Post Event Report of the Workshop “Optimizing CPEC Connectivity – Region and Beyond”

A one-day workshop titled“Optimizing CPEC Connectivity: Region and Beyond” was organized by the Islamabad Policy Research Institute (IPRI) on April 26, 2017 at the IPRI conference hall, Islamabad.The workshop had one working session, in addition to an inaugural session. Dr. Ashfaque Hasan Khan, Dean, School of Social Sciences and Humanities, National University of Science and Technology (NUST), Islamabad chaired the workshop. The workshop discussed potential regions that could be made part of the CPEC connectivity.The eminent speakers included Dr. Vaqar Ahmed, Deputy Executive Director, Sustainable Development Policy Institute (SDPI), Islamabad,Ambassador (R) Syed Hasan Javed, Director, Chinese Study Centre of Excellence, NUST, Islamabad,and Dr. Nazir Hussain, Director, School of Politics and International Relations (SPIR), Quaid-i-Azam University (QAU), Islamabad.The viewpoints of the speakers were deliberated by the discussants. The workshop deliberations and the input of the discussants also brought forth a number of policy recommendations.

Concept Note:

The concept of regional connectivity is linked to regional integration. Regional connectivity has key regional networks, i.e. trade and transport, information and communication technology (ICT), and energy infrastructure and people to people contacts. These networks reinforce each other and their simultaneous development plays a major role in achieving effective regional connectivity and in maximizing its benefits.

The Government of Pakistan has termed regional connectivity as one of the seven pillars in its development strategy and the document, i.e.“Pakistan Vision 2025” identifies regional connectivity with member states of the South Asian Association for Regional Cooperation (SAARC), the Association of Southeast Asian Nations (ASEAN), the Economic Cooperation Organisation (ECO), and the Central Asia Regional Economic Cooperation (CAREC) as development priorities for the government of Pakistan. China-Pakistan Economic Corridor (CPEC) has provided Pakistan an opportunity to achieve its desired goal of regional connectivity.

CPEC is part of China’s One Belt One Road (OBOR) initiative. The OBOR is an initiative of trans-regional connectivity, put forward by the visionary Chinese leadership,to connect China with Asia, Africa, and Europe. The OBOR consists of a continental Eurasian “Silk Road Economic Belt” and a Southeast Asian “Maritime Silk Road.” Pakistan, due to its strategic location, has the potential to serve as a link for the two routes and that is the reason Beijing terms CPEC as a flagship project of the OBOR.

As regards intra-regional connectivity, development of cross-border infrastructure, especially transportation linkages contribute to the regional integration by reducing transportation costs and facilitating intra-regional trade. According to the Finance Minister of Pakistan, “CPEC is expected to extend and improve infrastructure connectivity in all its forms, i.e. road, air, sea, rail, telecommunications, and energy across regions, fostering trade and investment flows and enhancing people to people connectivity.

Regional connectivity is not an end in itself, but it is a means to achieve the end of socio-economic development of the regions. Given India’s hegemonic designs in the region, South Asia is economically the least integrated region in the world. Intra-regional trade accounts for only 5 percent of South Asia’s total trade, compared to 25 percent in the ASEAN. Intra-regional investment is smaller than 1 percent of an overall investment. Due to limited transport connectivity, onerous logistics and regulatory impediments, it costs more to trade within South Asia than between South Asia and the world’s other regions.

According to a World Bank study, the costs of trading across borders in South Asia are among the highest in the world. It takes, on average, more than 33 days to export from South Asia compared to 12 days from Organization for Economic Cooperation and Development (OECD) countries and more than 46 days to import into South Asia compared to 14 days for OECD.

The completion of the CPEC would not only transform bilateral economic relations between Pakistan and China, but by developing intra-regional connectivity, it would also help in promoting intra-regional trade in South Asia. Afghanistan being a South Asian neighbouring country and due to geographical proximity with Balochistan, which is the centre of CPEC related activities, would welcome any initiative that could revive its economy. Furthermore, Afghanistan is the gateway to Central Asia, region that not only lacks inter-regional connectivity, but also suffers from lack of intra-regional connectivity. As of 2013, intra-regional trade of the Central Asian Republics (CARs) accounted for only 6.2 percent of the total trade. This is due to lack of physical connectivity as well as due to political distrust among the CARs.

As for CPEC connectivity with the CARs is concerned; these states are already part of the OBOR routes, i.e.China-Central Asia-West Asia Corridor, the Eurasian Land Bridge, and Khorgos-Aktau railway are significantly relevant in this regard. It is estimated that landlocked countries trade less than the coastal states. Being part of the CPEC connectivity, not only the distance between Central Asian states and other regional states would be reduced, but would also find more trade opportunities outside the region.

Iran is among the top ten countries having proven energy reserves and has an interest in expanding its energy exports to neighbouring countries through pipelines. China is the largest trading partner of Iran and being part of the CPEC connectivity as desired by Iran, the distance between China and Iran would be reduced and Iran would be able to have an access to East Asia at reduced distance and cost.

Furthermore, Russian Republic intends to use the Gwadar port for trade purposes and the Government of Pakistan has reportedly accorded approval to the Russian request. It is also reported that Russia desires to join the CPEC project and further link it up to Moscow-led Eurasian Economic Union.

The CPEC, being part of a huge network of corridors, presents immense opportunities. Enhanced regional as well as trans-regional connectivity in developing corridors would not only ensure new openings for regional as well as extra-regional states, but would also enable people to access markets and goods at affordable costs.Economic sustainability and social prosperity is not possible without mobility and connectivity, which is a prerequisite for achieving socio-economic goals. Moreover, connectivity enhances the prospects for tourism that in addition to economic benefits it ensures the development of cultural dialogue among nations. Keeping in view intolerance and xenophobia in contemporary societies, such initiatives may contribute in promoting peace and tolerance in societies.

Workshop Proceedings: 

Brigadier (R) Sohail Tirmizi, Acting President IPRI, welcomed the distinguished scholars and experts in the workshop. While comprehending the theme of the workshop, he said that the concept of regional connectivity was linked to regional integration, encompassing key regional networks such as trade and transport, information and communication technology (ICT), as well as energy infrastructure. These networks reinforce each other and help in achieving regional connectivity. He further opined that the CPEC had provided Pakistan with an opportunity to achieve its desired goal of getting connected economically with regional countries and beyond. In this sense, the CPEC is expected to extend structural connectivity in all its forms to include rail, road, air, sea, telecommunications, and energy within and beyond the region, fostering trade and investment flows and enhancing people to people contacts.

Moreover, regional connectivity is not an end in itself, but it is a means to achieve the end of socio-economic development of the regions. Given the lack of infrastructure connectivity and bilateral political disputes, South Asia is economically the least integrated region in the world. Intra-regional trade is the lowest in the world and accounts for only 5percent of South Asia’s total trade, while intra-regional investment is less than 1 percent. Due to limited transport connectivity and burdensome logistics and regulatory impediments, it costs more to trade within South Asia than between South Asia and the world’s other regions.Furthermore, it is expected that the operationability of the CPEC would not only transform bilateral economic relations between Pakistan and China, but will also develop intra-regional connectivity and promote trade and development in South Asia. Afghanistan, being a neighbouring country, also shares a border with Balochistan, which will be a centre of the CPEC related activities and it ismore likely to welcome any initiative that would revive its economy. As regards the CPEC connectivity with Central Asian Republics (CARs), these states are already part of the OBOR routes, i.e China-Central Asia–West Asia Corridor, the Eurasian Land Bridge, and Khorgos-Aktau railway is significantly relevant in this regard. Interestingly, Iran is among the top ten countries having proven energy reserves and has an interest in expanding its energy exports to neighbouring countries through pipelines. China is the largest trading partner of Iran and once Iran becomes part of the CPEC connectivity, the distance between China and Iran would reduce and Tehran would be able to access East Asia through lesser distance and at a reduced cost. Lastly, Russia has shown interest in trade through Gwadar to further link it up to Moscow-led Eurasian Economic Union. The CPEC will not only help connect parts of South Asia, Central Asia, and Eurasian Union it will also help in connecting China to Europe through West Asia (Turkey-Iran).

Dr. Ashfaque Hasan Khan, Dean, School of Social Sciences and Humanities, NUST, Islamabad,in his address as a Chair, divulged that he had been involved in the CPEC business for almost a year now, where he reached at the understanding that in order to understand China’s development experience or development philosophy, Pakistan needed to understand China’s cultural philosophy as well. The Chinese are deeply ingrained with the economic development. The first thing that China believes is “one’s prosperity depends upon one’s neighbor’s prosperity”. All China’s neighbours, in this sense, are benefiting from China’s prosperity. Now, China is making an attempt to connect 40% of world population through CPEC and other projects.

He further comprehended that the CPEC was basically an important strategic component of the OBOR as China’s economic diplomacy focused more on regional connectivity and prosperity. The success of the OBOR will depend upon the success of CPEC as it is in China’s own interest. But at the same time, one may argue that are we prepared enough to benefit from the CPEC? This is an issue Pakistan needs to address.

The CPEC will be completed despite many misperceptions being aired about it, as it is the part of both countries’ strategic vision. Besides economics, this has become a part of the national strategy of both countries. Pakistan will get benefits from it but again lot will depend upon Pakistan’s preparation in this regard. Through CPEC, Pakistan could develop its far-flung areas.

As far as Indian opposition to the CPEC with regard to Gilgit-Baltistan is concerned, Pakistan should respond with the fact that India is also developing infrastructure in the Indian-held Kashmir, which is also a disputed territory as per the UN resolutions.

Dr. Vaqar Ahmed, Deputy Executive Director, Sustainable Development Policy Institute (SDPI), Islamabad delivered a talk on “CPEC: Prospects for Promoting Intra-regional Connectivity in South Asia”. The talk highlighted the importance of economic corridor in the context of regional connectivity and peace. The economic corridors were viewed as “game changers”. It was underscored that the economic corridors strengthened intra-regional connectivity, enhanced trade, investment, provided job incentives, and encouraged people-to-people contacts.

While referring to the South-Central link, he said that to accrue benefits from regional connectivity, the SAARC-Central Asia Regional Economic Cooperation (CAREC) programme needed to be established. The Quadrilateral Traffic in Transit Agreement (QTTA) inked amongChina, Kyrgyz Republic, Kazakhstan, and Pakistan was a positive development in this connection. The agreement would reduce costs of trade between Central and South Asia, which needed timely implementation.

The talk also deliberated on including Afghanistan and India in regional connectivity. Dr. Ahmed suggestedto expand the Afghanistan-Pakistan Transit Trade Agreement (APTTA) with the inclusion of other regional economies. On Pakistan-India regional cooperation, both countries’expected membership of the Shanghai Cooperation Organization (SCO) was being seen positively. However, it was pointed out that the intra-regional trade in the SAARC region was discouraging. Due to the perception biases and conflicts, SAARC as a region has failed to grow.

It was recommended that Pakistan should play the lead role in promoting regional harmony and connectivity. Dr. Ahmed suggested that Pakistan should make efforts and host the next SAARC Summit. Further, Pakistan should try to have an access to the North South–East West Corridor, planned under the National Highway development project in India; which includes a highway from Srinagar to Kanyakumari (4000 kilometres) and another highway from Silchar to Porbandar (3300 kilometres). In return, Pakistan should be willing to offer India transit of merchandise to selected locations.

At the country level, Dr. Ahmed recommended administrative and infrastructural reforms.He pointed out that the people of Balochistan and Gilgit-Baltistan should be informed about the cooperation with China and other foreign investors. This practice would enhance the people’s confidence and motivation towards the CPEC project. In this regard, the federal government should work in connivance with the provincial governments.

Ambassador (R) Syed Hasan Javed, Director, Chinese Study Centre of Excellence, NUST, Islamabad spoke on “CPEC: A Tool for Enhancing Inter-regional Connectivity with Central Asia and Russia”. The speaker was of the opinion that China’s economic prowess (unlike the West) was a balancer in the region. He said that the Chinese-led “Silk Road Economic Belt”, the “Maritime Silk Route” (often termed as the One Belt One Road – OBOR), and the “Vision for 21^st Century Eurasian Connectivity”aimed at creating strategic channels, trade, and industrial hubs. The speaker dilated upon the Western biasedness towards Pakistan in the context of the “New Silk Route”. He said that the maps, circulated by the Western scholars, did not show Pakistan’s strategic positioning but the emergence of the CPEC had nullified theirso-called maps. He said: “The China-Pakistan Economic Corridor (CPEC) is a part of OBOR, linking Gwadar to China’s Western city of Kashgar.” The corridor would not only enhance China’s access to the markets of South Asia, Central Asia, and the Middle East but would also give an impetus to Pakistan’s struggling economy and strengthen Islamabad’s regional positioning.

Pakistan hosted the 15^th meeting of the (CAREC), a body working for the collective benefit of the region by promoting economic cooperation. Pakistan is increasingly looking at Central Asian states. However, so far, it has not been able to tap the full trade potential because of lack of infrastructure for connecting the South and Central Asia regions.

He said that CPEC was beneficial for both Pakistan and China as more than half of Western China was geographically near to Pakistan’s Arabian Sea coastline, than to East Chinese coast line. The CPEC would reduce 80% distance, 75% time, and 70% cost of shipment for China. Through CPEC, Pakistan could create 2 million direct and indirect jobs to harness the demographic dividend, the country has. So far, a dozen Chinese companies have invested US$ 14 billion and 16 out of 30 projects are nearing completion by March 2018. Currently, more construction is being done in Pakistan than in the whole of Europe. CPEC will be the biggest surprise for the World. CPEC’s success has started generating global interest of big powers like Russia, Germany, UK, Italy, Saudi Arabia, and Iran to be part of this mega plan. The CPEC makes China a “Two Ocean Power”. It will make Chinese goods even more competitive in Middle East and Africa’s markets.

CPEC is equivalent to 12 times of “Marshall Plan” aid for Western Europe. Chinese assistance is meant to transform Pakistan among the “Top Ten Economic Powers” of the world. CPEC will correct economic and strategic imbalance in South Asia, created by West’s support to India for preparing it as a “counterweight” to China and Russia. He said that the Western overtures in the region had been India-oriented, due to which, Pakistan’s regional standing had been sidelined. The Western imposition of sanctions on Pakistan had badly hampered the country’s economy. However, with the emergence of the CPEC, Pakistan is going to be the “new epicentre of regional/global transformation”. He remarked: “all roads lead to and from Pakistan”.

Seeing the CPEC as an opportunity for the region in general and Pakistan in particular, Ambassador Javed called for comprehensive policy reforms for the speedy implementation of the CPEC. He suggested the establishment of “One Window Facility” and an “Integrated CPEC Authority of Civilian and Military Experts” to facilitate foreign investment and to undertake policy consultations on mega projects.

Dr. Nazir Hussain, Director, School of Politics and International Relations (SPIR), Quaid-i-Azam University (QAU), Islamabad shared perspective on the “CPEC Connectivity: Opportunities for Countries of West Asia/Middle East.” The speaker, while referring to Iran’s geopolitical standing, remarked that Pakistan should maintain good relations with Iran. He said China in view of its new role in South Asia is also expanding ties with Iran. Thus, Iran holds significance for regional and global players. Hence, Pakistan should focus on its  relations with Iran, particulary to enhance economic cooperation.. The Pakistan-Iran bilateral trade, currently US$ 1 billion, was likely to increase to US$ 5 billion in the next five years. He suggested Chabahar and Gwadar ports should be seen as complementing each other rather than being seen as the competing ports. He concluded that the Foreign Office of Pakistan needed to chalk out a strategy of keeping good relations with both Iran and Saudi Arabia.

Input by Discussants: 

• Usman Mustafa, Pakistan Institute of Development Economics (PIDE), Islamabadwas of the opinion that CPEC was not only a strategic corridor, connecting China’s Western provinces with the Middle East, but it will also become the world’s largest hub connecting Iran, Afghanistan, the five Central Asian countries, Russia, India, East Africa, Europe, and other countries as well as regions. Being an international economic corridor, in this regard, CPEC will help China in its ambitious initiative by leading a new wave of globalization, which will attract more international financing and investment for Gwadar. As a result, Asian countries will learn to live and grow together. However, what needs to be done is to endeavour for creating favourable conditions, i.e. CPEC investments, infrastructure, absorptive capacity, and trickle down mechanism etc., for the successful operationalization of the project. In this vein, the effective way of ensuring such conditions is designing of high potential, efficient, cost-effective, and feasible policy solutions.
• Zhang Jiegen, Fudan University, Shanghai, China talked about the prospects of regional connectivity under the OBOR, wherein the CPEC will remain a flagship project. He was of the view that the old world order that is dictated by America is on the decline with the decayinthe American power. In this sense, a new world order is in the making. This new world order is the result of connectivity between Europe and Asia whose major player is China because of its high economic growth and stability as compared to other Asian countries. The only thing that is needed is the best realization of the prospects of the CPEC as a complete roadmap of the future thus starting a new era of equal economic prosperity.
• Farhan Hanif Siddiqi, Associate Professor, Quaid-i-Azam University (QAU), Islamabadwas concerned about the impact of CPEC on Pakistan. He identified that nobody in Pakistan fully knows as to how the CPEC is going to impact Pakistan. The dilemma is: there are two camps wherein one is excited about the CPEC while the other is incited. However, the solution lies in between where Pakistan needs to keep on moving forward but with necessary precautions. The other area that needs to be given attention is the tax conundrum, which needs thorough policy reforms. Moreover, Pakistan should also prepare for the environmental degradation as a result of the establishment of industrial areas. In a similar way, as far as the CPEC is concerned, the Pakistani government should be ready for the negotiations on the conditions of dependence, independence or inter-dependence on China. Most importantly, Pakistan should avoid hostility with India, Afghanistan, and Iran.
• Fazal-ur-Rahman, Assistant Professor,National Defence University (NDU), Islamabad argued that the CPEC should not be regarded as a gift to the people of Pakistan as Pakistan needs to worry about the high interest rates on the loans, which Pakistan has to take from the Chinese banks. That is why; Pakistani media, academics, and think tanks should not only debate on the benefits of the CPEC but also discuss the other side of the coin, so that, Pakistan should be ready for every situation. Moreover, Pakistan should prepare and make public the feasibility reports to ensure the would be foreign investors that their investments are safe in Pakistan. One more thing is that Chinese political leadership changes after every 10 years; therefore, Pakistan should pre-plan about any change in Chinese policies in 2022 with the coming of new leadership. Finally, as far as the dream of good relations with India is concerned, Pakistan should not be optimistic in presence of the existing Indian Government, headed by Modi.
• Khalid Mehmood, Consultant, CPEC and GREF at Pakistan Institute for Parliamentary Services (PIPS), Islamabad stated that as China planned a lot before investing in Pakistan, now is the time for Pakistan to do the planning. In this regard, the foremost step should be to provide investment plans to the Chinese and other foreign investors. The secondary issues to be dealt with for the success of CPEC are across the board governance reforms. The loopholes can be filled with pragmatic ways forward. There is also a dire need to establish dispute resolution institutions to sort out solutions. Last, but not the least, Pakistan media should also play a serious and responsible role in the socio-economic development of Pakistan. 

Recommendations: 

• Socio-economic rate of return of the CPEC hinges upon increased cross-border engagement between business communities for which, Pakistan should make a conscious effort to link the Central Asia Regional Economic Cooperation (CAREC) and South Asian Association of Regional Cooperation (SAARC) together. With a massive opportunity for connectivity among regions of Central Asia, Middle East, and Europe, CPEC is bound to play a defining role in the economic development of the South Asian region.
• CPEC alone can help complement regional connectivity initiatives of the Central Asia Regional Economic Cooperation (CAREC) and Economic Cooperation Organization (ECO) countries, if connected to the already established routes in these regions. The CAREC corridorsand major seaports could provide regional states access to the global markets in order to deliver services that will be important for national and regional competitiveness, productivity, employment, mobility, and environmental sustainability. It is through the search of common goals of development that these regions can be integrated into a web of infrastructural and energy networks through projects such as CASA-1000, the Turkmenistan–Afghanistan–Pakistan–India (TAPI) pipeline, Iran-Pakistan (IP) gaspipeline, and the CPEC.
• In order to enhance the intra and inter-regional trade among countries and regions, Pakistan being a membershould revise and operationalize the already existing trade agreements, including Quadrilateral Traffic in Transit Agreement (QTTA), Afghanistan-Pakistan Transit Trade Agreement (APTTA), and South Asia Free Trade Agreement (SAFTA) on previously defined lines. The focus must be on creating more transit routes, thereby, providing easy border crossings for neighbouring countries alongside the reduction in trans-shipment and intermediary stops. A timely implementation of this agreement can significantly benefit Pakistan in terms of reduction in the costs of trade inside and outside the region. For instance, Tajikistan has already requested the extension of APTTA upto Dushanbe in order to secure alternate routes for its food supplies via Karachi and Gwadar ports, which could only be possible through timely revision and implementation of the agreement.
• The establishment of economic corridors can also be instrumental in harnessing peace and development in the region as their success lies in the increased intra-regional trade and investments, people-to-people engagement, and other interdependencies through the creation of integrated infrastructural networks across regions and countries. A timely implementation of these regional commitments can complement CPEC and turn it into a peace corridor.
• In order to ensure success of the CPEC as a regional corridor, the government of Pakistan should streamline and implement the ideas of tax and tariff regime, expansion of business activity across the country, trade facilitation and regulation alongside the availability of construction permits, and easy access to utility resources to the foreign and local investors.
• Through extraordinary diplomatic manoeuvring, Pakistan must make effective use of “South Asia Motor Vehicle Agreement” to connect CPEC with the corridors under South Asia Sub-regional Economic Cooperation (SASEC). These are part of the Asian Highway-2 in which the first corridor connects Nepal and Bangladesh via India and the Asian Highway-48 will connect India, Bhutan, and Bangladesh. The initiative would basically help in creating ten major road corridors across the region.
• The success of economic corridors is highly dependent upon the investment it attracts and the establishment of sound infrastructure and complementary frameworks, bounding countries and regions together in trade and commercial regions. In terms of CPEC, Special Economic Zones (SEZs) are considered the backbone of the regional economic integration, envisaged in the initiative. It is important to plan the location of those SEZs designed under the CPEC framework keeping in view the pre-requisites so that they could contribute positively in engaging South Asian countries.
• At the national level, there is a dire need to introduce reforms internally. The Government of Pakistan should invest in capacity-building at the administrative and management levels alongside the introduction of infrastructural reforms and assurance of complete transparency.
• Pakistan has a cheap intensive labour market and in the background of increased industrial relocation across the globe, there lies immense opportunities for our labour to be engaged. In this regard, Ministry of Manpower and Human Resource Development should initiate programmes aimed at the capacity and skill building of labours so that they can compete with the international demands and standards.
• A heavy proportion of the Chinese investment has been allocated to the energy sector to meet the shortfall and industrial needs of the country under the CPEC. However, in order to benefit maximum from the venture, the focus must be on the upgradation of the system, which could bear the energy addition with minimal transmission and distribution line losses. Also, the authorities should plan projects keeping in view the growing concerns regarding climate change, specifically when the larger part of the energy will be generated through the consumption of coal as reported.
• The Government and relevant departments must also initiate a large-scale outreach effort towards mitigating apprehensions of local communities in the areas of Balochistan and Gilgit-Baltistan. It is important that people in both regions should be helped by foreseeing gains from public investment and cooperation with China and other friends of Pakistan. The efficacy and awareness campaign should target people in those areas who can invest in the project, thereby, streamlining them as a vital part of national growth.
• Pakistan realizes the importance of promoting economic connectivity with Central Asian Republics (CARs) as is evident from the fact that Pakistan had the privilege to host the 15^th meeting of the CAREC; however, Pakistan remained unable to tap the full trade potential because of lack of infrastructure in the past. Now, the CPEC-induced infrastructure development presents Pakistan as well as the CARs an opportunity to fill the gaps by regional connectivity initiatives and enhancing trade volume.
• CPEC will be no less than 9^thwonder of the world on its completion by 2030 with the rise of China and emergence of the Euro-Asiatic century wherein Pakistan would be able to earn US$10 as transit fee; however, the question remains that whether Pakistan is ready or not to benefit from the opportunity. It is a dire need of the hour that Pakistan starts enhancing the capacity of its institutions.

Disclaimer: Views expressed are of the speakers and are not necessarily reflective of IPRI policy.