CPEC Phase II and Geo-economics

In Backgrounder
March 29, 2022
Jowaria Tariq
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The Prime Minister of Pakistan recently held talks with the Chinese President Xi Jinping and Premier Li Keqiang during his four-day visit to Beijing from 3rd to 6th February, 2022. Both the countries agreed to work closely on further enhancing economic engagement and reaffirmed their commitment to advance the strategic cooperative ties in light of

The Prime Minister of Pakistan recently held talks with the Chinese President Xi Jinping and Premier Li Keqiang during his four-day visit to Beijing from 3^rdto 6^th February, 2022. Both the countries agreed to work closely on further enhancing economic engagement and reaffirmed their commitment to advance the strategic cooperative ties in light of building the Pakistan-China ‘Community of Shared Future in the New Era’, the PM Office stated. The most substantial and high-priority discussions revolved around the accession of CPEC (China-Pakistan Economic Corridor) to Phase II. The CPEC project has been around for years, therefore its results and impact on the geo-economic position of Pakistan are a point for debate and must be raised more often. Will the employability of Pakistani labour increase or will there be an undeniable need for Chinese labour due to skillset differences? Is CPEC a ladder for Pakistani economy or is it a means to boost Chinese economy, leaving Pakistani industry damaged due to difference in industrialization positions of both nations? What does Phase II hold for Pakistan and how is it further than Phase I? Such are the questions raised and answered below.

CPEC, launched in 2015, is a flagship project of President Xi Jinping’s vision of Belt and Road Initiative (BRI) and is the epitome of bilateral economic partnership between China and Pakistan. It is aims to aggrandize Pakistan’s regional connectivity by sustainable modernization of its road, rail, energy, transportation systems and special economic zones (SEZ). CPEC offers a range of opportunities for the socio-economic and geo-economic development of Pakistan as the geographical location of Pakistan has potential prospects of strategically connecting Pakistan and China to the Middle East, Africa, and Europe via Gwadar port under CPEC. Due to its massive geo-economic framework, there is a recognized need for conceptualizing national security through the lens of CPEC and assessments of the potential risks that may emerge as a result of such economic activities.

In the recent talks regarding CPEC Phase II, finalization of a number of agreements and memorandum of understanding in the fields of trade, infrastructure, industrial development, agriculture modernization, science and technology were made as leaders agreed to task the CPEC Joint Cooperation Committee (JCC) to strengthen cooperation across all areas with regards to socio-economic well-being of local people. Pakistan’s Board of Investment (BoI) and China’s National Development and Reform Commission (NDRC) on Friday signed the ‘Framework Agreement on Industrial Cooperation’ that will promote and aid relocation of industries as well as investment from China and other parts of the world to Special Economic Zones (SEZs) in Pakistan. The agreement highlights prioritized development of the nine special economic zones, focusing on the early completion of Rashakai SEZ in Khyber-Pakhtunkhwa, Allama Iqbal Industrial City in Punjab, Dhabeji SEZ in Sindh and Bostan SEZ in Balochistan. With these developments, it is evident that such massive infrastructure is being developed in Pakistani Zones that will bloom the Pakistani industry and help Pakistani entrepreneurs. The dependence of Pakistan on the West and IMF may positively mitigate and Pakistan will be able to deal with bigger projects of development.

The launch of Pakistan-China Business and Investment Forum by the Prime Minister that will enhance B2B cooperation amongst the countries was much appreciated by the Chinese companies and investors. In a series of meetings with leaders of the Chinese companies which expressed the desire to establish a $3.5bn reprocessing park in Gwadar and a $350m textile cluster near Lahore, the prime minister appreciated and encouraged them to benefit from business-friendly policies for investment in CPEC’s SEZs. A Chinese textile firm also planned to build a textile cluster over 100 acres of land on Lahore-Kasur Road by investing $350 million, which would result in 20,000 job opportunities. The executives who met the PM included chairmen of China State Construction Engineering Corporation (CSCEC), East Sea Group, China Railway Group Limited (CREC), China Metallurgical Group Corporation (MCC), CHINAMEX Group, and the Beijing Century Industrial Development Co Ltd (CENTINCO). These radical steps are a step forward for Pakistan’s B2B world and economy with regards to geo-economics. The end outcome of such massive investments is undeniably “job opportunities”. Here it is important to consider the requirements for job positions resulting from CPEC and the Pakistani labour skillset and education. Compared to advanced Chinese labour, Pakistani labour force is not well educated and skilled in this digital era with advanced technology. Even if CPEC produces a myriad of job opportunities, the economic requirements for CPEC cannot be dealt by Pakistani labour and in order to keep CPEC working, Chinese labour ratio will have to be more than Pakistan’s.

Development progress in Gwadar was a key achievement as it is the central pillar of CPEC and an important node in regional connectivity. According to the “1 + 4” layout, the two sides shall jointly accelerate and stabilize the construction and operation of Gwadar Port and build Gwadar low-carbon circular industry zone. Both sides would thrive to achieve Gwadar’s potential as a ‘hub of regional commerce and industry’ while establishing solid key energy projects. The Pakistani side agreed to include the 300 megawatts Gwadar power plan in its highest priority schemes. The project was part of the early harvest schemes of CPEC that had to be completed during Phase I of CPEC (2015-18), however it could not reach completion. A massive hurdle in the way of industrialization of Gwadar port is that till date it has not been connected to the national power grid. This highlights many other problems with the completion of CPEC, the major one being the scarcity of resources Pakistan has versus the needed resources for CPEC. However, with the prospects of CPEC Phase II, we foresee fast and vigorous development of the Gwadar port. This prospect of fast and innovative progress demonstrates how CPEC Phase II is a leap ahead from CPEC Phase I.

CPEC can be visualized as a win-win agreement and a significant step for regional prosperity and connectivity as third parties are welcome to benefit from investment opportunities in CPEC’s SEZs. CPEC progresses to be an open-end and inclusive project with an immense threshold of geo-economic development, therefore making economic and national security a crucial consideration. Pakistan is committed to make all-out efforts for the security of all Chinese personnel, projects and institutions in Pakistan to safeguard CPEC from all possible threats and negative propaganda. During a meeting with the Chinese ambassador earlier in January 2022, Gen Bajwa assured Pakistan’s commitment to providing full security to Chinese projects and citizens working in the country. The Chinese envoy thanked Gen Bajwa for “for special measures taken for the provision of safe and secure environment to CPEC projects in Pakistan”, the ISPR said. Therefore, the success of CPEC is also dependent on how the Pakistani and Chinese governments deal with its protection and disregard the false claims of India and US about CPEC.

In Conclusion, the future implications of CPEC are foreseen to be fruitful with heavy investments and industrial development up till 2030. Pakistan has always had the raw resources to some extent that would form the basis of trade and export, however what stood in its way was the industrialization and utilization of these valuable resources by modernized methods. With the provision of CPEC, and the bigger game of the Belt and Road Initiative, Pakistan is bound to benefit from such initiatives due to its geo-economic location that makes Pakistan a keen interest for investors. Considering the number of Chinese companies investing in Pakistan, it is safe to say that many industrialization sectors, such as textile and energy, shall bring forth massive revenue for the country in the nearer future. What we need to be mindful of is that CPEC will give China the access to interlock states, where the Chinese market will flourish, depressing Pakistani businesses. Another aspect to consider is the lack of technical people in Pakistan due to which China will have to use its manpower. At the end, CPEC as a whole, in my opinion is a positive step in alignment with Pakistan’s geostrategic, geopolitical, and geo-economic values that shall help Pakistan break through its economic deficit and loan, propelling the country towards success.