China–Pakistan Economic Corridor (CPEC)

China–Pakistan Economic Corridor (CPEC)

The China–Pakistan Economic Corridor (Chinese: 中国-巴基斯坦经济走廊; Urdu: پاكستان-چین اقتصادی راہداری‎), often referred to by the acronym CPEC, is a collection of projects currently under construction for $51 billion,^[1] intended to rapidly expand and upgrade Pakistani infrastructure as well as deepen and broaden economic links between Pakistan and the People's Republic of China.^[2] The corridor is considered to be an extension of China's ambitious One Belt, One Road initiative,^[3] and the importance of CPEC to China is reflected by its inclusion as part of China's 13th five-year development plan.^[4][5]

 Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015–2030, and add 2 to 2.5 percentage points to the country's annual economic growth.^[6] Were all the planned projects to be implemented, the value of those projects would be equal to all foreign direct investment in Pakistan since 1970,^[7] and would be equivalent to 17% of Pakistan's 2015 gross domestic product.^[8]

 Infrastructure projects under the aegis of CPEC will span the length and breadth of Pakistan, and will eventually link the city of Gwadar in southwestern Pakistan to China's northwestern autonomous region of Xinjiang via a vast network of highways and railways.^[9] Proposed infrastructure projects are worth approximately $11 billion, and will be financed by heavily-subsidized concessionary loans that will be dispersed to the Government of Pakistan by the Exim Bank of China, China Development Bank, and the Industrial and Commercial Bank of China.^[10]

 As part of the broad package of infrastructure projects under CPEC, a 1,100-kilometre-long motorway will be constructed between the cities of Karachi and Lahore,^[11] while the Karakoram Highway between Rawalpindi and the Chinese border will be completely reconstructed and overhauled.^[7] The Karachi–Peshawar main railway line will also be upgraded to allow for train travel at up to 160 kilometers per hour by December 2019.^[12][13] Pakistan's railway network will also be extended to eventually connect to China's Southern Xinjiang Railway in Kashgar.^[14] A network of pipelines to transport liquefied natural gas and oil will also be laid as part of the project, including a $2.5 billion pipeline between Gwadar and Nawabshah to eventually transport gas from Iran.^[15]

 Over $33 billion worth of energy infrastructure is to be constructed by private consortia to help alleviate Pakistan's chronic energy shortages,^[16] which regularly amount to over 4,500MW,^[17] and have shed an estimated 2–2.5% off Pakistan's annual gross domestic product.^[18] Over 10,400MW of energy-generating capacity is to be developed between 2018 and 2020 as part of the corridor's fast-tracked "Early Harvest" projects in conjunction with four projects under construction before the announcement of CPEC.^[19] Electricity from these projects will primarily be generated by coal, though wind projects are included under CPEC, as is the construction of one of the world's largest solar energy plants

 

Background 

 Plans for a corridor stretching from the Chinese border to Pakistan's deep water ports on the Arabian Sea date back to the 1950s and motivated the construction of the Karakoram Highway beginning in 1959.^[21] Chinese interest in Pakistan's deep-water harbor at Gwadar had been rekindled by 1998 and in 2002 China began construction at Gwadar port which was completed in 2006. Expansion of Gwadar Port then ceased thereafter owing to political instability in Pakistan following the fall of General Pervez Musharraf and subsequent conflict between the Pakistani state and Baloch militants.^[22]

 The current form of the project was first proposed by General Pervez Musharraf,^[23] however it was postponed owing to the political instability in the country that followed Musharraf's step down. The subsequent government of the Pakistan Peoples Party proposed it again when President Asif Ali Zardari invited heads of all the political parties to a Luncheon in honor of the Chinese Premier Li Keqiang at the Aiwan-e-Sadr on 22 May 2013.^[24] Chinese Premier Li Keqiang and Pakistani President Asif Ali Zardari have agreed to build an economic corridor between the two countries. Both sides have decided to further enhance mutual connectivity and both sides are connected to develop a long-term plan for a China-Pakistan economic corridor.^[25]

 In February 2014, Pakistani President Mamnoon Hussain visited China to discuss the plans for an economic corridor in Pakistan.^[26] Two months later, Pakistan Prime Minister Nawaz Sharif met with Premier Li Kequiang in China to discuss further plans,^[27] resulting in the full scope of the project to be devised under Sharif's tenure.^[28] In November 2014, the Chinese government announced its intention to finance Chinese companies as part of its $45.6 billion energy and infrastructure projects in Pakistan as part of CPEC.

During the state visit of Xi Jinping to Pakistan in April 2015, he wrote in an open editorial stating: "This will be my first trip to Pakistan, but I feel as if I am going to visit the home of my own brother." On 20 April 2015, Pakistan and China signed an agreement to commence work on the $46 billion agreement, which is roughly 20% of Pakistan's annual GDP,^[29] with approximately $28 billion worth of fast-tracked "Early Harvest" projects to be developed by the end of 2018.^[30] As a gesture of friendship, the Pakistani capital at that time was dotted with slogans and signboards such as "Pakistan-China friendship is higher than the mountains, deeper than the oceans, sweeter than honey, and stronger than steel"^[31] – an oft-repeated phrase coined by the Chinese to describe their deep ties to Pakistan.

 On 12 August 2015 in the city of Karamay, China, and Pakistan signed 20 more agreements worth $1.6 billion to further augment the scale and scope of CPEC.^[32] Details of the plan are opaque,^[33] but are said to mainly focus on increasing energy generation capacity.^[34] As part of the agreement, Pakistan and China have agreed to cooperate in the field of space research.^[35]

In September and October 2015, the government of the United Kingdom announced two separate grants to the Government of Pakistan for the construction of roadways that are complementary to CPEC.^[36][37] In November 2015, China included the CPEC in its 13th five-year development plan,^[38] while in December 2015, China and Pakistan agreed on a further $1.5 billion investment to set up an information and technology park as part of the CPEC project.^[39] On 8 April 2016, during the visit of Xinjiang's Communist Party chief Zhang Chunxian companies from Xinjiang with their Pakistan counterparts signed $2 billion of additional agreements covering infrastructure, solar power, and logistics.

Projects in Gwadar Port and City

Gwadar forms the crux of the CPEC project, as it is envisaged to be the link between China's ambitious One Belt, One Road project, and its Maritime Silk Road project.^[41] In total, more than $1 billion worth of projects is to be developed around the port of Gwadar by December 2017.

Gwadar Port Complex

Initial infrastructure works at Gwadar Port commenced in 2002 and was completed in 2007,^[22] however plans to upgrade and expand Gwadar's port stalled. Under the CPEC agreement, Gwadar Port will initially be expanded and upgraded to allow for the docking of larger ships with a deadweight tonnage of up to 70,000.^[42] Improvement plans also include the construction of a $130 million breakwater around the port,^[43] as well as the construction of a floating liquefied natural gas facility that will have a capacity of 500 million cubic feet of liquified natural gas per day and will be connected to the Gwadar-Nawabshah segment of the Iran–Pakistan gas pipeline.^[44]

The expanded port will be located near a 2,282-acre free trade area in Gwadar which is being modeled on the lines of the Special Economic Zones of China.^[45] The swathe of land was handed to the China Overseas Port Holding Company in November 2015 as part of a 43-year lease.^[46] The site will include manufacturing zones, logistics hubs, warehouses, and display centers.^[47] Businesses located in the zone would be exempt from customs authorities as well as many provincial and federal taxes.^[48] Businesses established in the special economic zone will be exempt from Pakistani income, sales, and federal excise taxes for 23 years.^[49] Contractors and subcontractors associated with China Overseas Port Holding Company will be exempted from such taxes for 20 years,^[50] while a 40-year tax holiday will be granted for imports of equipment, materials, plant/machinery, appliances, and accessories that are to be for construction of Gwadar Port and special economic zone.^[51]

The special economic zone will be completed in three phases. By 2025, it is envisaged that manufacturing and processing industries will be developed, while further expansion of the zone is intended to be complete by 2030.^[22] On 10 April 2016, Zhang Baozhong, chairman of China Overseas Port Holding Company said in a conversation with The Washington Post that his company planned to spend $4.5 billion on roads, power, hotels, and other infrastructure for the industrial zone as well as other projects in Gwadar 

 

Projects in Gwadar city

China will grant Pakistan $230 million to construct a new international airport in Gwadar which is to be operational by December 2017.^[52] The provincial government of Balochistan has set aside 4000 acres for the construction of the new $230 million Gwadar International Airport which will require an estimated 30 months for construction,^[53]the costs of which are to be fully funded by grants from the Chinese government which Pakistan will not be obliged to repay.^[54]

The city of Gwadar is further being developed by the construction of a 300MW coal power plant, a desalinization plant, and a new 300-bed hospital.^[55] Plans for Gwadar city also include the construction of the East Bay Expressway – a 19-kilometer controlled-access road that will connect Gwadar Port to the Makran Coastal Highway.^[56] These additional projects are estimated to cost $800 million and are to be financed by 0% interest loans extended by the Exim Bank of China to Pakistan.^[55]

In addition to the aforementioned infrastructure works, the Pakistani government announced in September 2015 its intention to establish a training institute named Pak-China Technical and Vocational Institute at Gwadar,^[22] which is to be developed by the Gwadar Port Authority.^[57] The institute is to be completed by March 2016 at the cost of 943 million rupees,^[22] and is designed to impart to local residents the skills required to operate and work at the expanded Gwadar Port

Roadway projects

The CPEC project envisages major upgrades and overhauls to Pakistan's transportation infrastructure. Under the CPEC project, China has announced financing for $10.63 billion worth of transportation infrastructure so far; $6.1 billion have been allocated for constructing "Early Harvest" roadway projects at an interest rate of 1.6 percent.^[58] The remainder of the funds will be allocated when the Pakistani government awards contracts for the construction of road segments that are still in the planning phase.

Three corridors have been identified for cargo transport: the Eastern Alignment through the heavily populated provinces of Sindh and Punjab where most industries are located, the Western Alignment through the less developed and more sparsely populated provinces of Khyber Pakhtunkhwa and Balochistan, and the future Central Alignment which will pass through Khyber Pakhtunkhwa, Punjab, and Balochistan.

Karakoram Highway reconstruction

The CPEC projects call for reconstruction and upgrade works on National Highway 35 (N-35), which forms the Pakistani portion of the Karakoram Highway (KKH). The KKH spans the 887-kilometer-long distance between the China-Pakistan border and the town of Burhan, near Hasan Abdal. At Burhan, the existing M1 motorway will intersect the N-35 at the Shah Maqsood Interchange. From there, access onwards to Islamabad and Lahore continues as part of the existing M1 and M2 motorways. Burhan will also be at the intersection of the Eastern Alignment, and Western Alignment.

Upgrades to the 487-kilometer-long section between Burhan and Raikot of the Karakoram Highway are officially referred to in Pakistan as the Karakoram Highway Phase 2 project. At the southern end of the N-35, works are already underway to construct a 59-kilometer-long, 4-lane controlled-access highway between Burhan and Havelian which upon completion will be officially referred to as the E-35 expressway.^[60] North of Havelian, the next 66 kilometers of the road will be upgraded to a 4-lane dual carriageway between Havelian and Shinkiari,^[61] Groundbreaking on this portion commenced in April 2016.^[62]

The entire 354 kilometers of roadway north of Shinkiari and ending in Raikot, near Chilas, will be constructed as a 2-lane highway.^[63] Construction on the first section between Shinkiari and Thakot commenced in April 2016 jointly with the construction of the Havelian to Shinkiari 4-lane dual carriageway further south.^[64] Construction on both these sections is expected to be completed with 42 months at a cost of approximately $1.26 billion with 90% of funding to come from China's EXIM bank in the form of low-interest rate concessional loans.^[64][65][66]

Between Thakot and Raikot spans an area in which the government of Pakistan is currently either planning or actively constructing several hydropower projects, most notably the Diamer-Bhasha Dam and Dasu Dam. Sections of the N-35 around these projects will be completely rebuilt in tandem with dam construction.^[67] In the interim, this section of the N-35 is currently being upgraded from its current state until dam construction commences in full force at a later date. Improvement projects on this section are expected to be completed by January 2017 at a cost of approximately $72 million.^[68][69] The next 335 kilometers of roadway connect Raikot to the China-Pakistan border. Reconstruction works on this section of roadway preceded the CPEC and were initiated after severe damage to roadways in the area following the 2010 Pakistan floods. Most of this section of roadway was completed in September 2012 for $510 million.^[70]

A large earthquake rocked the region nearest to the China-Pakistan border in 2010, triggering massive landslides which dammed the Indus River, resulting in the formation of the Attabad Lake. Portions of the Karakoram Highway were submerged in the lake, forcing all vehicular traffic onto barges to traverse the new reservoir. Construction on a 24-kilometer series of bridges and tunnels to Attabad Lake began in 2012 and required 36 months for completion. The bypass consists of 2 large bridges and 5 kilometers worth of tunnels that were inaugurated for public use on 14 September 2015 for $275 million.^[71][72] The 175-kilometer road between Gilgit and Skardu will be upgraded to a 4-lane road for $475 million to provide direct access to Skardu from the N-35