China’s Billion-Dollar Gateway To The Subcontinent: Pakistan May Be Opening A Door It Cannot Close

By Mahwish Chowdhary

Despite decades of mismanagement and a feeble socioeconomic infrastructure, one thing Pakistan benefits from is a strategic location—and China is taking notice.

More than 70% of China’s trade and energy imports travel through the Indian Ocean and the pirate-swarmed Strait of Malacca, both patrolled by the United States and Indian navies. But this possible chokepoint is a security issue for China, particularly in terms of oil (40% of its general consumption passes through the strait). Any sort of conflict could cut off the country’s energy supply, and ships would need to travel an extra 500 miles to avoid the strait, currently the fastest route from the Indian Ocean to the Pacific. China, aware of this vulnerability, is looking to Pakistan to provide a shorter and safer alternative.

The China-Pakistan Economic Corridor (CPEC), first proposed in 2013, is a massive project of rail links, special economic zones, dry ports and other infrastructure projects across Pakistan allowing for direct access to the Indian Ocean. It would connect Gwadar to Kashgar, a major trading hub in China, and abbreviate the current route to the Persian Gulf by more than 10,000 kilometers. Instead of 45 days, it would take China a mere 10 days to get its imports—all while avoiding any potentially contested channels near Taiwan, Vietnam, the Philippines, Indonesia and India, and eventually lowering shipping costs.

The CPEC would also provide China with an entry point to the Arabian Gulf, thus widening its geopolitical influence and possibly its military presence in the region. (Some Indian intellectuals suspect the Gwadar port will serve as a Chinese naval facility.) And it only comes at a cost of about $40 billion.

This isn’t the only investment China has planned in Pakistan. In fact, the money going to the country is double what Pakistan has received in foreign direct investment since 2008, and larger than any shape of assistance from the U.S. The list below (including CPEC) is just a snapshot of upcoming projects, likely funded by the Bank of China, the Export-Import Bank of China and the proposed Asian Infrastructure Development Bank:

  • $3.7 billion for a Karachi-Lahore-Peshawar rail line
  • $2.8 billion for developing four coal-fired stations with a capacity of 1,980 megawatts in Thar (Sindh)
  • $2.2 billion for two coal-mining blocks in Thar (Sindh)
  • $2 billion to build a natural gas pipeline between Gwadar and Nawabshah, then connecting to Iran
  • $2 billion to develop coal-fired generation plants at Port Qasim Karachi
  • $1.6 billion for a hydropower project in Karot
  • $1.2 billion for a solar power park in Bahawalpur
  • $930 million to link the Karakoram highway to Islamabad and Havelien
  • $260 million for a 100 megawatt wind farm in Jhimpir
  • $230 million to build the Gwadar International Airport

It is all part of China’s quest for influence throughout the continent via aid and investment. After decades of shying away from aggressive foreign policy moves, China now wants to play a much bigger regional role and is pushing plans for interconnected infrastructure networks to better link its economy with rest of Asia, the Middle East, Africa and Europe. Think of it as the new Silk Road.

Of course, the upside isn’t just for China. Gwadar is located in Baluchistan, Pakistan’s largest and most troubled providence, but its potential for resources, such as natural gas and coal, is enormous. Many see the CPEC as a way of stabilizing the region and boosting its economy—perhaps even easing tensions by providing employment for locals. And the country could become a center for energy transmission from the Gulf.

Pakistan is eager for these projects to succeed, especially considering that it loses 4-6% of its GDP annually because of poor infrastructure. Pakistan has consistently failed to meet energy demands since 2004, while power companies have heavily relied on government subsidies to disguise production costs, thus driving up prices. The country’s poverty rate has been surging ever since. Businesses have all suffered from power shortages, pushing smaller firms out of the market, and some government-owned enterprises have been privatized so as to cope with Pakistan’s precarious financial system.

Chinese investors promise to fill the gap in Pakistan’s energy production by focusing on coal, but this might only be a short-term solution. Coal is one of the biggest air polluters and doesn’t offer Pakistan the sustainability it needs. In fact, even China, one of the world’s major coal producers, is moving away from the fossil fuel.

Still, at least these plans offer the country a chance at normalizing its economy (and add 2% of GDP growth) even if there is no assurance of prosperity. One thing that is certain though, if Pakistan thrives from these projects, is its debt to China: The Pakistani elite will have no choice but to cater to the interests of the Chinese government.

And we’ve already seen this in effect. Pakistan and Saudi Arabia have historically been close allies, but following China’s mammoth financial pledge, the country chose to remain neutral regarding Saudi Arabia’s involvement in the Yemen conflict. Any potential loss of investment had already been allayed by China. Add the fact that Pakistan is diplomatically isolated and China’s money is a game changer.

The question is not if Pakistan will have to repay the Asian superpower—but when.

Ms. Chowdhary is an economist in London. You can email her at mahwishchowdhary@gmail.com.

Courtesy: Forbes
Read more » http://www.forbes.com/sites/realspin/2015/08/25/china-looks-to-pakistan-to-expand-its-influence-in-asia/

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