BAHRIA UNIVERSITY

SUBMITTED TO: MAAM SAIRA NAWAZ

SUBMITTED BY: 1) DANIYAL USMANI
2) AATIR ZAMAN
3) CH. TAIMOOR IMTIAZ
4) ALISHBA KIYANI
5) AMBREEN SAFDAR

CLASS: BBA-IV (A)

DATE: 10TH DECEMBER 2015
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Table of Contents
PAKISTAN CHINA ECONOMIC CORRIDOR
INTRODUCTION
3 TO 4
PAK CHINA RELATIONS
5 TO 6

POLITICAL AND ECONOMIC CONSTRAINT

GEOSTRATEGIC DYNAMICS 5
POTENTIAL SECURITY THREATS TO CPEC

4
6

ADVANTAGES OF CPEC
BENEFITS TO CHINA
DISADVANTAGES OF CPEC
MAINTAIN SECURITY LAW AND ORDER.
CONCLUSION AND RECOMMENDATIONS

PAKISTAN CHINA ECONOMIC

CORRIDOR
INTRODUCTION:
China and Pakistan have developed strong bilateral trade a n d econo mic t i e s and
cooperation over the years. China has gradually emerged as Pakistans major trading
partner both in terms of exports and imports. Bilateral trade and commercial links
between the two countries were established in January 1963 when both signed the first
bilateral long-term trade agreement (Ministry of Finance, 2014:126). Under the Free
Trade Agreement (FTA) between the two countries signed on November 24, 2006 and
implemented from July 1, 2007 Pakistan secured market access for several products of
immediate export interest. Later, both countries signed the FTA on Trade in Services on
February 21, 2009 that became operational from October 10 that year (Ibid).
According to statistics provided in Pakistan Economic Survey 2013-2014, the volume
of trade between Pakistan and China has increased from US$ 4.1 billion in the year
2006-07 to US$ 9.2 billion in 2012-13, representing an increase of 124 percent. While
Chinas exports to Pakistan increased by one percent during this period, Pakistans
exports increased by 400 percent from around $600 million in 2006-07 to $2.6 billion in
2012-13. As a result, Chinas share in Pakistans total exports has gradually picked up from
four percent in 2008-09 to 10 percent during the fiscal year 2013-14.
The China-Pakistan Economic C o r r i d o r (CPEC) is expected to further strengthen trade
a n d e c o n o m i c cooperation between the two countries. Chinese Premier Li Keqiang
emphasized the construction of the CPEC during his May 2013 visit to Pakistan (Tiezzi,
2014). The incumbent Pakistani government has also shown much enthusiasm for the
project since then. The corridor will connect Gwadar Port in Balochistan (Pakistan) to
Kashgar in north-western China, which will make Gwadar not only fully operational but
also a significant deep sea port in the region. Opened for operations in 2007, the control
of Gwadar Port was transferred to Chinas state-owned China Overseas Ports Holding in
February 2013. Since then, Gwadar is undergoing a major expansion to turn i t into a
full-fledged, deep-water commercial port ( South China Morning Post, 2014). When the
corridor is constructed, it will serve as a primary gateway for trade between China a n d the
Middle East and Africa. The corridor is expected to cut the 12,000-kilometre route t h a t
Middle East oil supplies must now take to reach Chinese ports (Ibid).
Besides meeting Chinas needs in energy and developing its far west region and
upgrading Pakistans economy, the CPEC is expected to benefit the people of countries
in South Asia, contributing towards maintaining regional stability as well as economic
integration (China Daily, 2013).

As cited earlier, the CPEC is a comprehensive development program that entails the
linking o f Gwadar Port to Chinas northwestern region of Xinjiang through highways,
railways, oil and gas pipelines, and an optical f i b e r link. Major physical infrastructure to
be built includes 2,700-kilometre highway stretching from K a s h g a r to Gwadar
through Khunjrab, railways links f o r freight trains between Gwadar and Khunjrab
linking to China and having possible regional connectivity with Afghanistan, Iran and
India, and the Karachi-Lahore motorway. The project will also undertake the revival and
extension of the Karakorum Highway that links Xinjiang with Pakistans northern region
GilgitBaltistan and Khyber Pakhtunkhwa.
Besides physical links connecting Pakistan and China, the project also envisages
establishing several economic zones along the corridor. Also, an Energy Planning
Working Group of the CPEC has been established that will undertake fast-track
implementation of power projects related to the CPEC. Those projects of 21,690 MW
power productions will be undertaken with the assistance of China under the CPEC plan
(Pakistan Today, 2014).
This report assesses potential threats and risks that could affect the implementation of the
CPEC project in terms of insecurity and violence that pervade Pakistan, internal
political and economic constraints, and also global and regional geostrategic
impediments. The purpose is to understand and evaluate Pakistans security, political and
economic environment and regional geostrategic dynamics in the medium to long term
to explore feasibility prospects for the corridor and also to manage potential threats, if any,
that could hamper the implementation. Most importantly, the report discusses the
security aspect in detail in which the probability of threats vis--vis extremist
militancy, nationalist insurgency and criminal violence are analyzed with the main
focus on areas across Pakistan which will be traversed by the China-Pakistan
Economic Corridor.

PAKISTAN CHINA RELATIONS:

PakistanChina relations started in 1950 when Pakistan was among the first countries to break
relations with the China on Taiwan and also Pakistan was one of the first countries of the world to
recognize China, and later then they have good relations with one another. Following the SinoIndian War1962, both countries has placed significant importance on the maintenance of a really
close and loyal relationship. Then, the two countries have regularly exchanged high-level visits
causing in a variety of agreements and China has provided economic, military and technical
assistance to Pakistan.
China is a current developing country with good economic and political condition. China and
Pakistan has very good relationships with each other and China is also working to solve the
problems with India. Any kind of change in both countries has good or bad influence on each other
and also on other regions of South Asia. China developed its own infrastructure and also delivers
Pakistan the economic aid and military equipment which is very important for Pakistan to develop
its infrastructure. India China relationship during sixties provides a chance for Pakistan to get all
type of support from China. Policies and economic conditions of china has great effect on
Pakistans economy, as China is the main financer of Pakistans military and projects like Gwader
Port, JF-17 Thunder aircraft and Ballistic Missiles and etc. Decrease in Chinas economic growth
level can also decrease the economic and military aid to Pakistan. Pakistan wants Chinas support
in economic projects like energy, trade, infrastructure development and etc.
Pakistan is facing the energy crises so Pakistan wants nuclear power plants and energy resources
from China. China can provide these kinds of energy resources to Pakistan to counter the energy
crises with economic aid and infrastructural development. Chinese government has singed some
projects on infrastructural development with Pakistan which will beneficial for both countries.
Chinese market providing cheaper goods than American and European manufacturers to Pakistan
which produced a positive effect on Pakistani markets. Due to their prices and different choices in
quality Chinas products are very much popular in Pakistani markets and also in other countries. By
China Pakistan relations Pakistan mostly gets benefits but there are some negative effects of this
relationship on Pakistani economy such as Pakistani local manufacturers are unable to compete
with Chinese manufacturers because of price and quality, Chinese producing goods at very low
price than local Pakistani producers and due to this Pakistani manufacturers suffering badly.
The Gwadar project is very much important and beneficial for both countries. Pakistan and china
both needs Gwadar port because Pakistan wants to develop Baluchistan into a business center as it
is very near to oil producing markets and china needs it for both its military and oil resources.
China has supported the Gwadar Port project in all fields like construction, finance and
management. Gwadar port is sign of China Pakistan friendly relationship. Gwadar port project
was planned in 1993 after the completion of its feasibility studies. Chinese Premier Zhu-Rongji
visited Pakistan in May 2001 and under writes the Gwadar port project. On March 22, 2002,
Chinese vice Premier Wu Bangguo visited Pakistan and laid the foundation of the Gwadar project.
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These visits were very important for the peace and development of this region after 9/11 attacks
and presence of US army in the region. For completing this project of Gwadar china gave millions
of dollars for it to Pakistan in every phase of development.

Gwadar port is also important for China because it link with strategic ports of Bangladesh,
Srilanka, Burma, and South China Sea and eighty percent of Chinese oil resources move from these
ports. This project is also solidifying the relations between Pakistan and China in economic and
technical fields. All Pakistanis affectionately welcome Chinese support in the development of
Gwadar port. Pakistani people and government are very thankful to Chinese Government and
people for their continue support of projects even by the loss of valuable lives by the incidents of
terrorism against Chinese Engineers working on Gwadar port project. And this will leads to
stronger the relationship in future.
For developing the infrastructure China played a very important role even in the most difficult
mountains of boarder area of Pak China called Silk Road and Silk route projects. These roads
provide vast opportunity for trade and business between both the countries. Pakistan has now 500
foreign companies out of which more than 60 are Chinese. The Chinese companies are working for
infrastructure development sectors like telecommunications, energy, mining, and IT. Chinese
companies are also working on high-level projects like Dams, Solar energy projects and petroleum.
In the year 2008, Pakistan had the high level of activity in infrastructure sector. Construction,
Housing, Power, and Energy development projects were design with the total estimated cost of
US$ 30 bn. Top priority projects include 969MW Nelum Jhelum power plant, and Diamer Basha
Dam with capacity of 4,500 MW. These projects are being built by the Chinese consortium consist
of Gezhouba group and China machinery export corporation. Pakistan and China recently signed
an agreement, during the visit of President Zardari, for hydel power development projects with the
estimated cost of US$ 448 mn.
Transport sector in year 2008 have been helped with over US$900mn total cost projects. This is
because the National Highway Authority of Pakistan plans to invest US$ 5.3bn in transport sector.
In order to enhance trade between Pakistan and China and with a strategy to include other countries
in future, a project estimate US$6.5bn has been started which will link the North to the ports in the
South of the country. China is also playing very important role in these projects with investment
and technical assistance. China is planning to use the transport sector from the South to the North
of Pakistan connecting directly into Chinese portion of the territory.
Pakistan China relationship are improving with joint development of infrastructure projects,
which will save massive cost of transport to both the countries. Infrastructure development is a
backbone of the trade and economic development between a China and Pakistan. Pakistan badly
needs the help from neighbor China in the fields of power, energy and infrastructure development.
So Power, energy and water recourses open the way for infrastructure and construction industry in
Pakistan. For both countries it is very important that infrastructure projects are well protected,
analyzed and controlled to get timely development with high level of benefits.
Recently Chinese President Xi Jinping has done his two days official visit to Pakistan. During this
visit he was honored with Nishan-e-Pakistan, top civilian award of the country. President along
with several Chinese ministers and investors were warmly welcomed by Pakistan. During this visit
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i.e. Apr 20-21, the Chinese President signed 51 agreements between two friend countries having
worth of $46 billion. These include the development of China-Pakistan Economic Corridor that
will connect Gwadar port to Kashgar city. Most of the agreements are related to power,
infrastructure and communication development under Pakistan-China Economic corridor. Apart
from these, some other research, electricity and infrastructure projects are also signed.

POTENTIAL SECURITY THREATS TO CPEC:

Providing of security guarantees was the major concern, China had, while conceiving the gigantic
China Pakistan Economic Corridor (CPEC) project. It is mainly because the 3000 kms long, CPEC,
passes through areas that have geographical impediment as well as the physical threat to those
working on it from the militancy. Ironically, the origin and end (or vice versa) of the corridor have
almost same configuration. The China-Pakistan Economic Corridor (CPEC) is not a solitary road;
it is a vast network. It will spur the growth of industrial zones supported by energy plants, linking
Kashgar in China to Gwadar. The lack of political consensus and insecurity would be two major
challenges towards the implementation of the China Pakistan Economic Corridor (CPEC) project.
Failure to address these irritants will continue to affect Pakistans trade and economic engagement
with countries in the region, thus negatively impacting national development.
Gwadar is the tail of silk belt, which will connect at Kashgar through different communication
networks. The security of the whole corridor and Gwadar is a real agitate for China. Both Gwadar
and Kashgar are facing multiple security challenges. The Chinese expect that establishment of
five economic zones in Kashgar will completely transform the region and lessen the security risks
such as the separatist and militant movements of the Uighurs. The military operations in parts of
the tribal areas and surgical operations by paramilitary forces in Balochistan and Karachi have
helped reduce certain violent trends. The increase in sectarian and communal attacks also stipulates
that the operational capacity of certain violent groups has not been reduced. The terrorist
infrastructure still exists inside and outside the borders, which will continue to pose a threat.
Maritime security challenges cannot and should be separated from the international world. We need
to understand that America has its own interests in Middle East. Even China and Russia are more
interested in Middle East than Pakistan. Chinas real focus is on Middle East and not Pakistan. It
doesnt suggest that Pakistan is disrespectful or not dear to China. Pakistan is a bridge state so
china definitely needs Pakistan.
India is being backed by the US to counter China in South Asia their common interest is to oppose
Chinas increasing influence in the region. So we cannot say that these powers have no reservations
and we cannot close our eyes that their own interests in the region, particularly in Pakistan, are not
being affected by this CPEC. What we actually need to understand is the existing complex political
scenario and formulate the policies to cope with all existing and emerging threats and challenges.
A political trouble is being witnessed in Pakistan on the suspect change of Pak-China Economic
Corridor route, Chinese authorities have counselled local authorities of a possible terror attack
aimed at making the project a failure by Indian intelligence agency RAW according to them,
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insurgents in Balochistan have caused security fears for the 3,000-kilometre-long route in the
province. In addition to the insurgents, many foreign hostile intelligence agencies could also
enlarge their support to the militants to impair some key projects particularly on the eastern
alignment Gwadar to Quetta where work has already started. Pakistan has to play politically
and diplomatically to win this complex game under anarchic and perplexing world order and to
make the CPEC successful.

ADVANTGES OF CPEC:
Pakistan will be able to improve its strategic importance as a bridge and as a linkage between the
European, Asian and African continents with the implementation of China Pakistan Economic
Corridor (CPEC) that links South Asia, Central Asia, North Africa and Gulf States with the
economic and energy cooperation ties.Pakistan will enjoy special geographical advantages. It is
boarded by South Asia, Central Asia, the Arab World and China, and connects the Indian Ocean
and Persian Gulf. But, due to factors like strained geopolitics, inadequate transportation systems,
and energy shortage, the Pakistani economy has fallen short of its full potential.
Pakistan is facing acute energy problems. The countrys overall capacity of power generation is
23,538 MW, leaving a shortfall of nearly 40,000 to 60,000 MW whereas the demand is growing.
According to WAPDA, national power requirement will reach 40,000MW by 2020. This problem
poses an issue for foreign companies to enter Pakistan.
Under CPEC, China will invest $34 billion in thermal, solar and wind power generation facilities
and projects to address Pakistans energy and infrastructure problems; as a result it will empower
the countrys economic growth with visible and with real economic benefits. Along with CPEC,
Pakistan will become an economic hub in South and Central Asia, an axis of regional trade. The
Gwadar Port, while acquiring importance as Pakistans economic center, will be one of the most
important ports in the Arabian Sea.
Many development projects are completed and many are being started by China in Pakistan, like
metro bus service in Islamabad-Rawalpindi, Multan, Gujranwala, Faisalabad and Karachi, OrangeLine metro train in Lahore etc. The project of Karachi-Lahore motorway is under-construction and
it will be completed in the time coming. The length of this motorway is 1240km and China is
cooperating Pakistan in the construction of this motorway. The Islamabad-Hazara motorway is
being constructed with the cooperation of China. Moreover, the route of China-Pakistan Economic
Corridor will be the reason of development in the areas adjoining to it.

Three routes have been marked:

Western route originating from Gwadar will pass through Turbat, Panjgur, Naag, Basima,
Sohrab, Kalat, Quetta, Qila Saifullah, Zhob DIK, Mianwali, Hasanabdal, Isbd.

Central route will begin from Gwadar, Quetta, and reach DIK via Basima, Khuzdar, Sukkar,
Rajanpur, Liya, Muzaffargarh, Bhakkar, and DIK.

Eastern route will include Gwadar, Basima, Khuzdar, Sukkar, RYK, Bwp, Multan,
Lahore/Fsbd, Isbd, Mansehra
The success of the Sino-Pak partnership is critically linked to success of stabilization of the
Afghan situation. China and Pakistan have a divided interest in the stabilization of
Afghanistan, because the main threat to the realization of the Belt and Road projects in
Pakistan come from the terrorist groups operating out of the Af-Pak region.
Pakistan enjoys more favorably fiscal budget situation compared to India by reducing its
budget deficit to 4.7% of GDP in 2014 (as against Indias 7%) and Pakistan is much
cheaper as an emerging market. Investments by China will boost Pakistans $274 billion
GDP by over 15 %.

BENEFITS TO CHINA:
The economic and strategic benefits that will result to China are significant. CPEC has the
potential to transform economy of its underdeveloped, remote and restive Xinjiang
province. It will provide landlocked Xinjiang with access to the sea. Kashgar, which is still
predominantly Uygher, will be poised to emerge as a major trading hub.
CPEC provides a shorter route between the western Asia and China. The current route for
transporting oil and other commodities from western Asia to Chinese ports, which is via the
Straits of Malacca, is roughly 12,000 km long. It is another 3,500 km of overland travel
from Chinese ports to Xinjiang. In comparison, the route from Gwadar Port to Xinjiang is
just 3000 km. It will mean a dramatic savings in shipment time, distance and costs for
China and other countries choosing for this route. But more important than the reduction in
shipment cost and time is CPECs potential to free China from its Malacca Dilemma which
refers to the Chinese economys excessive reliance and unsafe to pressure at the Straits of
Malacca.
After its completion, China would have access to the Middle East and Africa, through the
Gwadar Port of Pakistan. 40% of the worlds oil is extracted from the Gulf region and for
its transportation, Persian Gulf is being manipulated. So China wants to be the part of this
trade, by using Gwadar Port. Half of the Chinese exports are destined on its Western side,
it will also gain tremendously by saving on its containerized traffic costs.

DISADVANTAGES OF CPEC:

However, only USD 6 billion of the investment is for improvement of facilities in and
around Gwadar, and another USD 5 billion has been set aside for metro for Lahore and
railway track from Karachi to Peshawar

Reports of the corridor being a network of rail, road and pipelines is a myth

Around USD 33.8 billion is for regenerate energy projects to tackle Pakistans energy crisis;
but Chinese power companies have pulled out of such commitments before on grounds of
non-feasibility For example in January 2015, Chinese investors pulled out of 6600 MW
power project in Baluchistans Gadani

Work stopped on 5 Chinese power projects in Punjab that produced 6600 MW

Though Pakistans installed capacity is 22,800 MW to face current demand of 19,000 MW,
it produces only 12,000 MW

Circular debt standing at USD 5 billion confronts Pakistans energy sector

Gwadar is also less crucial to China as it is expensive to pump or carry oil or gas over the
Karakoram range to Xinjiang

There is a problem of resources as well. 4 of 6 thermal power projects for which agreements
have been signed are predicated in imported coal as against imported furnace oil from
which 60% of Pakistans power is generated

Earnings will be in rupees and unless offset by increasing exports, it will be a heave for the
BOP position of Pakistan

Availability of local financing is another drawback, Government will borrow available credit
from the banking system due to failure to reform public finances

THE STATES CAPACITY AND RESPONSES

MAINTAIN SECURITY, LAW AND ORDER.

TO

Pakistan has the required capacity and security infrastructure to deal with potential
threats to the CPEC project. The country has a huge security and law enforcement
infrastructure comprising military, paramilitary including Rangers and FC, police and
local police forces such as the Khasadar force in FATA and Levies force in Balochistan.
Additionally, it has strong professional intelligence agencies. Sufficient sources and
e q u i p m e n t for s ecurit y, law e n f o r c e m e n t and i n t e l l i g e n c e agencies would
imply better standard. But with the threat of terrorism being non-conventional and
asymmetrical, Pakistan needs more stringent efforts to deal with this threat.
Tribal militants against whom the Pakistani army has launched several military
operations in the past, including latest military operation, Zarb-e-Azb launched on
June 15, 2014 in North Waziristan that is ongoing would suggest a policy of
containment of militancy, but much needs to be done in this regard. Initial reports
following the launch of the military operation in North Waziristan suggested that
foreign militants mainly those from Central Asia and China were prime target of military
strikes.

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As far as Balochistan is concerned, the province is already under strict security scrutiny in
the presence of the Frontier Constabulary, police an d L e v i e s . In recent months, attacks
b y nationalist insurgents and militants have decreased. The states security apparatus in
Balochistan, if utilized effectively, is capable to deter any threats to CPEC-linked projects
and activities.
However, there is an immediate need to address security problems in Karachi, which is
complex city where militants find many weak spots and spaces to hide, recuperate, recruit,
plan and operate. The Rangers and police have carried out security operations in the city,
but there is need to expand scope of this operation to eliminate all sorts of militants.
Law enforcement agencies, mainly the police can handle the security of the CPEC
alignment in Punjab, Islamabad, KP and also Gilgit-Baltistan with the help of
intelligence agencies.
Coordination among different security, law enforcement and
intelligence agencies will be vital to secure the route, construction and workers of the CPEC
project.
Provincial police departments can take pre-emptive steps to ensure the security of Chinese
engineers and others working on the CPEC-related projects. Some precedents were set in
recent past. For instance, the Lahore City Police established eight special security desks
around the city in June 2014for Chinese citizens employed in government, semigovernment and private sectors (Express Tribune, 2014).

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CONCLUSION AND RECOMMENDATIONS:

China-Pakistan Economic Corridor is a very Critical Infrastructure project for both the
countries. The corridor is a mutually beneficial project which full fills the objectives of both
the nations. For China it provides an alternate secure route to import Energy and find new
markets for its goods and services. For Pakistan it helps counters Indian influence in the
region, position itself as a major transit point connecting Eurasian region with South Asia and
South East Asia & provide a much needed base to kick start its economic growth
Long-term political stability in Pakistan is vital to smoothly implement the projects
like the China-Pakistan Economic Corridor. In the past, Pakistan has gone through
phases of political instability and turmoil that weakened the countrys development
roadmap and also affected policy consistency. Similarly, if now or later, some
prolonged political crisis and economic meltdown grip the country, the yearly and
periodic budget allocations for the CPEC project could be disturbed causing delays
to the project outcome beyond set targets.
Although the prevailing environment of insecurity, militancy and violence in
Pakistan can pose serious threats to the construction of the China-Pakistan Economic
Corridor, the level and nature of this threat is not uniform across Pakistan. It is
encouraging that the areas through which the finalized eastern alignment of the
corridor will run are relatively more secure than those of the earlier planned western
alignment, though with few exceptions. The level of threat to the security of the
CPEC project, including sites and personnel, is low along most areas of eastern
alignment with the exceptions of Gwadar, the Makran Coastal Belt and Karachi,
where threat level is assessed to be medium. At the same time, it is imperative to
ensure stringent security measures along the entire CPEC alignment.

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