CPEC

Outline
• Introduction
• Phases
• Security
• Energy and infrastructure
• Special economic zones
• Key challenges
• Gawader Port
 Introduction
CPEC is a fusion of multiple corridors:
1. Investment corridor
2. Trade corridor
3. Energy corridor
4. Transport corridor
5. Infrastructure corridor
6. Industrial corridor
 Introduction
• CPEC is first of the six corridors that China has
embarked on under One Belt One Road (OBOR)
initiative.
• The second corridor will pass through Central
Asia to Turkey,
• The third through Eurasia,
• The fourth Mongolia and Russia,
• The fifth East Asia and
• The sixth corridor through India.
 Introduction
• The 3,000-km long CPEC consisting of
highways, railways and pipelines connects
China’s landlocked north-western province of
Xinjiang to Pakistan’s Gwadar Port.
• CPEC is not restricted to Pakistan. It is a
project under the Chinese vision of ‘One Belt
One Road’ that will link 64 countries including
Pakistan.
 Introduction
• Projects worth $50 billion would be executed
• 51 MOUs have been signed
• Project completion year is 2030
• 33 potential sites for SEZs in all provinces
identified from Khunjrab to Gwader
• China annually imports 2.3 billion barrels of
oil from Middle East which costs $7.3 Billion.
• CPEC would reduce this cost significantly.
 Introduction
• The CPEC offers huge investment and trade
opportunities. Major investment areas are;

• Energy $33.7 b (73%)

• Transport and infrastructure $10.6b (23%)

• Others $1.84b (4%)

 Introduction
• ROUTES
• Long term Alignment
– Length 2,442 Km
• Route-1 via Quetta
– Length 2,474 Km
• Route-2 via Indus Highway
– Length 2,756 Km
• Route -3 via Motorway
– Length 2,781 km
 History
• The idea transformed into a Memorandum of
Understanding (MoU) in 2013.
• Formal agreements there under finalized in
2015.
• The first trade activity took place on
November 13, 2016.
 Phases
• China-Pakistan Economic Corridor is a 15-
year plan and will be completed in four phases:
• 2018 – Early Harvest
• 2020 – Short Term
• 2025 – Medium Term
• 2030 – Long Term
 Security
• A Special Security Division (SSD) is being set
up for the China-Pakistan Economic Corridor,
consisting of nine battalions of the army and
six battalions of the civilian forces.
• $250 million sanctioned for army force to
guard Chinese personnel working on CPEC –
$60 million annual budget.
 Energy and infrastructure
• The first phase of the economic corridor is
focused on $45.6 billion worth of energy and
infrastructure projects.
• China’s state-owned banks will finance
Chinese companies to fund, build and operate
$45.6 billion worth of energy and
infrastructure projects in Pakistan over the next
six years.
 Energy and infrastructure
• Major Chinese companies investing in
Pakistan’s energy sector will include China’s
Three Gorges Corp which built the world’s
biggest hydro power project, and China Power
International Development Ltd.
• $15.5 billion worth of coal, wind, solar and
hydro energy projects will come online by
2017 and add 10,400 megawatts of energy to
the national grid.
 Energy and infrastructure
• An additional 6,120 megawatts will be added
to the national grid at a cost of $18.2 billion by
2021.
• The transport and communication
infrastructure – roads, railways, cable, and oil
and gas pipelines – will stretch 2,700
kilometers from Gwadar on the Arabian Sea to
the Khunjerab Pass at the China-Pakistan
border in the Karakorams.
 Special economic zones
• Beyond the initial phase, there are plans to
establish special economic zones in the
Corridor where Chinese companies will locate
factories.
• Extensive manufacturing collaboration
between the two neighbours will include a
wide range of products from cheap toys and
textiles to consumer electronics and supersonic
fighter planes.
 Special economic zones
• The basic idea of an industrial corridor is to
develop a sound industrial base, served by
competitive infrastructure as a prerequisite for
attracting investments into export oriented
industries and manufacturing.
 Special economic zones
• Such industries have helped a succession of
countries like Indonesia, Japan, Hong Kong,
Malaysia, South Korea, Taiwan, China and
now even Vietnam rise from low-cost
manufacturing base to more advanced, high-
end exports.
• As a country’s labour gets too expensive to be
used to produce low-value products, some
poorer country take over.
 Special economic zones
• Once completed, the China-Pakistan Economic
Corridor with a sound industrial base and
competitive infrastructure combined with low
labour costs is expected to draw growing FDI
from manufacturers in many other countries
looking for a low-cost location to build
products for exports to rich OECD nations.
 Key challenges
• While the commitment is there on both sides to
make the corridor a reality, there are many
challenges that need to be overcome.
• The key ones are maintaining security and
political stability, ensuring transparency, good
governance and quality of execution.
• These challenges are not unsurmountable but
overcoming them does require serious effort
on the part of both sides.
 Key challenges
• Foreign forces which did not view the close
working of Pakistan with China and the project
positively and were trying to sabotage the
project.
• All provinces must stand united to foil the
designs against the CPEC. Issues related to
routes and location of economic zones must be
settled amicably.
 Key challenges
• Transparency in order to remove any
ambiguities about the economic corridor. It
should remove sense of deprivation while
focusing on building consensus.
• Balochistan, being the backward province
should get the lion share follwed by KP, GB
and AJK.
 Policy imperatives for CPEC
ISHRAT HUSAIN Dawn, 10-4-2017

• The success of this initiative lies in successful

interaction between investment, institutions
and policy.
• What policies are needed to maximise benefits
and minimise costs to the country?
• There are several, but at least six areas need
careful design and execution
 Policy imperatives for CPEC
ISHRAT HUSAIN Dawn, 10-4-2017
1. Energy policy: Circular Debt, line loses, theft
2. Industrial policy:
3. Trade policy:
4. Foreign exchange regime
5. Financial policy:
6. Skill development policy:
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• Here is a set of 12 questions, the answers to
which will help form a basis of informed
discussion.
1. Has Pakistan prepared an overall CPEC
Feasibility?
2. Has Pakistan prepared a CPEC Environment
Impact Assessment?
3. What is Pakistan’s share in Gwadar port
revenues, if any?
 Losses and gains
Kaiser Bengali, The News 10/09/2017
4. What is Balochistan’s share in Gwadar port
revenues, if any?
5. Is the Gwadar-Khunjrab Highway a toll road?
If yes, what are the shares for provinces
through which the Highway passes?
6. What will be the (positive and adverse)
impact of China Transit Trade on Pakistan’s
manufacturing sector?
 Losses and gains
Kaiser Bengali, The News 10/09/2017
7. What will be the impact of tax exemptions to
CPEC-related foreign imports on Pakistan’s
manufacturing sector?
8. What will be the (medium and long-term)
Balance of Payments impact of foreign
exchange inflows (Loans, FDI) and outflows
(debt repayment, profit remittance)?
9. What is the budgetary burden on Pakistan for
protecting foreign road and sea convoys?
 Losses and gains
Kaiser Bengali, The News 10/09/2017
10.What percentage of security units, being
raised for CPEC related protection, recruited
from districts through which the Gwadar-
Khunjrab Highway passes?
11.What is the water provision plan for Gwadar?
If desalinated, what is the financing plan to
cover the high cost?
12.What is the plan to ensure that Gwadar does
not become a Baloch minority city?
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• If CPEC’s overall feasibility in terms of
economic, social, environmental, political and
military impacts has not been carried out, it
would amount to jumping in the sea with
blindfolds. (Q, 1&2).
• Questions 6, 7, 8 and 9 are crucially relevant to
the national economy. Potentially, CPEC can
pose three macroeconomic hazards for
Pakistan’s economy.
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• Balance of Payments stability: CPEC-related
foreign and foreign-supported investments is
largely, if not almost exclusively, in the form
of loans and FDI.
• The former will entail debt servicing and the
latter profit remittance to host countries.
• If corresponding foreign exchange inflows are
not ensured there is likely to be a Balance of
Payments crisis.
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• The manufacturing sector: The Gwadar-
Kashgar traffic is another name for China
transit trade, the goods in transit leaking into
the Pakistan market, like Afghan transit trade,
may have negative repercussions.
• Experience shows that tax exemptions to
industries or to regions have only created
distortions, without benefitting the economy.
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• Fiscal stability: Security expenditure:
Pakistan’s commitment to CPEC extends to
providing maximum security on land and at
sea. To this end, it is raising dedicated security
units, which will entail rupee costs to be met
from the national budget, unless funded
autonomously.
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• Water: The water availability question in
Gwadar is serious, but always brushed under
the carpet to avoid discussion.
 Losses and gains
Kaiser Bengali, The News 10/09/2017
• Questions 3, 4, 5, 10, and 11 relate to
Balochistan. CPEC is Gwadar and Gwadar is
Balochistan. If Balochistan’s share of
economic benefits are not substantial, then
CPEC is irrelevant to the province.
• Mention of the three necessary conditions —
connectivity, urban development and human
resource development — without which CPEC
will not be a game changer for Balochistan.
 Gwader Port (GP)
• Pak-China 40 Years Agreement
• Ports are categorized by its three features.
– Depth of the seaport
– Number of berths
– Labour cost
• Cargo Handling Capacity
• Conclusion
 GP- 40 Years Agreement
• Pakistan has signed a 40-year agreement with
China for the Gwadar Port operations.
• Under the agreement, China would carry out
all the development work on the port.
• As per the concession agreement, China
Overseas Port Holding Company (COPHC)
has 91 percent share of revenue collection
from the gross revenue of the terminal and
marine operations and
 GP- 40 Years Agreement
• 85percent share from gross revenue of free
zone operation.
• The provinces have no share in revenue
collection as per the constitution.
 Depth of the seaport - GP
• Gawader 17 to 18 M
• Karachi 9 to 10 M
• Jebel Ali (UAE) 15 to 16 M
• Khor Fakkan (UAE) 16 M
• Bander Abbas (IRAN) 9 to 10 M
• Chabahar (Iran) 11M
• Salala (Oman) 10 M
• Damam (Saudi Arabia) 9M
• Doha (Qater) 11 to 12 M
 Number of berths - GP
• Gawader 120
• Karachi 33
• Jebel Ali (UAE) 67
• Bander Abbas (IRAN) 24
• Chabahar (Iran) 10
• Salala (Oman) 19
• Damam (Saudi Arabia) 39
• Doha (Qater) 29
 Labour cost - GP
• In labour rate Pakistan is the cheapest in the
region and providing cheap manpower to other
regional ports.
 Cargo Handling Capacity - GP
• The Gawader Port capacity of cargo handling
is over 400 million ton per year (After
Completion) which would make it largest in
the region.
 Conclusion - GP
• Gawader Port is best in all features.
• Ports cannot be run without massive
investment and business.
• China itself expected business through
Gawader Port is over $500 billion dollar.
• Its believed, after full operational Gawader
Port would be the regional hub of international
business.
 Conclusion - CPEC
• CPEC is an important project not only for both
the countries but also for the whole region.
• Its successful completion is dependent on the
leadership, institutions, policies of both
countries.
• It should be a win-win situation for both
countries and in Pakistan, Baluchistan should
be its greatest beneficiary.