CPEC REPORT

Re

MAY 13

Submitted to: Dr. Muhammad Qadeer

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 University of the Punjab
(Gujranwala campus)

CPEC Report
DEPARTMENT OF BANKING AND FINANCE

Submitted by:
Arooj Aziz BBF20010
Mahreen Aslam BBF20016
Zarnab Habib BBF20031
Ujala BBF20033
Areeba Shahzadi BBF20034

Submitted to: Dr. Muhammad Qadeer

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Table of Content

China Pakistan Economic Corridor ................................................................................. 4

Background .................................................................................................................... 4
Announcement of CPEC ................................................................................................. 5
Agreement .................................................................................................................... 5
History of Pak China Relations ....................................................................................... 6
OPPORTUNITIES OF CPEC…………………………………………………………………………………………….6
OPPORTUNITIES FOR PAKISTAN…………………………………………………………………………………..7
OPPORTUNITIES FOR CHINA………………………………………………………………………………………..9
Concerns for CPEC…………………………………………………………………………………………….........11
Security Threats for CPEC in Pakistan…………………………………………………………………………11
Indian Reservation about CPEC………………………………………………………………………………….12
Political Controversies about CPEC in Pakistan………………………………………………………….13
CPEC and Balochistan Factor………………………………………………………………………………….…14
CPEC and Tax and Power Tariff Issues……………………………………………………………………….15
China-Pakistan Economic Corridor On The Region…………………………………………………….15
Effects of CPEC Projects On The Economy OF Pakistan……………………………………………..18
ONE BELT, ONE ROAD……………………………………………………………………………………………….20
KEY ISSUES AND RECOMMENDATIONS……………………………………………..........................22
Geo-political implications………………………………………………………………………………………...23
Benefits of CPEC…………………………………………………………………………………………………….…24
Significance of CPEC for China……………………………………………………………………………….…25
Impact of CPEC on regional and extra-regional level………………………………………………..26
Security challenges to CPEC……………………………………………………………………………………..27
Political constraints………………………………………………………………………………………………….28

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China Pakistan Economic Corridor

The China-Pakistan Economic Corridor, or CPEC for short, is like a super highway connecting China
and Pakistan. But it's not just a road—it's a whole bundle of projects, like building roads, railways, and
power plants, and setting up new industries.

CPEC is a path stretching from China all the way to Pakistan's Gwadar Port by the sea. Along this
path, there are highways for trucks to carry goods, railways for trains to transport stuff, and pipelines
for oil and gas. Plus, there are power plants to make sure there's enough electricity for everyone to use.

CPEC is all about making it easier for China and Pakistan to trade and work together. China, with its big
economy, wants to buy things from Pakistan, like textiles and agricultural products. And Pakistan, with
its strategic location, wants to attract investment and create jobs.

This project is a big deal because it's not just about roads and railways—it's about improving people's
lives. It's about creating opportunities for businesses to grow and for people to find jobs. And it's also
about strengthening the friendship between China and Pakistan, who have been good friends for a long
time.So, in a nutshell, CPEC is like a big friendship highway, paving the way for stronger ties and
economic growth between China and Pakistan.

Background

China and Pakistan have enjoyed a strong and enduring relationship since the early 1950s. This
relationship is based on mutual trust, common interests, and cooperation in various fields, including
defense, economy, and technology. Both countries consider each other as "all-weather friends" and have
supported each other on regional and international platforms.

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The idea of CPEC emerged as a response to Pakistan's infrastructure and energy needs and China's desire
to expand its economic influence in the region. Pakistan's strategic location, coupled with China's
economic prowess, made it an ideal partner for such a project. Moreover, the development of Gwadar
Port further fueled the need for enhanced connectivity between China and Pakistan.

Announcement of CPEC

The formal announcement of CPEC took place in April 2015 during Chinese President Xi Jinping's
historic visit to Pakistan. During this visit, China pledged to invest around $46 billion in various
infrastructure projects in Pakistan over the span of several years. These projects included the construction
of roads, railways, ports, power plants, and industrial zones.

The announcement of CPEC marked a significant milestone in China-Pakistan relations and signaled
China's commitment to supporting Pakistan's economic development and regional connectivity.

Agreement

Following the announcement, both countries signed several agreements and memoranda of
understanding (MoUs) outlining the specifics of the projects under CPEC. These agreements covered
various sectors, including energy, transportation, telecommunications, agriculture, and industrial
cooperation. They also established the framework for financing, implementation, and management of
CPEC projects.

China provided financial assistance through a combination of grants, concessional loans, and investment
by Chinese companies. Pakistan, on the other hand, committed to providing necessary facilitation,
security, and regulatory support for the smooth implementation of CPEC projects.

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History of Pak China Relations

Pakistan and China's relationship dates back to the early years of Pakistan's independence in 1947. Since
then, both countries have maintained close diplomatic, economic, and military ties. China has been a
reliable partner for Pakistan, providing economic assistance, military hardware, and diplomatic support
on various issues.

The relationship between Pakistan and China has withstood the test of time, evolving into a
comprehensive strategic partnership. Both countries have collaborated on numerous projects, including
the development of infrastructure, defense cooperation, and regional stability. CPEC represents the latest
and most ambitious undertaking in this enduring friendship, aiming to deepen economic ties and promote
regional connectivity between China and Pakistan.

In summary, the China-Pakistan Economic Corridor (CPEC) is a transformative project that underscores
the deepening economic and strategic ties between China and Pakistan. It emerged from the historical
friendship between the two countries and was officially announced in 2015 during Chinese President Xi
Jinping's visit to Pakistan. CPEC reflects China's commitment to supporting Pakistan's economic
development and regional connectivity, while also advancing China's broader Belt and Road Initiative
(BRI).

OPPORTUNITIES OF CPEC:
While having a look on the opportunities for China as well as opportunities for Pakistan, it must be kept
clearly in mind that CPEC is not just a network of roads that connect China to Gwadar, but also involves
the investment in different sectors including energy, trade, agriculture and so on. Now , we shall talk
about the opportunities which are being faced by Pakistan.

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OPPORTUNITIES FOR PAKISTAN:

 Flourishing of Agriculture sector:

Pakistan is an agricultural country and about 18.5 percent of the agriculture sector contributes to the
gross domestic product (GDP) to the country. Agriculture sector employees about 38.5 percent people to
national labor force and involve about seventy percent in exports.

Through cpec, agriculture involves many opportunities for the country. First, the Chinese enterprises
under CPEC, will install factories to produce hybrid seeds in accordance with the climatic condition of
Pakistan to increase crop yield. The enterprises will develop high quality fertilizers, pesticides and
vaccines for the crops. Secondly, they will set-up food-processing plants to make juices, jams and other
industrial products from raw fruits like mangoes. It will also increase the export of Pakistan. Third ,
China will develop cold storage facilities and logistics. At present, almost 50 percent perishable food is
wasted in the transportation including vegetables, fruits, meat and fish. One cold storage facility will be
installed in Sukkur as well.

 Infrastructure development:
Infrastructure development plays a crucial role in the Pak-China economic corridor project. The
infrastructure development helps in the improved connectivity of the country. Through cpec, there is
development in different fields of the country including roads, railways and ports within Pakistan and
with China as well. This provides facilitation to movement of goods or resources and reduces the
transportation cost as well which is involved in the movement of that goods. And ultimately enhances
the trade and economic cooperation as well.

As the infrastructure enhances, so foes the trade barriers will be low and transportation cost will be
reduced. So it becomes easier for Pakistani investors to access the international market and to compete
it globally.

 Removal of Energy Crisis:

Through the removal of energy crisis, Pakistan will have the opportunity of increased Industrial
Productivity. Adequate and reliable energy supplies enable industries to work effectively and efficiently
without any interruptions of disruption due to power outages. This led to increased productivity, higher
output and improved competitiveness of Pakistani industries both domestically and international level
as well. Secondly, it also open ups the opportunity for attraction of foreign investment. A stable energy

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supply is a crucial part in attracting the foreign investors when considering opportunities for Pakistan.
With the energy crisis resolved, Pakistan will become a more attract destination for foreign investors,
particularly in energy sectors including manufacturing, textiles and chemicals as well.

 Balancing South Asia:

A balanced South Asia contributes to a favorable regional environment for Pakistan, offering
opportunities for enhanced connectivity, expanded market access, increased trade and investment, and
strengthened diplomatic and strategic relations. This balance in the South Asia helps and provides the
opportunity for Enhanced Regional Connectivity. A balanced and stable South Asia fosters an
environment conducive to regional cooperation and connectivity. Improved relations between Pakistan
and its neighbor’s, including India, Afghanistan, and Iran, can lead to the development of cross-border
infrastructure projects and trade corridors, complementing the objectives of CPEC and enhancing
regional connectivity. Secondly, it provides the opportunities for expanded market access. A peaceful
and stable South Asia opens up opportunities for Pakistan to access larger regional markets for its goods
and services. Improved trade relations with neighboring countries create additional avenues for Pakistani
businesses to export products via land routes facilitated by CPEC, leading to increased trade volumes
and economic growth.

 Economic development:
Economic development driven by the CPEC project offers Pakistan opportunities for infrastructure
development, industrialization, energy security, trade facilitation, foreign investment, regional
connectivity, and skills development. By leveraging these opportunities, Pakistan can achieve
sustainable economic growth, job creation, and socio-economic development, leading to improved living
standards and prosperity for its people. Infrastructure Development: CPEC involves extensive
infrastructure projects, including roads, railways, ports, and energy infrastructure. The development of
modern infrastructure enhances connectivity, facilitates trade and investment, and supports economic
growth and development in Pakistan. Industrialization and Job Creation: CPEC includes the
establishment of special economic zones (SEZs) aimed at promoting industrialization, manufacturing,
and economic diversification in Pakistan. These zones attract domestic and foreign investment, create
employment opportunities, and stimulate economic activity in various sectors of the economy. Energy
Security . CPEC addresses Pakistan’s energy shortages by developing coal, hydroelectric, wind, and
solar power projects. The expansion of energy infrastructure increases energy production capacity,

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reduces reliance on imported energy, and enhances energy security, supporting industrial growth and
economic development.

 Job opportunities:
The CPEC project creates a wide range of job opportunities for Pakistanis across different sectors of the
economy, contributing to employment generation, poverty reduction, and socio-economic development
in the country. By leveraging these opportunities and investing in skills development and human capital,
Pakistan can maximize the benefits of CPEC for its workforce and economy. It provides the opportunity
for workers in the domestic country. Construction and Infrastructure Development phase of CPEC
involves building roads, railways, ports, airports, energy projects, and other infrastructure. This creates
a high demand for skilled and unskilled labor, including engineers, technicians, construction workers,
and laborers, providing employment opportunities for Pakistani workers.

OPPORTUNITIES FOR CHINA:

China also faces a wide range of opportunities through China-Pakistan Economic Corridor project. It
also enhances the economic development of China helping in the development of the whole country. The
opportunities that are faced by China are as follows:

 Trade diversification:
The trade diversification can help China in order to have Access to New Markets. Diversifying trade
routes and markets through CPEC provides China with access to new markets in Pakistan, Central Asia,
the Middle East, and beyond. This opens up opportunities for Chinese businesses to export goods and
services, expand market share, and increase revenue. CPEC strengthens economic ties between China
and Pakistan, as well as other countries along the corridor. By diversifying trade relations and expanding
partnerships with multiple countries, China achieves a more balanced trade portfolio, reducing trade
imbalances and vulnerabilities associated with overreliance on a few trading partners. Diversification of
exports through CPEC promotes the growth of Chinese industries and facilitates export-oriented
economic expansion. Increased export volumes and revenues contribute to China’s economic growth,
job creation, and poverty reduction, driving sustainable development.
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  Energy securities:
CPEC enables China to diversify its energy sources by investing in various energy projects in Pakistan,
including coal, hydroelectric, wind, and solar power plants. Diversification reduces China’s dependence
on a single source of energy and enhances energy security by mitigating the risks associated with supply
disruptions or price fluctuations in the global energy market. Through CPEC, China gains access to
Pakistan’s energy market, as well as potential energy markets in Central Asia and the Middle East.

This provides opportunities for Chinese energy companies to export energy products, technologies, and
expertise, expanding their market share and revenue streams in the region. CPEC encourages
investments in renewable energy projects, such as wind and solar power plants, which align with China’s
goals of transitioning towards a greener and more sustainable energy mix. By investing in green energy
projects, China demonstrates its commitment to environmental stewardship and contributes to global
efforts to combat climate change.

 Regional Influence:
Cpec enhances China’s influence by building a strong corridor relationship between Pakistan and China
and with other regional countries. By spearheading large-scale infrastructure projects and investments
in the region, China enhances its geopolitical influence and presence in South Asia, Central Asia, and
the Middle East. CPEC serves as a flagship initiative of China’s Belt and Road Initiative (BRI), enabling
China to assert its leadership and influence in shaping regional economic and strategic dynamics. CPEC
strengthens China’s strategic connectivity with neighboring countries, including Pakistan, Central Asian
republics, and the Middle East.

The development of transportation corridors, energy pipelines, and telecommunications networks

enhances China’s access to key markets, resources, and geopolitical chokepoints, consolidating its
position as a regional power. CPEC enhances China’s soft power and attractiveness as a global leader in
economic development and cooperation. By promoting win-win cooperation, infrastructure connectivity,
and people-to-people exchanges, China cultivates goodwill and positive perceptions among regional
countries, enhancing its image and influence on the world stage.

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  Technology transfer:
Technology transfer plays a crucial role in providing opportunities for China in the China-Pakistan
Economic Corridor (CPEC) project Technology transfer allows Chinese companies to showcase their
expertise, capabilities, and advanced technologies in infrastructure development, energy production,
telecommunications, and other sectors. By transferring technology to Pakistan and other partner
countries, China promotes its industries and establishes itself as a global leader in technology and
innovation. Technology transfer enables Chinese companies to expand their market share in Pakistan
and other countries along the CPEC route. By providing state-of-the-art technologies and solutions
for infrastructure projects, energy plants, telecommunications networks, and manufacturing
facilities, China captures market opportunities and secures long-term contracts and partnerships.
Technology transfer builds local capacity and skills in recipient countries by training workers,
engineers, and professionals in the use of advanced technologies and methodologies.

By investing in education, training, and skills development programs, Chinese companies empower
local communities, promote employment, and contribute to human capital development in Pakistan
and other partner countries. Technology transfer fosters long-term partnerships and collaboration
between China and recipient countries, including Pakistan. By sharing technology, expertise, and
resources, China builds trust, strengthens bilateral relations, and promotes mutual interests and
cooperation, laying the foundation for sustainable economic development and strategic partnership.

Concerns for CPEC

The CPEC as a game changer will not only strengthen China-Pakistan relations but also open new
vistas for development for Pakistan However, there are certain threat perceptions related to the mega
project due to different factors.

Security Threats for CPEC in Pakistan

Being a flagship project of BRI, the security of the CPEC is of great importance for both China and
Pakistan. Providing and ensuring the security of the Chinese personnel and projects sites is the crucial
challenge for Pakistan.

The federal government has raised a Special Security Division (SSD) of Pakistan Army to ensure the
security and protect the Chinese nationals working on the project. The division comprises of 12000

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troops headed by a Major General.17 It is argued here that challenges like militancy in tribal areas,
the insurgency in Balochistan and law and order situation in Karachi creates instability in Pakistan.

In addition, political fissures between the opposition and the government contribute towards unstable
polity that would ultimately affect the CPEC. Besides the security concerns, India isstrongly opposing
the CPEC by creating doubts and hurdles regarding successful completion of the corridor.

Indian Reservation about CPEC

India is wary of the growing Pakistan-China ties and it views the CPEC as a threat. In September 2015,
the Indian Prime Minister, Narendra Modi, visited Beijing and registered a protest against the CPEC.
Furthermore, he tried to justify his protest by adding that the CPEC is being routed through Kashmir,
which, according to India may cause harm to the Indian interests in the region and in Kashmir.
Moreover, the intelligence agency of India,research and Analysis Wing (RAW) has been working
actively to sabotage this mega project.The CPEC faces a great challenge from its competitors.

One of the challenges for the CPEC are the growing ties between India and Iran, who see the CPEC
to be a competition for them. In this regard, India has assisted Iran to develop Chabahar port and
established a rail-road link through Afghanistan, offering the port services to Central Asia and
Afghanistan for the transportation of their goods. India plans to capitalise US$85 million for the
development of Chabahar, which is located at a few miles distance from Gwadar and is part of its
efforts for entry to landlocked .

Afghanistan and Central Asia while bypassing Pakistan Further, the Indian involvement in Chabahar
is related to Pakistan’s continuous denial to permit India access for transit to and from Afghanistan.
Consequently, Iran seems to be the best option for India and it is also argued that India will not be
interested in the building of Chabahar if Pakistan extends transit permissions to India.

Since India has been trying to engage the Central Asian states to cater to its energy need, thus, India
can be easily accommodated by the CPEC through the eastern edge in Punjab and Sindh and can be
engaged as a stakeholder in the success of both Gwadar and the CPEC.

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Political Controversies about CPEC in Pakistan

As far as domestic challenges are concerned, the CPEC was criticised on political grounds, blaming
that it is a Punjab-dominated project. The criticism creates certain conflicting and opposing views
about the project in Pakistan, particularly on the choice of the route direction from Kashghar to
Gwadar. At present, there are three routes, western, central and eastern, which will link the whole
Pakistan with western China.20

i. Western Route: The Western route starts from Gwadar crosses through Turbat, Panjgur, Nag,
Basima, Sohrab, Kalat, Quetta, Qila Saifullah, Zhob and reaches Dera Ismail Khan before leading to
Islamabad. Some parts of the road between Gwadar and Quetta are currently at an advanced stage of
construction.

ii. Central Route: The Central route originates from Gwadar, Quetta and reaches Dera Ismail Khan
via Basima, Khuzdar, Sukhar, Rajanpur, Layyah, Muzaffargarh and Bhakker.

iii. Eastern Route: The Eastern route will start from Gwadar, Basima, Khuzdar, Sukhar, Rahim
Yar Khan, Bahawalpur, Multan and

Lahore/Faisalabad and then reach Islamabad.21In 2016, Iqbal stated that the CPEC is beneficial for
all provinces. He further added that two roads will be built from Gwadar to Quetta and from Gwadar
to Khuzdar to Ratodero. Similarly, Gilgit-Baltistan has to be a gateway to the CPEC. This project has
the ability to attract South Asia,

Central Asia and Europe and open billions of dollars for the Pakistani markets including regional
markets. Additionally, Balochistan will be the main beneficiary of the CPEC. Similarly, all the
provinces and regions would also gain from the project.22

.The opposing views about the CPEC led the Government of Pakistan (GoP) to develop national
consensus on this important issue. In this regard, the former Prime Minister, Sharif, took all the

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 political parties into confidence. On May 28, 2015, at All Parties Conference (APC), heannounced to
build the western route ─ from Hazara in Khyber Pakhtunkhwa to Quetta in Balochistan first.23It is
important to state that the CPEC will open new pathways of development for all provinces as Gwadar
port will be upgraded and a 14

kilometre highway will be built in addition to the construction of a modern airport, which would
brighten the prospects for the coastal areas of Balochistan. Furthermore, a 20 kilometre-long iron
bridge will be built on M-17 linking Balochistan to Punjab along with Indus Highway of Sindh
province. The federal government has also pledged to extend its co-operation to attract Foreign Direct
Investment (FDI) in Balochistan.

More significantly, Azad Jammu and Kashmir will benefit in the same way as Mirpur-Muzaffarabad
route is around 260 kilometres having a share ofaround 10 per cent of the total length.Many elements
are still highlighting the controversy about the route alignment of the CPEC despite the fact that all
political parties have developed a consensus on it. It can be argued that it is a mutually beneficial
project for both countries. Through this route, China can get the shortest possible access to the Arabian
sea, Indian Ocean and Persian Gulf, which will help it in the near future in the acquisition of energy
from the Middle East.

CPEC and Balochistan Factor

Balochistan is one of the most important areas of Pakistan; a surprising location for what officials hope
will become one of the world’s great trade routes, linking the deepwater port of Gwadar with the city of
Kashgar.22 This province has been dogged for over a decade by a bloody separatist insurgency. Baloch
insurgents, who oppose Balochistan specially Gwadar’s development have blown up numerous gas
pipelines and trains and have attacked Chinese engineers.23They do not want to see Balochistan to
develop as an economic and trade hub unless it becomes independent. They fear that if Balochistan
develops and Gwadar port becomes a thriving port, then outsiders would move in. That could weigh the
province’s demographic balance even further against the Balochs.

Various separatist leaders of the Balochistan province are opposing the China-Pakistan Economic
Corridor (CPEC). In this respect, Brahamdagh Bugti, the leader of the outlawed Baloch Republican Party
(BRP), criticized the CPEC and Gwadar port projects and called for an UN-sponsored referendum in
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Balochistan to decide its future. He alleged the military equipment and funds obtained by Pakistan from
the US and other western countries for combating terrorists and extremist groups were also being used
against the democratic and political struggle of the baloch people.

CPEC and Tax and Power Tariff Issues

China has raised serious concerns over the issue of tax, power tariff and electricity price with Pakistan
along with the implementation process of the China Pakistan Economic Corridor (CPEC) energy projects
in Pakistan. According to sources, China has expressed serious reservations over the hurdles and
delaying tactics purportedly being employed by the Federal Board of Revenue (FBR).According to the
agreement, under the CPEC, the imported equipment would be exempt from sales tax and withholding
tax. However, the approval procedure from FBR is proving time-consuming, which is negatively
impacting on project construction timelines in Pakistan.

The Chinese authorities have pointed out that the decrease in tariff for renewable energy will negatively
impact on the cost-effectiveness of project implementation, dampen investment enthusiasm and affect
projects implementation based on China-Pakistan Inter-governmental Agreement.

China-Pakistan Economic Corridor On The Region:

The CPEC will offer China and Pakistan an opportunity to promote regional connectivity, trade growth
and infrastructure development. Pakistan views the corridor not only as an infrastructure and economic
development programme but a key initiative for the country’s economic prosperity. China-Pakistan
Economic Corridor is a framework of regional connectivity. CPEC will not only benefit China and
Pakistan but will have positive impact on Iran, Afghanistan, Central Asian Republic, and the region.

The enhancement of geographical linkages having improved road, rail and air transportation system with
frequent and free exchanges of growth and people to people contact, enhancing understanding through
academic, cultural and regional knowledge and culture, activity of higher volume of flow of trade and
businesses, producing and moving energy to have more optimal businesses and enhancement of co-
operation by win-win model will result in well connected, integrated region of shared destiny, harmony
and development.

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China Pakistan Economic Corridor is journey towards economic regionalization in the globalized world.
It founded peace, development, and win-win model for all of them. China Pakistan Economic Corridor
is hope of better region of the future with peace, development and growth of economy. Two centuries
ago, the iconic French general and dictator, Napoleon Bonaparte, predicted the true potential of China
by saying, “China is a Sleeping lion in Asia. Let her sleep for when she wakes she will shake the World.”1
Yesterday’s words are the reality of today because Beijing has Wakened up from its deep slumber as
rightly noted by the French President Francois Hollande, “today, the lion has wakened up but it is
peaceful, Pleasant and civilised.”2

In the same manner, the Chinese President, Xi Jinping, victoriously acknowledged in 2014, that the
emergence of modern China is no less than economic flashpoint in the world.3 As of now, Beijing Is in
a struggle to continue pragmatic economic diplomacy for the reason to Maintain its historical legacy as
an Asian power.4 In the past, the imperial Powers dragged China into Opium Wars (1839 and 1856) but
the Chinese Spirit prevailed and recognised itself as a strong and stable country. So, in The present
scenario, it is the only country that has the potential to directly Challenge the American global leadership
and influence in the world. China is a remarkable country not only as a swiftly rising market in the World
but also as a manufacturing hub for international operations. It has Initiated global investment, trade and
capital flows in the world and Sustaining the desired economic development since the last two decades.
Even being the most populous country, its enormous economic growth in Per capita income is more than
eight per cent a year, which has changed the Living standard of its people and converted the country into
a global Economic power.5Furthermore, the growth of China is concentrated around the fastest-Growing
consumer market, heavy industries, technological know-how, Manufacturing, agriculture and
telecommunication. China’s economic Growth model has successfully generated adequate employment
for skilled labour . The Western countries balanced China’s fast development by keeping distance
between investment and export; moving toward a more moderate pricing system for land, power and
fuel; applying substantial reforms in the financial sector and approving larger exchange rate flexibility.
After coming to the power in 1978, Deng Xiaoping decided to introduce “open door policy” to make

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China ‘Asian giant,’ which yielded in double-digit growth with million Chinese lifted out of poverty: a
tremendous achievement of economy.

Regional Connectivity and the Economic Corridor:

Strategically, Pakistan is situated in the volatile region of South Asia which Is a hub of great power
politics. Its geographical position has given valuable Opportunities to the CARs to access Gwadar port
which is the economical And shortest direction of 2600 km as compared to Iran’s Chabahar port (4500
km) which is located in Southeast of the country on the Gulf of Oman. Afghanistan as a landlocked
country, can also use Gwader port Which is deep-water port and fascinates to many countries of the
region. In Addition, the CPEC is an innovative idea and new horizon of achievement And it is a great
incentive in a way that immense progress through the CPEC Will stabilizes Pakistan-China relations. 30
In fact, the country needs to Endorse trade with the global community as a replacement of dependence
On foreign loans and credits for economic development.

Therefore, the CPEC has enabled Pakistan to achieve the growth target of 6.2 per cent Because of the
continuity of economic policy and stability. There are Chances that if Pakistan continued its present leap
of growth, it would be Involved in the best and advanced economies of the world. Historically, China is
linked to different regions and the rest of the World through the Ancient Silk Road and it will not only

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connect to China But to the Arabian Sea, South and Southwest Asia and Central Asia. The rail Linkage
will also be established between China and Pakistan which Envisions a multi-dimensional economic
project and, in this backdrop, the Progress of Gwadar port is one of the promising development to hugely
Benefit various regions. 32 Therefore, the grand plan of development Contributes to the development of
neighbouring countries alongside regional Integration. In this way, the CPEC has the potential of regional
cooperation.

Some of the positive indicators are mentioned below:

a) Groundwork for Transport Setup

b) Energy Continuity
c) Supply-Chain and Logistic Centre
d) Commercial Activity and Trade Movement
e) Peace Plan and Developmental Strategies of Region
f) Multiple Developmental Options
g) Technological and scientific Cooperation
h) Agrarian and Farming Cooperation
i) Holiday Business and Tourism Industry
j) Knowledge Market and Informative Connection & Health Assistant.
k) Human Organizational Skills and Development
l) People-to People Cooperation
m) Improvement of Security and Stability33

Effects of CPEC Projects On The Economy OF Pakistan:

CPEC Projects have a positive impact on the economy of Pakistan. Their explanation as follow;

The 21st century is a time of fiscal autonomy and Self-sufficiency in many aspects of life. If CPEC Is
successfully implemented, it has the potential To have a significant effect on Pakistan. During The
process of putting CPEC into action, Pakistan Will be confronted with a number of economic Obstacles
and hazards, such as the conundrum of How to repay its external debt. A significant Amount of debt was
received by Pakistani Officials in order to carry out CPEC projects, Which was condemned by a number
of academics. However, many government officials are of the Opinion that CPEC would have a
favourable Influence on the economy of Pakistan. CPEC Would lead to a rise in both industry and
Urbanisation, as stated in Pakistan’s Ministry of Planning, Development, and Reform’s (2017) Long

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Term Plan (2017-2030) document, which Was published in 2017. According to the Document, the growth
of industrialisation would Also contribute to Pakistan’s transformation into a Country that is extremely
inclusive, globally Competitive, and affluent (Qadeer 2020). Despite The fact that Pakistan is confronted
with problems On the national, regional, and international levels, The nation continues to work toward
the Completion of CPEC projects in order to further Its own self-interests. The following are the Effects
that CPEC projects would have on the Economy of Pakistan.

The Effect of Special Economic Zones and Other Infrastructure on the

Economy Of Pakistan:
Pakistan is going through a severe economic Crisis right now. The pace of economic growth in Pakistan
has dropped from 6.2% to 3.3% in 2019, Indicating the severity of the current crisis(Makhdoom and
Shah 2018). Typically, the Creation of new jobs, advancements in the Industrial and manufacturing
sector, investments, The updating of ageing infrastructure, and a boost In gross domestic product are the
next natural Steps after economic development (GDP). The Projects that make up CPEC will have a
Favourable influence on Pakistan’s economy. “A Total investment of $13.58 billion is to be put in The
building of infrastructures,” according to Pakistan’s Ministry of Planning, Development And Reform.
The following is an important Project regarding the infrastructure: Karakoram (the Thakot-Havelian
stretch), which provides a Connection between the province of Gilgit Baltistan and Khyber Pakhtunkhwa
and the Capital city of Islamabad. According to the findings published in Employment Outlook of
CPEC: A Meta-Analysis by Dr. Shahid Rashid (2018), the Karakoram Highway (KKH) has been
Responsible for the creation of 7,800 direct jobs, 6,000 of which have been attributed to the Country of
Pakistan and 1800 to the country of China (Zaidi 2019). For more efficient travel Between Peshawar and
Karachi, the MultanSukkur segment of the Peshawar-Karachi Highway infrastructure project calls for
the Construction of six lanes along the 1,100-Kilometer road. It will include 107 underpasses, 188
subways, and 100 bridges. Additionally, it will have five rest areas, six Public service areas, 22 toll plazas
with the most Recent intelligent technology, and 11 interchanges. Since it began, the project has been
responsible For the payment of taxes of USD 39,920,405(Iftikhar and Hossain 2020). This indicates that
The Peshawar-Karachi highway has the potential To make a contribution to the economy of Pakistan as
a whole.

The cash collected from the Toll levy will contribute to the economic benefits Brought about by CPEC.
Pakistan’s tax income Was estimated to be 22.782 billion dollars in March of 2019, however by June of

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same year, it Had climbed to 30.355 billion dollars (Iftikhar and Hossain 2020). The Pakistani economy
will Benefit from the collection of taxes from highway Tolls. Under the auspices of CPEC, the upgrading
Of the Dera Ismail Khan (Yarik) – Zhob, N-50 Phase-I (210 kilometer’s) road is now under Process. It
is anticipated that China’s investment Of more than $60 billion in Pakistan’s Infrastructure and electricity
projects as part of The China Economic Corridor (CPEC) will lead To an increase of around 3.5% in
economic Growth in Pakistan. This indicates that Infrastructure projects such as roads, trains, and
Motorways would have a favourable influence on The economy of Pakistan by creating job Possibilities,
sources for the national economy, Business opportunities, and increased comfort .

ONE BELT, ONE ROAD:

Understanding the importance of CPEC requires a brief overview of China’s Larger One Belt, One Road
(OBOR) initiative, perhaps best described as a modernday Silk Road. OBOR is a network of pipelines,
railways, roads, and maritime trade Routes spanning across Asia, Africa, and Europe . At the heart of
OBOR is CPEC, with the entire system’s crown jewel resting in Gwadar. The project’s often seen as
China’s response to the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment
Partnership (TTIP).8 Neitherof these global Trade agreements includes China. The TPP is a partnership
between the countries of North America and the Pacific Rim.9 Twelve countries in total compose the
Agreement, notably including China’s closest neighbors, but not the red giant itself. The TTIP is a more
western-focused agreement between the United States (US) and The European Union.” The TTIP is still
undergoing negotiation, but the TPP utterly Failed on US President Donald Trump’s first day in office.1
2 In contrast, both OBOR And CPEC are well underway. Only time will tell, however, if CPEC and
OBOR are China’s attempts to surpass the US as the world’s superpower. What is certain in the Interim
is the magnitude of economic benefit that awaits both Pakistan and China at The end of their joint
Corridor.

Infrastructure, Transportation, and Energy:

CPEC is expected to add over 700,000 jobs to the Pakistani labor market and Increase the country’s GDP
by 2.5 percentage points from 2015 to 2030, all throug vast array of infrastructure, transportation, and
energy projects. 3 By March 2018,14 of the 21 energy projects are estimated to produce 10,400
megawatts (MW) of Energy. 14 The projects include investments in both traditional and alternative
energy Sources, including solar, wind, coal, and hydropower. The infrastructure projects Will expand on
Pakistan’s existing roadways to create a 1,100 km motorway between Lahore and Karachi; update the
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Karakorum Highway connecting Rawalpindi to China; upgrade the Karachi-Peshawar railway to handle
a train running at 160 km/H; and extend a railway network to connect Pakistan to the Xinjiang Railway
in Kashgar .1

CPEC will also encompass a network of oil and natural Gas pipelines, including one connecting Gwadar
to Nawabshah in Iran.16Gwadar is the connecting point for a substantial portion of CPEC activities. Its
Strategic prowess rests on its advantage as one of the world’s largest deep-water Ports, connecting South
Asia, Central Asia, and the Middle East, and housing almost Two-thirds of the world’s oil reserves. ‘I
The port’s location at the mouth of the Persian Gulf makes it a prudent gateway for the first set of CPEC
projects. Development projects should make Gwadar Port fully operational by the end of2017. The
remaining projects are expected to be operational by 2020.8The Nation, a Pakistani news outlet,
published a list of the 51 MoUs sig

China-Pakistan FTA:
The 2006 FTA governs all subsequent trade between China and Pakistan, CPEC Included. 29 The FTA
strives to maintain consistency with the WTO’s General Agreement on Tariffs and Trade (GATT), as
noted in Article 1 of the FTA.3 0 The Most notable part of this agreement is its preamble. It clearly
outlines the two Countries’ resolution to “promote reciprocal trade,” while recognizing the Importance
of “promoting sustainable development in a manner consistent with Environmental protection and
conservation.” 3 The Tariff Elimination clause of is the primary manifestation of bilateral commitment
To advantageous trade. It states that “…each Party shall progressively eliminate its Import customs
duties on goods originating in the territory of another Party…”32 Reducing cost barriers is a significant
step towards promoting trade. The FTA successfully balances favorable trade conditions with efforts
towards Sustainable development.

The chapter on Sanitary and Phyto-sanitary Measures (SPS) most clearly manifests this balance.” This
chapter recognizes the need to Protect animal and plant life during trade; requires adherence to
international Standards and risk assessments; and establishes a Committee on Sanitary and Phytosanitary
Matters to regulate compliance. 34 The SPS chapter demonstrates both China and Pakistan’s
commitment to balancing trade with sustainability. Limited Evidence exists, however, as to whether such
objectives are actually being achieved As trade proceeds under the FTA. One particular criticism from
which neither Pakistan nor China is immune is Corruption. But the FTA will pleasantly surprise critics
with the sheer number of Transparency clauses composed specifically to combat this issue.

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Joint Declaration of Cooperation:
Chinese President Hu Jintao and Pakistani President Parvez Musharraf signed The China-Pakistan Joint
Declaration on November 4, 2003.24 It acknowledges the Establishment of Sino-Pak relations in 1951
and the subsequent bilateral Commitment to promote trade and cooperation between the two countries.
25 The Declaration establishes the China-Pakistan Joint Committee on Economic, Trade, Scientific and
Technological Cooperation (JEC), and creates a goal for the Establishment of a free trade agreement,
which was ultimately achieved in 2006.26 The Declaration is extremely wide in its coverage of industries
to benefit from Cooperation: technology, infrastructure, transportation, agriculture, forestry, fishery,
SMEs, tourism, defense, culture, education, public health, sports, and media.27 The Countries also
commit to mutual efforts to combat water and air pollution.

KEY ISSUES AND RECOMMENDATIONS FOR ECONOMIC,

SOCIAL, AND ENVIRONMENTAL SUSTAINABILITY:
Through analysis of CPEC’s financial structure and governing trade Agreements, this paper has already
identified and provided solutions for two major Roadblocks to the Corridor’s success: corruption and
high upfront capital Requirements. The respective solutions fall within the framework of long-term
Sustainability. Integrating EITI-inspired contract disclosure clauses into existing an future agreements
enhances governance and social license. Restructuring Infrastructure projects into P3s and subsidizing
CPEC interest payments through Increased local micro-lending are measures benefiting economic and
social Sustainability. Additional concerns that, if addressed, can significantly enhance CPEC’s Viability
and net benefit to the communities and investors include security, regional Turmoil, and the need for
improved data analytics. Addressing these concerns within The investment agreements themselves can
ensure compliance from the national to Local levels of CPEC projects. The biggest concern with this
type of integration is Compliance. One way to ensure compliance is for China and Pakistan to publish a
Set of investment standards that include the solutions that follow. This method Alleviates compliance
risk by allowing the global public to play the role of regulatory Watchdog. The first key issue and
corresponding solutions is on the to existing security.

 Security
 Regional Turmoil
 Existing state of the regional economy; Presence, level, and frequency of terrorist activity.

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  Level of social and political unrest.
 Local political risks (instances of corruption and/or bribery, etc.)
 Unemployment rates; and
 Any other pertinent analyses.
 The joint task force should elicit the expert.

Geo-political implications
Owing to the recent bout of strain between U.S.-Pakistan ties, the Trump administration has announced
to halt an amount of US $ 1.3 billion in terms of security assistance to Pakistan along with other punitive
recommendations that are under consideration by US administration. The heightened schism in U.S.-Pak
ties provides Beijing with a prospect to promote a new model of international development to modify
the foremost US model which is based on „carrot and stick‟ doctrine. China initiated the geo-
economically ambitious model of Belt and Road Initiative (BRI) following the principles of “wide
consultation, joint development, and mutual benefits” for the regional development which seem more
practical and logical than US model. As part of BRI, CPEC has won support from all corners of Pakistan.
Additionally, of late China has hosted the first trilateral summit between China, Pakistan and Afghanistan
in order to promote negotiations between Pakistan and Afghanistan.

Furthermore, Afghanistan may participate in the corridor (Grossman & Zhu, 2018 Feb 26). Also, China
has increased investment in Sri Lanka that has generated fears in India since India has viewed it as a
backyard. Russia is too much fretful about the CPEC venture since this has realized into increased
influence and presence of China in the Central Asian region. The region, for a long time, is deemed
within Moscow‟s circle of influence. Currently, an intensified Moscow-Beijing competition has been
noticed in establishing cordial relations neighboring countries. The other area of concern is that several
countries in Asia and abroad (including the U.S.) are apprehensive about the geostrategic impact of BRI.
However, China has tried to alleviate these apprehensive of late by stressing the “win-win” model of the
initiative. Its efforts will have significant foreign policy implications for a number of key regional actors
that includes India, Russia and Japan.

It is also deemed that the West is insecure of China‟s swift rise. As per the former US Secretary of
Defence Donald Rumsfeld says, “My view of China is that its future is not written, it is being written”.
The West always is tilted towards India. The west continues to treat China as if it is still in “Qing Dynasty
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Era” that has shown neglect in China‟s maritime capabilities. However, China opposes the ideology of
domination of any power against any state big or small. It believes in a win-win situation. China‟s
peaceful rise has been deemed by the people of Asia-Pacific region as a sign of peace, security and
development. China‟s foreign relations are based on engagement, dialogue, accommodation,
reconciliation, promotion of peaceful co-existence and mutual trust, security, balance and harmony.
There is an opportunity for all nations for peace and harmony in the world (Javed, 2016).

The US sees CPEC as a mega venture that will multilaterally support the idea of regional connectivity,
collective economic development and anticipates Afghanistan‟s future involvement in CPEC. The U.S.
is well aware of the development of CPEC; China will have a potential naval threat in the Indian Ocean
region. The U.S is giving a strategic leverage to India so that India can maintain its regional dominance.
The signing of Indian Nuclear Deal of 2006 between US and India and US‟ aim to project India as a
regional power signal the same aspiration. UAE is also concerned with the construction of CPEC. Ports
play a significant role in the economic enhancement of UAE and when Gwadar port will be fully
operationalized, it will have a direct economic impact on the Dubai port business volume.

Benefits of CPEC: benefits of CPEC to Pakistan

Both China and Pakistan are interested in minimizing the conflict in South Asia. CPEC provides the
opportunity to integrate economies in order to curtail the enduring conflicts in the region. Also, it would
provide job opportunity and prosperity to millions of people in both countries. It will also develop
China‟s western region as well as improve infrastructure connectivity in all forms; rail, road, air, sea,
telecommunications and energy etc. across the globe. In February 2014, Pakistan‟s President Mamnon
Hussain visited China and stated that “project is going to be a monument of the century. It will benefit
not only Pakistan and China, but also the whole region with billions of people.” (Tiezzi, 2014)

Additionally, both the countries again echoed their firm resolution to implement the plans of proposed
Economic Corridor. CPEC is regarded as a very significant project for China and Pakistan. CPEC not
only provides a secure alternate trade transit route for Pakistan and China but it also helps economic
enhancement of the region and to counterbalance Indian regional influence. By strengthening its huge
naval presence in the Indian Ocean region, CPEC also secures China‟s trade routes by reducing distance
and delivery time of overall trade. Pakistan will be benefitted economically by becoming a transit trade
route for international trade, by increasing employment opportunities, alleviating poverty and bringing
stability and prosperity by occupying the locals in economic and commercial activities. Moreover, CPEC

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would attract underscare foreign investment which has a prospect to enhance Pakistan‟s export, increase
its GDP. It will open up trade and business opportunities in Pakistan as well.

In past, Pakistan‟s economy has been beaten down from energy shortage, high inflation, inadequate
infrastructure development and sluggish economic development. Pakistan‟s geostrategic location has
allowed it to play a significant role in geopolitics, trade and transit. The building up of CPEC provides
Pakistan with the prospect to the up gradation of infrastructure development and economic boom of the
entire province as the corridor passes across Pakistan. The Central Asian region can play a significant
role in Pakistan‟s economic revival. As per the blueprint, new infrastructure, railways, airports and
seaports are to be built in this ambitious plan. Provinces like KP and Baluchistan are lagging far behind
in terms of development will also get infrastructural boost and enhanced economic gains. Moreover, it
offers Pakistan‟s Gilgit Baltistan region province in this great opportunity of socio-economic
development. Since Pakistan‟s economy is heavily dependent on sea trade. With the development of
Gwadar port and its connectivity will reduce the load on Karachi and Bin Qasim ports

Significance of CPEC for China

China has deemed great strategic and economic boom from CPEC. China aspires to counter the separatist
outfits in the region with the transformation of economic enhancement in China‟s Xinjiang province. As
part of CPEC, Gwadar will provide the western China with shorter, economical and safer route. China‟s
crude oil dependency on the Gulf and Iran is approximately 47 per cent from its total consumption. The
complete inland distance from eastern China to western China will cut from 16,000 km to 3,000 km.
Also, Gwadar, as a pivot provides economic security to China. Currently, almost 80 per cent of Chinese
oil is transported from Strait of Malacca to Shanghai port, the transportation time from the Middle East
and Africa will be reduced from 30 days to 2 days after the completion of the projects that are in the
pipeline. Also, Gwadar can be used as an alternative in case the Strait of Malacca is blocked.

China envisaged that by constructing CPEC, China‟s relatively backward and restive Xinjiang region
will be economically developed that will bring peace and stability in this region by facilitating trade with
Central Asian states to fulfill its growing energy needs. It would facilitate China‟s shortest access to
markets of Asia, Europe and beyond. Furthermore, owing to low labour cost, Chinese investors have a
lot to be offered in multiple sectors in Pakistan. In future, it can pave the way for regional economic and
trade connectivity and integration at wider level between regions of South, Central and East Asia.
However, the current attitude between India and Pakistan regarding their trade and economic relations

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and people-to-people connectivity etc. ought to be changed. Through CPEC, the regional economic
integration can prove to be a harbinger to determine all the political clashes through economic
cooperation. To initiate a beginning, the Asian nations need to set aside their enduring political
differences in order to make the 21st century, the Asian century.

The states of South, Central and East Asia need to build more and more economic connections. To start
regional trade integration and economic activities, CPEC as a flagship of OBOR can prove to be a
catalyst. However, there are some potential threats and challenges looming that can hamper the up-and-
coming CPEC infrastructure development and can obstruct CPEC transforming into reality. The
infrastructure construction process is stalled due to the ongoing and severe power shortages. Throughout
the year, the demand for energy exceeds capacity by 4-7000 megawatts in the countrywide. Day by day
worsening security situation in Afghanistan and its spill over impact on Pakistan along with the ongoing
political controversies in Pakistan regarding the selection of different routes in all provinces and lack of
trust between regional neighbouring states are prevailing the whole situation. In a wider perspective,
CPEC can foster economic community throughout the South Asian region but beyond regions of the
world if materialized in its true sense.

Impact of CPEC on regional and extra-regional level

In the years to come, CPEC will radically transform the entire Asian region geo-politically and
strategically. It has the colossal potentials that will restructure the economic viewpoint of the regional
member states. Millions of people will be benefited from it as the initiative has the capacity of economic
boom, mounting trade, enhanced cooperation and amplified cultural connectivity among the people in
the region. Afghanistan will be a major beneficiary of the project if CPEC is extended to this landlocked
country that can bring country‟s fragile economy and security to stabilization (Butt & Butt, 2015,
December 09-10). The landlocked Central Asian Republics that is vital for their oil richness and natural
gas resources will get access to sea and diversification of energy channel that CPEC project can fulfill.
The goods from the CARs can easily be transported to Middle East and Europe via Gwadar port (Butt
& Butt, 2015, December 09-10).

At the outset, CPEC faced resistance from Iran. Recently, considering its geo-political significance, Iran
has showed the desire to participate in the project aiming to enhance connectivity through railways and

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roads and expand the trade and transportation. Also, under the auspices of CPEC, Pakistan and China
will construct “the liquid natural gas (LNG) terminal at Gwadar and the 700 km long pipelines to import
LNG from China which can become the Iran-Pakistan pipeline as well” (Butt & Butt, 2015, December
09-10). With the changing geo-political scenario, the U.S. presence and influence in the region may
recede notably that seemingly provide China with an opportunity to perform the role of an equalizer in
the South Asian region largely owing to the deteriorating its ties with Russia. By supporting Pak-Sino
relations, the US can use the mounting economic dependence to cope with major concern of the US with
the help of China to counter the threat of extremism and terrorism.

However, the U.S has reservations over Pakistan‟s handing over the Gwadar port to China, fretful of
expansion of Chinese, may be used as Chinese naval base (Butt & Butt, 2015, December 09-10).

Security challenges to CPEC

One of the gravest challenges in the security situation is a source of concern in the successful completion
of CPEC. The long existing insurgency in Baluchistan is a challenge to CPEC as well as sovereignty of
Pakistan. The gravitating law and order situation in Baluchistan and Gwadar is strategically located in
Pakistan‟s Baluchistan province. The anti-state Baluch outfits maintain that CPEC will exploit local
resources. In Baluchistan‟s restive region, many non-locals, businesses and multi-national companies‟
personnel have been under attack. In order to eliminate these terrorist outfits in the country. A sentiment
has been prevailed that China can reap the benefits of the CPEC and Baluch will be a minority. The
feeling of deprivation along with foreign elements‟ involvement is a gravest challenge for successful
development of CPEC. The region has severally observed strikes and demands of political and economic
rights of the people as well as a fair stake in CPEC since it is the entry point of CPEC. The Pakistani
army has launched several operations to eliminate them. The security situation is one of the major
concerns to hinder the successful completion of CPEC-related projects at internal and external levels.
Pakistan is faced with the daunting challenges of extremism and terrorism. From Xinjiang to Gwadar,
East Turkestan Islamic Movement (ETIM), TTP, LeT, LeJ, ISIS, BL Fand other militant outfits are
hindering the CPEC security. All these factions are dynamically trying to halt this mega venture. These
terrorist factions and sub-nationalists in the whole country are trying to threaten the CPEC project.
Since2014, the separatist outfits in Baluchistan have killed more than 50 labourers is roadside bomb
explosions. Chinese nationals and Pakistani workers are protecting them. In order to ensure the security

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of Chinese workers and CPEC security, Pakistan army has created a special force that is Special Security
Division (SSD).The major security challenge consists of Al-Qaida from parts of Afghanistan.

Political constraints

Besides security challenges, an additional challenge towards the completion of CPEC is the political
disagreement between political parties in Pakistan. There is a disagreement on route selection, allocation
of developmental funds between the provinces under the aegis of CPEC. The smaller provinces have
apprehensions over the policies of federal government. Also, there is a lack of transparency and the
demand to make all the arrangements related to the development of CPEC to be made public. A lack of
political consensus may lead towards delay and disruption in the completion of CPEC related projects.
The KP and Baluchistan provinces show concerns on changing the routes which the federal government.
disapproves. In May 2015, an „All Party Conference‟ was conducted to address the concerns of all
provinces related to CPEC. All parties agreed to develop the Western route and pledged their political
support. However, the issue is not decided completely. The allocation of resources has been politicized
for political benefits

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