-China Institute, 2014).

While cooperation among all countries in the region, at least in terms of trade and economy,
would be an ideal scenario with changing regional dynamics, there is a strong likelihood that
persisting bilateral conflicts and an environment of mistrust will keep them polarized and part of
alliances where Pakistan would certainly remain closer to China, with emerging regional
dynamics having little impact on the construction of the CPEC and functioning of the Gwadar
Port. But it still remains to be seen whether or not the CPEC and Gwadar could become
instrumental in forging and enhancing regional coordination and cooperation, although they are
designed to have regional connectivity with India and Afghanistan.
So here ends our detailed literature review
 Scope of the study
The scope of this study is to develop a common understanding about the importance of the
project; Pak-china economic corridor and its impact on the economy of the country and the sub-
continent. As well as the need to develop distance shortening routes both corridors and maritime
to boost up the economy as well as to develop bilateral and strategic relationship between the
countries. The study focusing on enhancing the factors affecting the project as well as the
economy of Pakistan. It elaborates how beneficial the project is, not only for Pakistan but also
for china and others neighboring countries, especially the land lock one. Analysis of various
researches has been carried out to identify various variables and aspects for understanding and
elaborating the accountability and need to increase the volume of maritime trade and short trade
routes to link countries, necessitate handling the growing volume of trade through such type of
free trade agreement projects. It also enhances the role and importance of Gawadar port as a
primary gateway for trade between China and the Middle East and Africa.

THE RESEARCH QUESTION

The importance of the mega project CPEC is still not being realized by many, due to lack of
coherent and consistent academic work on this project. However there’s a bit and pieces of
information do exist but, a coherent and comprehensive work is still required.

In order to provide a comprehensive and coherent piece of information to enhance the

importance of this mega and economy boosting project as well as its impact on the economy not
only of Pakistan but also of the sub-continent, the paper addressed the research question;

“What will the Impact of Pak-china economic corridor on the economy of Pakistan?”

Variables
DEPENDENT VARIABLES

 Economy
 Trade

INDEPENDENT VARIABLE

 Political Stability
 Security
 Geographical Location
 Route
 Administrative
 Relationship with Neighbor countries
MEDIATING VARIABLES

 China-Pak Economy Corridor

MODERATING VARIABLES

 Terrorism
 Visionary Leadership

HYPOTHESIS
Pakistan needs political stability and continuity of democratic process to ensure economic
growth and trade.

 There is positive correlation between Security and development of economy and trade
sector.

 Routes have great impact on CPEC as china will receive their shipment in 10 days that
will improve their and Pakistan’s Economy.

 Strong administration will give boost Pakistan Economy as well as manage operation of
CPEC.