IPRI – The Islamabad Policy Research Institute

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ARTICLE

CPEC: Macro and Micro Economic Dividends for Pakistan and the Region

Proceedings of the Conference

Inaugural Session

 

President IPRI, Ambassador (R) Sohail Amin, in his welcome address, stated that timing of this Conference is very appropriate, as the government and the people of Pakistan, are very keen to see speedy progress on the CPEC projects. He stated that Pakistan’s strategic location and its power potential makes it an important country in the region, which can play a significant role in maintaining peace and stability in South Asia and the neighbouring regions.  However, to effectively play such a role, Pakistan needs to strengthen its economy.

CPEC has been declared as a pilot project of the OBOR initiative by Chinese officials. As CPEC is an all-inclusive concept therefore CPEC related investment is expected from other countries as well, and it would help Pakistan in a significant way to overcome its energy crisis and generate substantial economic activity for sustainable economic development. He further elaborated that with the completion of the CPEC, Pakistan is expected to become a hub for trans-national trade, energy storage and processing for China, Central Asia, and South Asia. 

CPEC is expected to generate many macro and micro level economic dividends not only for Pakistan but for the region as a whole. The CPEC is expected to substantially contribute towards economic development of Pakistan and enable it to play an active part in the socioeconomic development, inter-regional connectivity and peace building in the region. 

Dr. Mujahid Kamran, Vice Chancellor, Punjab University, Lahore, was the chief guest of the conference. In his inaugural address, he stated that two strategic regions are emerging in the world, which can be a potential center of great strategic clash. These include the CPEC region and Eurasia. The strategic location and the resource wealth of Pakistan is a great blessing, however, Pakistan has not been able to fully benefit from it. Successive governments have failed to give proper attention to education, research and development, health and manpower development which has lead Pakistan into a complicated situation. Fifteen years ago, an effort was made to train the manpower in Pakistan but it was not sustained. In such circumstances, initiatives like CPEC give Pakistan an opportunity not only to achieve an economic turnaround but to use this project as a knowledge corridor.

 He suspected the intentions of some powers who could undermine the prospects of this project. Nevertheless, he alluded that terrorism has been used as a tool to intervene in energy rich countries. In this regard, terrorism can be promoted by regional powers such as our traditional adversaries, to disrupt the development of CPEC. CPEC, for Pakistan is a golden opportunity but at the same time, it is a great challenge. Besides, US influence and partisanship in the region cannot be ignored. He reiterated that there is a military disparity in this region, which needs to be rectified and it is believed that Gwadar port, would somehow be able to address that imbalance in the region. Moreover, he suggested that Chabahar port must be developed parallel to Gwadar and Russia must be allowed to use it in order to maintain a balance in the region.

He identified backwardness in knowledge as one of the biggest challenge faced by the Muslim world. He viewed that it is knowledge that creates power and unfortunately it is lacking in the Muslim world. Pakistan has been allocating 2 percent of its GDP to education, while the developed countries have been spending 5 percent. China is spending US$200-300 billion per annum on education while the US spends around US$540 billion per annum on research and development.

Session-I

CPEC: An Introduction and Cumulative Advantages to Pakistan and China

 The first speaker, Mr. Asad Ali Shah, Assistant Chief CPEC, Ministry of Planning , Development and Reforms and Planning Commission, Islamabad spoke on “CPEC: Project Details and Plan of Construction.” He highlighted the seven key pillars of Vision 2025: development of human and social capital, sustained and inclusive growth, improved governance and institutional reforms, insurance of energy, water and food security, protection of private sector-led growth alongside development of competitive knowledge economy and modernization of infrastructure & regional initiatives. While discussing CPEC, he said that the MoU which was signed on July 05, 2013 contains the basic elements for establishment of CPEC. Furthermore, the objectives of CPEC include deepening the policy coordination between two countries alongside enhancing economic activities, improving infrastructure connectivity, increasing trade, investment & financial flows, reducing regional disparities & social inequalities, enhancing people to people connectivity and fostering of peace and prosperity. He stated that principles for construction will be guided by the governments of two countries ensuring joint construction and economic development.

While discussing the institutional framework of CPEC, he said that there is a Joint Cooperation Committee, which will administer the joint working groups of planning, energy, transportation infrastructure, Gwadar and industrial parks and economic zones. Out of total amount of US$ 46 billion, US$ 35 billion will be spent on energy projects, and remaining US$11 billion on infrastructure projects. Transport corridor is not restricted to a single alignment; all provincial capitals are included as nodal points along the route. The basic vision behind transport corridor is to connect the main cities. Construction companies would be selected through bidding process and would be offered a commercial contract. In the energy sector, CPEC aims at active development and utilization of hydropower, wind power and solar power in order to optimize the energy structure and to improve self- sufficiency. Moreover, projects in different fields such as education, training and health care will be built and promoted alongside the development of the Gwadar Port.

Further, there are three main routes of CPEC such as western, central and eastern route, each of which consists of several trunk railways and highways. The eastern, central and western passages would traverse Punjab, Sindh, KPK, Gilgit Baltistan and Balochistan respectively. Besides, there are sixteen priority energy projects being set up in all the provinces. Moreover, cross-border optical fiber connections will also be laid, worth US$ 44 million.

The second speaker, Mr. Khalid Rahman, Director General, Institute of Policy Studies (IPS), Islamabad, spoke on “CPEC: Overall Economic Advantages for China”. He started by saying that, CPEC is a prominent subject discussed among the intellectual and policy circles in many parts of the world. He said that the impact of this multi-dimensional and long-term plan would not remain confined to Pakistan and China only, but it has the potential to affect the regional economic environment as well as the overall global dynamics of trade and economic relations. There exists broad consensus in Pakistan and China about the significance and importance of the project as well as a determination to implement it. Expressing his views on the CPEC’s economic benefits to China, Mr. Rahman said that the fundamental principles of harmony, shared destiny and win-win approach reflect the basis of CPEC and provide assurance to China that its trade and economic interests would be fully protected. The economic benefits of CPEC to China need to be studied with three different yet entwined contexts; first, a bilateral context, second, in the context of OBOR and third, in the larger context of changing Chinese role in the changing world.

Mr. Rahman highlighted CPEC’s economic advantages to China and said that it is not merely a project of connectivity between the two countries but it includes roads and communication infrastructure, economic zones, Gwadar port and energy projects. The Chinese investors would also face minimum risks while earning good returns on their investments as the investment is being arranged by the Chinese banks under the sovereign guarantee of Government of Pakistan (GOP). He further said that CPEC projects are also a source of employment for Chinese having expertise in related fields. CPEC is a key component in the Chinese strategy to develop Kashgar into a regional economic hub as a part of Chinese development plans for its Western region. Through CPEC, the transportation of oil to China will only take 4-5 days by land route and even less if the planned rail-link and pipeline is materialized, with much lesser risk level. Under current arrangements, the operation of the Gwadar airport and economic zones will also be a source of substantial economic benefits to China. Similarly, the railway or nuclear power reactor projects are an opportunity for China to make use and test its technology. He pointed out that CPEC serves as the backbone for the One Belt and One Road (OBOR) that enhances inter-regional connectivity by making it easier, cost-effective and more efficient. In the end, Mr. Rahman mentioned that China has now adopted an outward-looking approach and wants to present itself as a dynamic key player in the global economic affairs.

The third speaker, Dr. Ather Maqsood Ahmed, Head Department of Economics, National University of Science and Technology (NUST), Islamabad spoke on “Cumulative Dividends of CPEC to Pakistan.”  He briefly highlighted the contours of CPEC projects spanning over a period of fifteen years ranging from short term plans to medium and long term plans. He talked about five functional areas that would be established according to the regional development plan including industry, infrastructure, resource and environmental bearing capacity, and growth potential. The industrial zones will include:  Southern Xinjiang zone of industry, logistics and economic development (Kashgar-Atushi-Tumshuq-Khunjerab); Northern Pakistan zone of border logistic channel, resource exploration and ecological conservation (Islamabad-Khunjerab); Central Pakistan zone of industrial and economic development (Karachi-Sukkur-Multan-Lahore-Islamabad-Peshawar); Western Pakistan zone of logistic channel, mineral exploration and ecological conservation (Gwadar-Quetta-D.I.Khan); and Southern Pakistan zone of energy, logistic, trade and business development (Gwadar-Karachi). While highlighting the current trends of Pakistan’s economy, he anticipated that CPEC would have positive impact on the economy of Pakistan. In order to evaluate the macro-level dividends, he presented sectoral analysis of the three components of the economy; agriculture, industry and services. He identified the share of agriculture in GDP as around 21 percent. The share of livestock in agriculture is 56 percent followed by share of crops which is 40 percent. He said that principles of comparative advantage and mutual benefits have been enunciated in the CPEC document regarding agricultural development cooperation. While highlighting the areas of economic and technical cooperation he mentioned the proposed projects to enhance agricultural cooperation. He said that future agricultural growth can only be substantially enhanced if projects are timely completed.

He highlighted that the share of industrial sector in GDP is around 20 percent and under CPEC industrial parks in and around node cities would be established. He identified that textile industry, household appliances industry, cement industry, automobile industry, mineral exploration and steel industry may gain from cooperation in industrial sector but at the same time, he recognized that the process of industrial engagement lacks clarity as the engagement would be in areas where Pakistan either has comparative advantage like textile and household appliances or sun-set industries from China may be re-parked. He said that the share of services sector in GDP is around 59 percent and all major National banks and local insurance companies are likely to benefit from CPEC whereas a fiber-optic connectivity is also part of the program.

He concluded that CPEC is expected to contribute significantly to each of the component of the GDP by enhancing economic growth at least by 2.0 percent by 2020 and an additional 1.5 percent by 2030 but at the same time he cautioned that Pakistan’s current account deficit would widen initially due to high import growth and stagnation of exports.

Session-II

CPEC: Macroeconomic Dividends to Pakistan

 

            The first speaker, Dr. Salman Shah, Chairman, Pakistan-China Centre for Economic Cooperation, Lahore spoke on “Impact of CPEC on Pakistan’s Growth, Employment Opportunities and Fiscal Position” and said that in order to yield maximum from CPEC, Pakistan needs to develop a comprehensive national strategy by amalgamating multidimensional policies for boosting Pakistan’s competitiveness and productivity.

While explaining the achievable targets for the year 2025, he said that the focus must be on doubling Pakistan’s GDP to US$ 700 billion alongside an increase of US$50 billion in Foreign Direct investment. He suggested that several thousand implementation agreements must be signed between the governments, businesses and government and businesses to business, in addition to opening of five hundred plus joint ventures between companies of the respective countries. Pakistan has to act as a fertile base for Chinese multinational companies. In order to enhance connectivity, 25 million jobs must be created and 100 flights a day between Chinese and Pakistani cities must be scheduled alongside the exchange visits between people of both countries. Further, Chinese vocational and higher-education network in Pakistan must be established and one million Pakistanis should be sent to study in China. On the economic side, atleast 5 percent of Chinese external trade must be routed through Pakistan. And in order to meet the energy requirements of Pakistan, at least 10,000 MW of hydel and solar power should be commissioned, besides creation of 200 million acre feet of additional water reservoirs.

            Dr. Shah said that there are lessons to learn from China’s coastal strategy. The development of Gwadar port as part of CPEC project can be done on similar principles to get the maximum out of it. Globalization of the world economy has made coastal cities more important than ever before. In China, since the reform and openness policy was introduced in 1978, coastal cities have been designed as “engines” of economic growth. The Chinese experiences show that the development of coastal cities is dependent upon national policies of making use of the open seas and maritime trade in connecting national economy to the global economy.

He identified that CPEC and prospective economic integration with China will produce a two tier private sector in Pakistan. Export companies oriented with access to Chinese financing and partnership will greatly benefit by the industrial resurgence of Pakistan. And, the large export oriented companies and multinational corporations, the ones who push towards economic development through exports, will flourish. As a consequence, the economic power will be concentrated in the efficient producers that can count on foreign financing, leaving behind most small and medium-size businesses that have to confront high financial costs in order to improve their technological capacity. Thus, the labor-intensive sectors of the national economy will need special support from the Government to link in global value chains. He opined that those companies from Pakistan would benefit the most from the FTA with China that will develop networks to distribute their products or will establish long term agreements with Chinese producers and/or distributors.

Furthermore, CPEC along with an effective FTA can make Pakistan one of the most attractive investment and manufacturing sites in the world. For foreign investors, the factor of preferential access that Pakistan has to the emerging Chinese market will increasingly become  very attractive to transfer production to Pakistan for export purposes. Lower input and energy costs, costs of transportation, financial costs, etc. coupled with the low cost of the Pakistani labor will be one of the most important factors to consider. Also, an effective FTA with China could induce other countries outside the FTA to see Pakistan as a base to enter the Chinese market which would require facilitating investors from third countries to benefit from access to China.

He highlighted that these projects require creation of cross-cutting think tanks, which could help in formulating a comprehensive national strategy for national development based on proximity to China and strategic relationship with China.

The second speaker, Prof. Dr. Syed Irfan Hyder, Dean CBM and CES, Institute of Business Management (IBM) Karachi, spoke on “CPEC: Enabling Foreign and Domestic Investment in Business Ventures.” He said that on CPEC project no specific information is available but generalized and broad literature is available that is not helpful for investors to take investment decisions. He quoted a member of Chinese delegation who came to CBM and complained about lack of specific data which could help Chinese to make investment decisions. He talked about CBM Institute that contributes in cooperating with domestic and foreign investors in developing feasibility studies. He said that his institute at IBM has been working with a Chinese company, China Overseas Ports Holding Company that asked for developing feasibility reports and the institute has prepared pre-feasibility reports of marble and granite, fruits and vegetables, electrical appliances and garments. He said that instead of complaining about lack of specific data, the students in Business schools in various Universities could be devoted to generate data. He said that CBM research team since past one and a half year has produced eight pre-feasibility studies while five more are in progress. He said that an analysis of Pak-China trade items showed that we are exporting raw material while importing value added products. He said that we need to analyze the socio-economic impact of any particular industry and in this context, the first element is displacement or substitution of labor with machines as it happened in 1960s and resulted in the dominance of twenty-two families. He suggested that the perception of investment and development without taking into account the cost has to be rethought. He said that local investors are concerned about the future of their own units, in case huge foreign investments came in. He said that significant information about cost of investment on economy, ecology and social fabric of community was a prerequisite.

The third speaker, Dr. Jahangir Khan, Associate Professor, Department of Economics, University of Balochistan, Quetta, while presenting his views on “CPEC: Implications for Domestic and Regional Trade” said that there has been a significant revival of regionalism in the world with establishment of regional preferential trade agreements but in our part of the world the preferential trade agreements have shown limited success in boosting intraregional trade among the member states. He recognized that although the tariff rates have been reduced but nontariff barriers (NTBs) are still working as a major source for the low level of intra-regional trade. Trade facilitation has become the leading NTB that reduces intraregional trade among the member countries of the regional economic blocs. According to a World Bank study the costs of trading across borders in South Asia are among the highest in the world.

Dr. Khan said that in the context of Pakistan, regional connectivity has been approved as the 7th Pillar of Pakistan Vision 2025. In the Vision 2025 document, unveiled by the Government of Pakistan, regional connectivity for trade and transit with the member states of SAARC, ASEAN, ECO and CAREC has been stressed as development priorities. He elaborated that CPEC by connecting Western China with Pakistan‘s Gwadar along the country‘s southern coast can be called an effort towards achieving that goal of economic integration and regional connectivity. He said that there would be trade facilitation under CPEC as CPEC has two main components; it plans to develop a new trade and transport route connecting Kashgar to the Gwadar Port and it envisages developing special economic zones along the route, including power projects. For Landlocked countries, distance coefficient of gravity model is 5.5% (every 1% decrease in distance from port increases the trade by 5.5% and CPEC will decrease this distance by 22%).

According to Dr. Khan the improvement in the Logistics Performance Index (LPI) requires large-scale investments into transport and power infrastructure in the countries of the region that would directly impact the domestic and regional trade expansion. For landlocked countries, developing regional infrastructure will provide transport corridors for trade within the region and outside the region. He identified that the investments made with the support of countries such as Iran, China, Russia and the international development organizations for the projects such as construction of the oil and gas pipelines from Kazakhstan and Turkmenistan to China, power lines from Uzbekistan to Afghanistan, overhaul of the road corridors passing through almost all the countries of the region would improve trade facilitation and would result in significant gains in trade at regional level. 

Session-III

CPEC: Micro Level Advantages to Pakistan’s Economy

The first speaker, Dr. Kamal Monnoo, Chairman Sumaira Fabrics, Lahore and Member BOGs, IPRI spoke on the “Economic Advantages to Industrial Sector, an Industrial Unit and Labor” and said that CPEC is an initiative to develop China’s underdeveloped western region by linking it to the warm waters of Arabian Sea through Gwadar since this route to world markets is the shortest and the cheapest.

As projects under the CPEC gather pace, both governments must address the challenges such as the general lack of know-how on finances, public private partnerships and the extent of the benefit to both China and Pakistan, and then weighing them against each other. From the Pakistani perspective a general lack of clarity on some of the broader features of the projects and related finances to undertake heavy corresponding equity injections, where required, tend to be serious concerns for an economy heavily in debt.

He highlighted the need to approach CPEC professionally and not emotionally, like the Chinese and stressed on learning the techniques needed to corporatize the economic propositions by overcoming concerns such as: prevailing lack of transparency, on-going political bickering (satisfaction of all provinces will always be the key to CPEC’s success), a general public mistrust, and competence related operational hazards. Regrettably, misplaced perceptions, innuendos and politicization of CPEC seem to be taking root and unless (like in China) CPEC in Pakistan is also quickly put under professional control these emerging controversies carry the danger of undermining the entire program. Given the political leanings (even if it is by default) of executive management invariably leads to conflict-of-interest and controversy, he suggested to give CPEC’s decision making and its implementation control under an autonomous, non-political and professional Board.

He identified the need to be mindful of the emerging developments and on the very likely possibilities of altered global equations and new partnerships. Effectively countering India and at the same time maintaining a constructive relationship with the USA is going to pose a real challenge in the future. There is a need to convince India, Afghanistan and Iran that CPEC can work inclusively if everyone plays a fair role in it and can essentially benefit the entire region. India, which openly airs its reservations and negative sentiments about the CPEC must be engaged and convinced that like pre 1990s, it is once again aligning itself with the wrong economic theme.

However, he believed that to succeed amidst all these challenges the onus lies on Pakistan. It will be up to Pakistan to act proactively and chalk out policies and agreements that serve it well even with altered global realities and shifting economic responsibilities. He said that Pakistan needs to meet the expectations of Chinese government and has to follow operational and financial discipline. For this reason, we must act quickly to not only convince the Chinese that there is a sound CPEC management structure in place to judiciously use the allocated funds, but to also in-turn satisfy ourselves that a professional team is indeed in place to manage these investments prudently and sustainably, without being affected by politics or changes in political dispensations that may or may not take place during the short and long term implementation periods of CPEC.

The second speaker, Dr. Sultan Ali Adil, Director, School of Agricultural and Resource Economics, University of Agriculture, Faisalabad spoke on “Economic Dividends to Agriculture Sector, Farm Owners and Farm Workers.” He gave an overview of Pakistan’s agriculture sector and said that it contributes around 19.8 percent to national economy, around 57 percent to Punjab’s economy and has been a source of 80 percent of the foreign exchange earnings. He said that agriculture sector has been experiencing a negative growth rate by 1.9 percent where the crops sector witnesses a decline of 6.25 percent while livestock, forestry and fisheries experience a growth by 3.63 percent, 8.84 percent and 3.25 percent respectively. He also gave an overview of China’s agriculture sector and said that China has been producing around 18 percent of world’s cereal grains, 29 percent of world’s meat and 50 percent of world’s vegetables. He highlighted strengths of Pakistan’s agriculture as having world’s largest canal irrigation networks, huge fertile land in Indus basin and availability of cheap labor. He identified strengths of Chinese agriculture as renewable energy, huge investments in new technologies that have enabled China to produce 20 percent of world’s food with 9 percent of arable area. He said that under CPEC both sides have agreed to establish Pak-China Agricultural Demonstration Zones that would lead to exchange of knowledge and transfer of technology in the fields of agro-chemicals, pesticides, fertilizers, agro-engineering, bio-technology and livestock and would enable Pakistan to learn Chinese expertise in agriculture sector. He said that Pak-China cooperation would provide enhanced opportunities for rural employment, establishment of agricultural sciences parks, establishment of value chains, possibilities of initiating joint ventures and corporate farming as well as opportunities for international agricultural trade. He said that to benefit from mutual cooperation conventional crops needs to be replaced based on their competitiveness and there is need to switch to oilseed crops such as soyabean. He said that government’s efforts for market reforms need to be enhanced.

The third speaker, Dr. Saima Shafique, Head of the Department of Economics, National University of Modern Languages (NUML), Islamabad, while speaking on “CPEC: Economic Advantages to Services Sector, Prospects for Entrepreneurs and Workers” said that South-Asia is considered among the least integrated regions of the world and CPEC would provide immense economic opportunities to it. She elaborated that China has announced One Belt, One Road Policy (OBOR): through landlocked countries (New Silk Road); and through waters (21st Century Maritime Silk Road) which are the key components of Chinese economic strategy.

Dr. Saima while speaking on the infrastructure development under CPEC said that Karakoram highway with six lanes along the ancient Silk Road from Xinjiang to Gwadar   through different areas of Pakistan Gilgit Baltistan, Khyber Pakhtoonkhwa, Punjab and Balochistan, public transport system, including metro train and bus services in six main cities, development of the Gwadar Free Trade Zone: The New Gwadar International Airport; the Gwadar Eastbay Expressway; and Technical and Vocational Training Institute in Gwadar, Two Power generation projects generating 10400MW and 6645MW, respectively would help in the economic growth of Pakistan.

She further said that the relationship between highway & energy investments and regional economic growth is a complex one as these have both spatial and economic prospects. On the one hand, these have “network properties”, i.e. the extraordinary ability to shift market areas and affect communication channels while on the other hand; it is an input into the production of private and public sector goods and services. To explain the pattern of development, Dr. Saima explained three types of regions i.e. competitive regions, urban spillover regions and uncompetitive region. She said that because of the multifaceted nature of highway investment and its disparate causal links with economic growth, its influence is frequently broken down into three dimensions: temporal effects, industrial effects and spatial effects. She also mentioned that due to healthy growth rate of services, the economies like the United States are transforming from manufacturing-based to technologically advanced services economy. She concluded her presentation by recommending that new ideas should be created by enhancing the public-sector entrepreneurial knowledge networks. There is a need to create the possibility by allocating resources and create the ability by providing the authority to act.

Session-IV

CPEC: Economic Advantages to the Region

 The first speaker, Dr. Tugral Yamin, Associate Dean, Centre for International Peace and Stability (CIPS), National University of Science and Technology (NUST), Islamabad spoke on “Economic Advantages of CPEC to India” and believed that the current level of poor India-Pakistan relationship, precludes the possibility of India making a formal bid to join the economic corridor linking China and Pakistan within the framework of the Chinese concept of One Belt and One Road (OBOR) policy. He opined that there are obvious economic advantages that India stands to gain, if it becomes part of this enterprise that has the potential of providing huge financial benefits to all stakeholders.

He stated that linking India with the CPEC will require immense political will and a great diplomatic effort. India will have to put aside its objections to CPEC and join it to draw related economic benefits. The most obvious advantages for India in linking up with CPEC would be the upgraded communication infrastructure and easy access to markets in Central Asia and beyond, besides lessening of tensions in the region and bringing more prosperity to its people.

Moreover, if India joins CPEC, it would help in increasing dependencies required to promote regional stability. Dr. Yamin in his presentation correlated the initiative of CPEC with the Golden Arches theory of Conflict Prevention which proposes that no two countries that have Mcdonalds franchises have ever gone to war. It was asserted that there are less chances of war if the two countries have vested interests in each other’s economy. The Chinese initiative was also analyzed in the perspective of theory of complex interdependence which postulates that international politics has now been transformed by the concept of interdependence.

While looking at the regional triangle of India-China-Pakistan, he said that China is optimistic that India could benefit from the idea of regional connectivity offered by CPEC however, it has apprehensions that the project of CPEC will provide China, a larger foorprint in the region. India is the only country which has criticized CPEC and it is believed that India is likely to disrupt CPEC to dent the economic advantages that Pakistan and China can gain from this venture, which is a worrisome aspect for Pakistan. However, he suggested that despite critical relations and huge economic benefits of CPEC, India should find a middle way to join CPEC for the greater good of the region.

While elaborating the facts, he said that the trade volume between both Pakistan and India is as  low as $2.5 billion and the trade balance is heavily tilted in India’s favor. India has been pursuing a policy of isolating Pakistan in the region by concluding bilateral and multilateral treaties with regional countries, which is not a healthy approach for ambitions of regional integration. He said that in order to make CPEC a success for regional integration, there is a need to increase dependencies by improving communication and connectivity infrastructures, allowing transit trade routes, ending restrictive visa regime vis-à-vis enlarging financing and banking facilities for traders.

The second speaker, Dr. Pervez Tahir, Former Chief Economist, Planning Commission of Pakistan and Department of Economics, Government College University (GCU), Lahore, had to leave for Lahore due to some urgent meeting so his paper was presented by Dr. Fazal ur Rahman, Senior Research Fellow IPRI. 

While speaking on “Economic dividends of CPEC to SAARC countries other than Afghanistan and India” Dr. Fazal reiterated that among globally integrated economies and regions, the SAARC region falls in the group of the least integrated regions of the world. The Chinese vision of reviving the historic Silk Road through its One Belt One Road initiative across Eurasia holds the prospects of revolutionizing connectivity in terms of trade, energy and logistics. He explained that China’s high growth cannot now be sustained by its own market and exports to the markets of the countries pivoting towards Asia Pacific under the leadership of the United States. China is, therefore, carving a new path of pivoting towards the Indian Ocean where some of the largest potential markets are waiting to be connected to manufacturing.

Dr. Fazal said that there are three routes of the Silk Road – the Northern Route, the Southern Route and the Southwestern Route. The China Pakistan Economic Corridor (CPEC) covers the Southern Route. In its essence, CPEC is a geo-economic project, with economic implications not just for the two direct participants, China and Pakistan, but also for regional countries. He further elaborated that the CPEC would link the entire belt consisting of China, Central Asia, South Asia, West Asia, North Africa and Gulf states. The geo-economic dictates suggest maximum radiation of CPEC economic flows in the South Asia region. It would link the two largest economies of the belt – China and India. The absence of this link restricts India-China trade to $71 billion and India-Pakistan trade to $2 billion. The smaller landlocked SAARC countries will be able to reach China through Gwadar. He also said that the foreign trade is the most important driver of regional integration.

While speaking on economic dividends of CPEC to SAARC countries, Dr. Fazal ur Rahman said that Bangladesh has the dual advantage of benefitting both from the Southern and Southwestern routes of the Silk Road. Similarly, Maldives imports from China have doubled in five years but exports are low leaving the balance of trade massively in favour of both China and Pakistan. Moving ahead, he said that in case of Nepal and Sri-Lanka, although China is the second largest trading partner of Nepal and Sri Lankan exports to China have grown three times between 2011 and 2015 but the trade ratio is heavily tilted towards China whereas in Pakistan-Sri-Lanka trade balance, the exports from Pakistan to Sri Lanka have declined from $347.7 million in 2011 to $260 in 2015 while imports from Sri Lanka have remained under $100 million. Therefore, the trade ratio is tilted significantly towards Pakistan. However in Pakistan-Nepal trade relations, both exports and imports are negligible and the trade ratio is in favour of Nepal.

Dr. Fazal concluded the presentation by stating that the SAARC itself has not made much headway in terms of intraregional trade due to bilateral disputes such as Pakistan-India tensions and poor connectivity. He recognized that the CPEC investment would prepare the region to take full advantage of any thaw in the relations between the two largest members of the SAARC i.e. Pakistan and India. The hope is that geopolitics will give way to geo-economics. Dr. Fazal highlighted that the investment in energy, road, rail, air and optical fibre links between Kashgar in China and the rapid development of the port of Gwadar is likely to impact the SAARC countries by reducing the barriers of distance and connectivity. Hence, CPEC would spur larger trade flows between Pakistan and other SAARC countries.

The third speaker, Dr. Syed Ghulam Qadir, Associate Professor, Department of Economics, Ghulam Ishaq Khan Institute (GIKI), spoke on “Economic Advantages of CPEC to Afghanistan and Iran.” He said that China has become the largest exporter in the world and since last five years its exports have increased at an annual rate of 11.8 percent. He highlighted the idea of connectivity behind the One Belt One Road Initiative as to stimulate trade and exports with China’s neighbors. He said that Iran is more than twice the size of Pakistan in area and less than half its population. He said that Iran is among the top ten countries having proven energy reserves and has interest in expanding its energy exports to neighboring countries through pipelines connected to the contracted as part of the CPEC. He said that China is the largest trading partner of Iran as around fifty percent of Iranian exports went to China while forty five percent imports are from China. He said that Pakistan’s North Western neighbor Afghanistan is smaller in size than Pakistan while having 1/6th of the population of Pakistan. He identified that Afghanistan is the largest trading partner of Pakistan. He ruled out any possibility of direct trade between Afghanistan and China despite sharing a narrow land link, Wakhan corridor that is not suitable for trade, consequently, Afghanistan has to establish trade relations with China  through third countries either Pakistan through CPEC or its Northern neighbors i.e. Central Asian Republics.

Concluding Session

Conference Recommendations:

Conference Recommendations were presented in the concluding session by the Ms. Asiya Mahar, Assistant Research Officer IPRI, that were based on the key points of all the speakers and chairs of the conference and ensuing discussion with the audience in the question/answer sessions. Following are the key recommendations of the conference:

  • Since CPEC is not only an opportunity but also a challenge, Pakistan needs to improve its infrastructure and strengthen its economy to benefit more from CPEC. All speakers had consensus in saying that benefitting all stakeholders and sustaining economic development should be the priority of CPEC projects.
  • CPEC is a strategic project having regional and global impact. Gwadar port having direct access to Middle East, Central Asia and South Asia could be a role model for the world provided the efforts are made in the right direction. The port would open vistas and opportunities for Pakistan and the region at large.
  • Government of Pakistan should establish working frameworks and agreements for financial, commercial, manufacturing, and knowledge alliance with China. CPEC would only become a game changer, if economic integration takes place between China and Pakistan in the future. So, both states especially Pakistan should make efforts in integration process and at the same time Pakistan should watch out for its national interests so that Chinese market expansion does not overwhelm the local industry in Pakistan.
  • Revisiting the Pakistan-China Free Trade Agreement (FTA) should play a role in the recovery of Pakistan’s economy since it is discriminatory in nature with regard to Pakistan. In addition, concluding new investment treaties to facilitate greater growth of Foreign Direct Investment (FDI) and bank financing from China may be needed.
  • Issues that should be addressed in facilitating the mega projects of CPEC are: improving investment and trade facilitation; enhancing regulations for financial integration and cooperation; building currency stability and credit information system, redefining and expanding the scope and scale of bilateral currency swap arrangements, establishment of the financial institutions for cooperation, while ensuring transparency and checking corruption.
  • Linking India with the CPEC will require immense diplomatic and political efforts on part of both India and Pakistan. India should put aside its objections to CPEC and join it to draw related trade benefits. Pakistan needs to convince India Iran and Afghanistan to join CPEC. India, today by not aligning itself with CPEC is making a mistake as this project will benefit the whole region. Effectively countering India and at the same time maintaining a constructive relationship with the US is going to be yet another challenge. Pakistan needs to convince India, Afghanistan and Iran that CPEC can work inclusively, if everyone plays a fair role and can essentially benefit the entire region. India, which openly airs its reservations and negative sentiments about the CPEC should be engaged and convinced that like pre-1990s, it is once again aligning itself with the wrong economic theme.
  • Balochistan is the future and hope of a progressive Pakistan, which government must be focusing on and CPEC would be a great help.
  • Tax reforms should be introduced for augmenting the economy so that Pakistan could play its actual role as a conduit of regional economy. The CPEC would provide a platform to Pakistan for achieving this objective.
  • CPEC will ease Pakistan’s energy crisis while connecting the country’s economy with its neighbours. Though CPEC is an inclusive project but the focus should also be on indigenous efforts to generate coal, solar, hydel, and wind energy. The major portion of new energy generation capacity under CPEC will be coal-based plants. This essentially neglects the environment conservation emphasis and implications of climate change. All CPEC related projects should take the environmental consequences into consideration.
  • The structural challenges confronting CPEC must be identified by the government of Pakistan and tackled in time to address the problems in the implementation of the project. Targets should be spelled out and timelines for smooth implementation of CPEC projects should be made clear. Also, for better management of the timelines and the CPEC related projects, “CPEC Development Authority” consisting of civil and military stakeholders should be established henceforth. Pakistan should learn from China, which is expert in running and managing public sector projects.
  • Pakistan should increase the percentage of GDP allocation for the education sector for sustaining economic growth in the future. It should invest in capacity building to train and turn its population into technical manpower during the process of developing CPEC. Especially in Gwadar, social sector projects in the areas of education and health should be developed. Pakistan should focus on both soft and hard aspects of CPEC simultaneously. Role of CPEC in social sector is not clear yet. Pakistan should request the Chinese government to assist it in social sector development under CPEC.
  • Pakistan must make efforts in creating cold storage facilities for fruits, vegetables, and dairy products so that these products could be preserved. Efforts may be made to include a project related to this in the CPEC agenda.
  • Instead of growing excessive wheat, Pakistan should grow crops like Soya bean, which China imports from abroad, this will help to increase Pakistan’s exports to China.
  • The government must come up with clear plans as to where the industrial parks need to be developed as it still remains unclear which areas need or are more suitable for the development of industrial parks.
  • Impression that Punjab is the only province which is going to benefit from CPEC, should be corrected to avoid division within Pakistan. The federal government needs to address the grievances and concerns of other provinces like Baluchistan at priority, as delay might provide ground to anti-state elements to exploit the situation to their advantage. To make CPEC a unifying force and to avoid discontent, disharmony and discomfort, the money should be provided by the government of Pakistan for projects outside CPEC.
  • I. Khan should be connected with Lahore and Multan with Quetta to make a real grid of road networks within CPEC’s three main routes.
  • Pakistan needs to get preferential market status in Chinese economy. The business community and private sector of Pakistan need to come forward and play their role in making CPEC a success. Also, there is a need to determine and highlight the opportunities for local business and investors in CPEC.
  • Pakistanis should understand China as an emerging power by visiting the country. There are 450 Think Tanks in China and Pakistan needs to network with them. Since technology transfer and human capital development are weaker links in CPEC, these aspects should be included.
  • Pakistan generally has a limited trade relationship with South Asian states. Somewhat significant trade relationship exists with Bangladesh and Sri Lanka, with a perceptible tilt towards Pakistan in the balance of trade. Trade with Bhutan, Maldives and Nepal is insignificant. If diplomacy removes the political barriers and secures peace and good neighbourly relations between Pakistan and India, the barriers of distance reduced by CPEC are likely spur larger trade flows between Pakistan and other SAARC countries.

Mr. Zhao Lijian, Charge de Affairs, Embassy of the People’s Republic of China, Islamabad was the special guest speaker. In his address, he thanked IPRI for arranging a conference on a subject of vital importance to China and Pakistan. He said that the recommendations of this conference must be sent to the respective governments as both sides push for the successful construction of the proposed economic corridor. It was stated that the initiative of One Belt One Road (OBOR) provides the important design and network of cooperation and win-win scenario. The initiative of OBOR is all about peace, inclusiveness, openness and economic cooperation, where China is ready to share the dividends with the countries along Silk Road.

He said that CPEC is considered to be a project of vital importance and its success would demonstrate the prospects associated with the entire initiative of OBOR. CPEC at present, is in its full implementation stage and the Chinese authorities are satisfied with the progress. This project covers a wide range of areas including infrastructure development, energy production and port development. Moreover, out of thirty Early Harvest Projects (EHP), sixteen are in construction phase while one has been completed in the area of Gwadar. Energy projects have been built across the country. Also, it is an achievement that the Karot Hydropower plant, which was inaugurated in January 2016 is under construction. It is the first project financed by the Silk Road Fund. The Silk Road Fund is worth US$40 billion which was announced by the President Xi Jinping. Also, Chinese best construction company has been constructing the sections of Sukkur-Multan and Karachi-Peshawar motorway. With the utmost desire of completing the Early Harvest Plan (EHP) projects on time, we plan to move forward and start work on Long Term Projects (LTP) under CPEC framework.

Mr. Zhao stated that these projects aim to achieve win-win solutions for all the stakeholders. CPEC is a golden opportunity for both countries however Pakistan can benefit more to achieve a smooth economic take off. These projects would help attract huge Foreign Direct Investment (FDI) which is necessary to accelerate the process of industrialization and modernization in Pakistan. He reiterated that CPEC is an unprecedented undertaking however, there is a need to convince other regional partners for participation in order to yield good results.

Engineer Khurram Dastgir Khan, Federal Minister for Commerce, Ministry of Commerce, Government of Pakistan, was Chief Guest of the concluding session. He said that CPEC being a game changer marks a very positive metamorphosis of Pakistan-China friendship into an economic partnership. CPEC addresses some of Pakistan’s pressing needs of investments and converts fundamental nature of relationship. It was said that CPEC has come at a very right time when Pakistan is re-emerging.

He said that violent extremism, energy crisis, global isolation and low growth have remained the impeding factors for Pakistan in achieving an economic turnaround. However, the Chinese investment of 46 billion dollars assures an economic revamp in Pakistan as its projects cater for the infrastructural and energy needs. It has been argued that China had its own strategic and economic imperatives but we must acknowledge that Chinese cooperative gestures mark the true essence of friendship between the two nations.

He elaborated that there are two important aspects of CPEC in terms of connectivity; one is the classic invisible ribbon which is going to tie Gwadar with Khunjerab, passing through all four provinces. The second aspect is of the development of Gwadar port and the future connection with Central Asia and Afghanistan via Quetta and Chaman.

CPEC essentially brings China-Pakistan friendship and alliance into the 21st century, which is the decisive move forward. The entire country will benefit from this project. He said that we must support CPEC with our hearts and minds because it is the foundation on which the prosperous Pakistan would be built. It is a delight to note that a prosperous Pakistan would be built in partnership with our friend China. It is this partnership which sets us together to go far into future with greater vigor and shared vision.

Vote of Thanks: 

President IPRI, Ambassador (R) Sohail Amin, stated in his concluding remarks that, with the conclusion of this conference, it can be said that holding this conference in collaboration with HSF was a source of great satisfaction for the Islamabad Policy Research Institute. The support and assistance of HSF at all stages from conceiving the concept to planning the conference has been invaluable.

Ambassador Sohail Amin thanked Engineer Khurram Dastgir, for the kind acceptance of invitation to be the Chief Guest at this conference. He also thanked the session chairs, speakers, and participants who made valuable contributions and enriched the conference with their active participation through questions and comments respectively. The key recommendations of this conference will also be shared with the policy making circles and will also be posted on the website of IPRI. IPRI will also prepare a book based on the conference papers soon.

It was said that CPEC, will be a game changer for Pakistan’s economy and will result in transformation of Pakistan-China friendship into an economic partnership. CPEC addresses some of Pakistan’s pressing needs and changes fundamental nature of relationship. It was concluded  that CPEC’s timing was right as now is the time Pakistan is making it revival both in security and economic terms. It is the responsibility of government of Pakistan, opposition parties and people of Pakistan to make this project a success by resolving internal differences and by countering outside propaganda, so that Pakistani economy can capitalize from it as much as possible.

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

Author

Mr. Khurram Abbas is Assistant Research Officer (ARO) at Islamabad Policy Research Institute. He holds MPhil degree in International Relations from National Defence University (NDU), Islamabad. He is doing his PhD in Peace and Conflict Studies (PCS) from Centre for International Peace and Stability (CIPS), NUST, Islamabad and his thesis is “Role of Social Media in Radicalization Process: Analysis of Muslim World with Particular Reference to Pakistan". His area of interest includes, Perception Management, Role of Social Media, De-Radicalization Strategies, Counter Violent Extremism, Religious Extremism in South Asian region with particular emphasis on India, Afghanistan and Pakistan. Mr. Abbas regularly participates in National and International Conferences. He undertakes extensive research and regularly contributes in academic research journals and national/international dailies. Email: khurram306pcips@nipcons.nust.edu.pk

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