TERM REPORT

GLOBAL ECONOMIC AND POLITICAL ENVIRONMENT

Way forward for the developments and

new structural changes in CPEC
A BRIEF ON THE FORMATION OF CPEC AUTHORITY & SOME PROPOSED
CHANGES TO MAXIMIZE THE GAINS

WAJID ALI
MBA-EXEC 16| REGISTRATION NO. 18224
 Table of Contents

Sr No. Topic

1. Introduction

2. Key cooperation areas under CPEC

3. CPEC Authority & its Mandate

4. Possible Challenges & Concerns

5. Proposals & Recommendations

6. References
 Way forward for the developments and new structural changes
in CPEC under the newly formed CPEC Authority.

1. Introduction
CPEC is one the most important strategic corridors of the OBOR initiative. It is the collection of
infrastructure projects that are currently under construction throughout Pakistan. Originally
valued at $46 billion, the value of CPEC projects is worth $62 billion as of 2017.CPEC agreement
between Pakistan and China was signed on 20th April 2015.
China-Pakistan Economic Corridor is a framework of regional connectivity. It is a journey towards
economic regionalization in the globalized world. It founded peace, development, and win-win
model for all of them. It is a hope of better region of the future with peace, development and
growth of economy.

CPEC is intended to rapidly modernize Pakistani infrastructure and strengthen its economy by the
construction of modern transportation networks, numerous energy projects, and special
economic zones.
The entire portfolio is planned to be completed by 2030. Which is further divided into three stages
of transformation

 Stage 1 (2020): Period of market cultivation. To develop commercial logistics and other
industries with local resources
 Stage 2 (2025): Period of expansion and development. Processing and manufacturing
industries will be developed.
 Stage 3 (2030): Period of maturity. Enlarge the scale and scope of Free Trade Zone

2. Key Cooperation Areas:

I. Connectivity
Construction of an integrated transport system
- Construction and development of Kashgar-Islamabad, Peshawar-Islamabad, Karachi,
Sukkur-Gwadar Port and Dera Ismail Khan-Quetta-Sohrab-Gwadar road infrastructure,
to enhance road safety and service levels and expand traffic capacity.
- Capacity expansion of existing railway lines (specially ML-1 that is of strategic nature
under CPEC), and construction of new projects and promoting the modernization of
the railway and build an integrated transport corridor.
- Construction and development of Gwadar city and port; build a consolidation and
distribution transport system, continuously improve the infrastructure of the port,
accelerate the construction of East Bay Expressway and the new international airport
and enhance the competitiveness of the Free Zone to promote the social progress and
economic development of the region.
- Cooperation for implementing Gwadar city Master Plan.
Information network infrastructure
- Promote the construction of cross-border optical fiber cables between China and
Pakistan and the construction of the backbone optical fiber networks in Pakistan.
- Upgrading of Pakistan's network facilities, including the national data center and the
second submarine cable landing station.
- Expedite Pakistan to adopt China's Digital Terrestrial Multimedia Broadcasting (DTMB)
standard.
- Promote the ICT-enabled development of Pakistan, including e-government, border
electronic monitoring and safe city construction; promote the development of
ecommerce in Pakistan.
 - Enhance the development of the information industry in Pakistan; build IT industrial
parks and IT industry clusters in Pakistan to improve Pakistan's information technology
and service outsourcing.
II. Energy Related Fields
- Promote the cooperation in the development of oil and gas resources, research on
the integrated vision and demand of China and Pakistan oil and gas cooperation so as
to improve the cooperation between the two countries and diversify oil supplies. The
opinions of establishing oil refineries and storages along the CPEC route will also be
considered.
- Optimize the sourcing and use of coal, and research on development and utilization
of Pakistan's own coal for power plant and developing technologies for surface coal
gasification, expansion and augmentation of coal mining sector.
- Actively promote river planning and preparatory work of major projects to accelerate
the hydropower development process.
- Develop wind and solar energy based on local conditions, and establish diversified
energy supply channels.
- Strengthen the construction of high voltage-class power grids and power
transmission and distribution networks to fulfill the electricity demand and ensure the
reliability of electricity supply in Pakistan.

III. Trade and Industrial Parks

- Promote Special Economic Zones (SEZs) in all provinces and regions in Pakistan along
with Kashgar Economic and Technological Development Zone and Caohu Industrial
Park from Chinese side.
- Expand the cooperation in industry, promote Pakistan's industries from assembling
imported parts and components to localized production of parts, and encourage
various forms of Chinese enterprises to enter the Pakistan market to improve the
development of energy efficient industry in Pakistan.
- Promote the industrial capacity cooperation in sectors such as: chemical &
pharmaceutical, engineering goods, agro, iron & steel, light manufacturing & home
appliances and construction materials, and use efficient, energy saving and
environmental friendly processes and equipment to meet the demands of Pakistan's
local markets and at the same time to further expand it to the international market.
- Increase the exploration and development of resources, and introduce bilateral
enterprises to participate in the exploration and development of mineral resources and
setting up of mineral processing zones and industries.
- Rely on industrial parks and the characteristics of bilateral economic and trade
cooperation to expand cooperation in related industries and promote the
development of industrial concentration.
IV. Agricultural Development and Poverty Alleviation
- Strengthen the upgrading of agricultural infrastructure in the regions along the CPEC.
- Promote the construction of water-saving modern agricultural zones, and increase
the development and remediation of medium- and low-yielding land to achieve
efficient use of resources.
- Strengthen drip irrigation technology for water efficiency.
- Strengthen cooperation in the fields such as crop farming, livestock breeding, forestry
and food growing, and aquatic and fishery in the regions along the CPEC, with the
highlight on technical exchange and cooperation in the fields of development of
comprehensive agricultural production capacity, construction of farmland water
conservancy facility and agricultural products circulation facility.
- Improve post-harvest handling, storage and transportation of agricultural products,
and innovate in marketing and sales models.
- Improve water resources operation and management, strengthen development of
pastoral areas and desert, and promote application of remote sensing technology.

V. Tourism
- Actively consider the potential advantages of the tourism resources in the regions
along the China-Pakistan Economic Corridor, especially the China-Pakistan border
areas along the railways and highways; jointly research the development and
construction of cross-border tourist routes.
- Actively discuss the feasibility of constructing the “2+1+5” tourism spatial structure
in Pakistan, which includes two centers, one axis and five zones: Karachi Port and
Gwadar Port as the two centers, and the coastal tourism belt as the development axis,
and five tourist zones of Jiwani & Gwadar tourism zone, Jhal Jhao, Ormara, Sonmini
and Keti Bander.

VI. Cooperation in Areas concerning People's Livelihood and Non-governmental Exchanges

- Apply international and China's new urbanization concepts to the municipal
construction of the node cities along the CPEC, such as the construction of the public
transport system and water supply and drainage systems; utilize China's strength in
technology, equipment, and capital, and solve some prominent livelihood issues via
pilot projects.
- Expand the scale of training programs in China for Pakistani central government
officials, parties and local government officials from regions along the CPEC; select
outstanding Pakistani students from regions along the CPEC and send them to Chinese
universities.
- Strengthen social and economic development cooperation within the CPEC coverage;
make efforts to carry out vocational training in Pakistan;
- rely on higher education resources in Pakistan to carry out design and R&D activities,
strengthen exchanges and cooperation among educational and research institutions in
 technology transfer, strengthen the construction, operation and management of the
transportation and power infrastructure.
- Provide medical assistance services in more places within the CPEC coverage and
upgrade existing medical facilities based on actual needs.
- Summarize experience and innovate models of public social welfare cooperation
mechanism in Gwadar areas between China and Pakistan, improve social welfare
cooperation in the CPEC coverage and enhance public support for CPEC.
- Cooperate to make top planning of water resources such as comprehensive planning
of water resources and river basin, improve the capability of Pakistan to coordinate the
planning of water resources development and utilization, conservation and protection,
flood and drought prevention and disaster relief.
VII. Financial Cooperation
- Strengthen cooperation in financial regulation. The two countries should promote
monetary cooperation between the central banks, implement existing bilateral
currency swap arrangements, research to expand the amount of currency swap and
explore to enrich the use scope of bilateral currency swap; assign the foreign currency
to domestic banks through credit-based bids to support the financing for projects along
the CPEC; promote the settlement in domestic currencies (RMB and Rupees) to reduce
the demand for third-party currency; strengthen the cooperation between the central
banks and financial regulatory agencies of the two countries. The two sides will actively
to use bilateral currencies for the settlement of bilateral trade and investment under
the relevant arrangements. The two countries encourage clearing and settlement of
the financial institutions from both sides through Cross-Border Inter-Bank Payment
System (CIPS), promote the free flow of capital in an orderly manner, and enhance the
facilitation in cross-border transfer of legitimate funds.
- Financial cooperation between Free Trade Zones (FTZs). Pakistan shall promote the
construction of Gwadar Port Free Zone by drawing on the experience of China
(Shanghai) Pilot Free Trade Zone and other Pilot Free Trade Zones in China, and explore
RMB offshore financial business in Gwadar Free Zone. Both countries shall strengthen
financial cooperation between their Free Trade Zones and explore the formation of a
RMB backflow mechanism.

3. CEPC Authority & its mandate:

President of Pakistan Dr Arif Alvi has promulgated an ordinance for the establishment of the
'China-Pakistan Economic Corridor Authority (CPECA) on October 8, 2019.
CPEC Authority is aimed at dealing with following issues.

 Accelerating the pace of CPEC-related activities.

 Find new drives of growth.
  Unlock the potential of the interlinked production network and global value chains through
regional and global connectivity.
 Cut off some of the bureaucratic hurdles and facilitate coordination among various
ministries and departments, paving ways for smooth execution of CPEC projects.

Lt. Gen (Rtd) Asim Saleem Bajwa is nominated as Chairman of the CPECA.

4. POSSIBLE CONCERNS & CHALLENGES:

Internal Political Instability:

Political instability is biggest challenge for timely completion of ongoing and future projects.
We have already seen that there were many rumors after current Govt took over power in
2018 that much of CPEC Projects would be rolled of or renegotiated with China.

Regional & Global Dynamics:

India is openly challenging execution of CPEC projects as it claims that China is utilizing
disputed territories which are occupied by Pakistan for construction and developments of
roads. USA has also openly criticized lack of transparency in CPEC related contracts and also
has termed it as debt trap. China-US Trade war will also have an implication on overall progress
and development of these projects. Similarly, volatile situation in Afghanistan & Iran will also
have its impact.

Internal Security Situation:

Gwadar & Baluchistan have a pivotal role in effective utilization of CPEC and though Pakistan
has greatly improved its internal security situation still some areas in Baluchistan that fall on
CPEC route are volatile.

Ease of doing Business:

One of the prime motives behind constitution of this authority is to mitigate the challenges
faced by the local investors in meeting local compliances that are associated with foreign
investments. Though recently Pakistan has gained 28 points on World Bank’s ease of doing
business index but still it has a long way to go catch up with the fast-developing countries.

Local Skill & Capacity development:

One of the major concerns with CPEC projects is under utilization of local skilled manpower
and a lesser opportunity of skill development of Pakistani manpower. Currently majority of
local manpower associated with these projects is either unskilled labor or low-profile skilled
manpower.

Timely completion of Early Harvest Projects:

Most of Power generation projects falling under Phase 1 of CPEC are either complete or
nearing completion. This has given a greater breather to country in dealing with its Energy
needs. But Transmission and distribution projects are not on scheduled and unavailability of
proper transmission network has created a lot of gap in supply and demand of electricity. And
since all these projects are on Take or Pay basis it has put an extra burden on consumers as
they have to pay the capacity payments even though they are not using electricity.

Similarly, Hyderabad-Sukkar section of Karachi-Peshawar motor way is also not yet complete
and a substantial part road network in Baluchistan is also not complete. This is restricting the
commencement of utilization of land route by Chinese traders, causing a loss of revenue and
lowering the IRR of CPEC projects.

Debt Servicing Burden:

CPEC’s second component, i.e. infrastructure, is to be financed through government-to-
government loans amounting to USD 15bn. As announced, these loans would be concessional
with 2pc interest to be repaid over a 20- to 25-year period. This amount’s debt servicing would
be the Pakistan government’s obligation. Debt-servicing payments would rise by USD 910
million annually on account of CPEC loans (assuming a 20-year tenor).
5. PROPOSALS & RECCOMENDATIONS:
a) Authority has to work as one window for all the investments under CPEC and should
reduce the time & efforts wasted in order to get NOC’s and Compliance fulfillments
falling under different ministries.
b) Focus areas to be identified and priorities. Currently Mittiari to Lahore HVDC
transmission line and Hyderabad-Sukkur motor way projects are lagging behind their
schedule and have badly hampered the plans of timely commencement of second
phase of CPEC.
c) Special economic zones (SEZs) establishment is also not as per the desired pace. Three
zones (Dhabeji, Rashakaee & Faisalabad) were identified as to be developed in first
phase. However so far Pakistan had not been able to develop infrastructure for these
zones. Authority should put a special emphasis in timely completing the obligations
falling under Pakistan’s domain so that Chinese investors can invited to establish
industries in these zones.
d) So far majority of Projects under CPEC are either Long term loans to Govt of Pakistan
or Joint ventures of Chinese companies with Govt of Pakistan owned companies or
entities. The authority should focus on development of more & more Private sector to
Chinese enterprises joint ventures to reduce pressure on Govt kitty. Also, prime focus
 has to be on development of Foreign direct investment models instead of Public debt
projects.
e) CPEC carries great protentional in connecting not only China & Pakistan but all
countries of this region especially Afghanistan, Central Asian states and Iran. Govt and
Authority shall focus on making most of the agreement falling under CPEC transparent
and public. This would enhance the confidence of neighboring countries in joining
hands with utilization of this opportunity.
f) Authority shall put a special emphasis on technology transfer and skill development of
Pakistanis associated with these projects. It is also suggested that a CPEC university
may also be established in collaboration of renowned Chinese universities in order to
enhance the skills of local manpower. JV’s of local companies with chines companies
can also be very effective in human resource developments.
g) Authority shall also develop measure to ensure that part of the profits generated by
Chinese firms through CPEC are utilized in re-investment. China itself achieved a great
success in its model of SEZ’s as 10% of annual profits of the companies was bound to
be utilized in reinvesting within China.
h) Special emphasis needs to be put on tapping the hidden potential of Pakistan in
Agriculture and live stock sector. Pakistan should learn advance farming techniques
from China and should also use the advantage of large population of China and utilize
on their food needs to enhance our exports.
i) Dream of converting Gwadar into a prime port in world can never turn in reality without
fulfilment of basic needs like water and electricity supply. Therefore, authority should
complete water supply and electricity related projects on war footing.
j) A policy of optimal reliance on CPEC is to be adopted and the authority should only
focus in engaging China in Lumpy and highly technological projects and local investors
along with other countries should also be given ample chance to compete with Chinese
companies. This would spark a competition amongst the investors ultimately
benefitting the company.

6. References:
1. Long term plan of China Pakistan Economic corridor
http://cpec.gov.pk/brain/public/uploads/documents/CPEC-LTP.pdf
2. Pakistan establishes CPEC Authority Z.A.A (2019, October 09)
https://www.chinadaily.com.cn/a/201910/09/WS5d9d98f4a310cf3e3556f7c5.html
3. SAR A Chinese dream being materialized through Pakistan
https://sdpi.org/publications/files/China-Pakistan-Economic-Corridor-(Shakeel-Ahmad-
Ramay).pdf