CPEC

China–Pakistan Economic Corridor

[CPEC] will be a strategic game changer
in the region, which would go a long
way in making Pakistan a richer and
stronger entity than ever before.

Firstpost (India) April 22, 2015

The China–Pakistan Economic Corridor
(Chinese: 中国-巴基斯坦经济走廊; Urdu:
‫چین اقتصادی راہداری‬-‫ پاكستان‬,)often referred to
by the acronym CPEC, is a collection of
projects currently under construction at a
cost of $51 billion intended to rapidly
expand and upgrade Pakistani
infrastructure as well as deepen and
broaden economic links between Pakistan
and the People's Republic of China.
The corridor is considered to be an
extension of China's ambitious One Belt,
One Road initiative and the importance of
CPEC to China is reflected by its inclusion
as part of China's 13th five-year
development plan.
Pakistani officials predict that the project
will result in the creation of upwards of
700,000 direct jobs between 2015–2030,
and add 2 to 2.5 percentage points to the
country's annual economic growth.
 Were all the planned projects to be
implemented, the value of those
projects would be equal to all foreign
direct investment in Pakistan since
1970, and would be equivalent to 17%
of Pakistan's 2015 gross domestic
product.
Infrastructure projects under the aegis of CPEC
will span the length and breadth of Pakistan,
and will eventually link the city of Gwadar in
southwestern Pakistan to China's northwestern
autonomous region of Xinjiang via a vast
network of highways and railways. Proposed
infrastructure projects are worth approximately
$11 billion, and will be financed by heavily-
subsidized concessionary loans that will be
dispersed to the Government of Pakistan by the
Exim Bank of China, China Development Bank,
and the Industrial and Commercial Bank of
As part of the broad package of infrastructure projects under
CPEC, a 1,100 kilometre long motorway will be constructed
between the cities of Karachi and Lahore, while the
Karakoram Highway between Rawalpindi and the Chinese
border will be completely reconstructed and overhauled.
The Karachi–Peshawar main railway line will also be upgraded
to allow for train travel at up to 160 kilometres per hour by
December 2019. Pakistan's railway network will also be
extended to eventually connect to China's Southern Xinjiang
Railway in Kashgar. A network of pipelines to transport
liquefied natural gas and oil will also be laid as part of the
project, including a $2.5 billion pipeline between Gwadar and
Nawabshah to eventually transport gas from Iran
Over $33 billion worth of energy infrastructure are to
be constructed by private consortia to help alleviate
Pakistan's chronic energy shortages, which regularly
amount to over 4,500MW, and have shed an
estimated 2-2.5% off Pakistan's annual gross domestic
product. Over 10,400MW of energy generating
capacity is to be developed between 2018 and 2020
as part of the corridor's fast-tracked "Early Harvest"
projects in conjunction with four projects under
construction prior to the announcement of
CPEC.Electricity from these projects will primarily be
generated by coal, though wind projects are included
under CPEC, as is the construction of one of the
world's largest solar energy plants.
Plans for a corridor stretching from the Chinese
border to Pakistan's deep water ports on the Arabian
Sea date back to the 1950s, and motivated
construction of the Karakoram Highway beginning in
1959.
Chinese interest in Pakistan's deep-water harbour at
Gwadar had been rekindled by 1998 and in 2002
China began construction at Gwadar port which was
completed in 2006. Expansion of Gwadar Port then
ceased thereafter owing to political instability in
Pakistan following the fall of General Pervez
Musharraf and subsequent conflict between the
Pakistani state and Islamist militants.
The current form of the project was
first proposed by General Pervez
Musharraf, however it was postponed
owing to the political instability in the
country that followed Musharraf's step
down. The subsequent government of
the Pakistan Peoples Party proposed it
again but it was formally launched
during the Pakistan Muslim League-N’s
current tenure.
In February 2014, Pakistani President Mamnoon
Hussain visited China to discuss the plans for an
economic corridor in Pakistan.
Two months later, Pakistan Prime Minister Nawaz
Sharif met with Premier Li Kequiang in China to
discuss further plans, resulting in the full scope of the
project to be devised under Sharif's tenure.
In November 2014, Chinese government announced
its intention to finance Chinese companies as part of
its $45.6 billion energy and infrastructure projects in
Pakistan as part of CPEC.
During the state visit of Xi Jinping to
Pakistan in April 2015, he wrote in an open
editorial stating: "This will be my first trip
to Pakistan, but I feel as if I am going to
visit the home of my own brother." On 20
April 2015, Pakistan and China signed an
agreement to commence work on the $46
billion agreement, which is roughly 20% of
Pakistan's annual GDP, with approximately
$28 billion worth of fast-tracked "Early
Harvest" projects to be developed by the
As a gesture of friendship, the Pakistani
capital at that time was dotted with
slogans and signboards such as
"Pakistan-China friendship is higher
than the mountains, deeper than the
oceans, sweeter than honey, and
stronger than steel" an often repeated
phrase coined by the Chinese to
describe their deep ties to Pakistan.
On 12 August 2015 in the city of Karamay,
China and Pakistan signed 20 more
agreements worth $1.6 billion to further
augment the scale and scope of CPEC.
Details of the plan are opaque, but are said
to mainly focus on increasing energy
generation capacity. As part of the
agreement, Pakistan and China have
agreed to co-operate in the field of space
research.
In September and October 2015, the
government of the United Kingdom
announced two separate grants to the
Government of Pakistan for
construction of roadways that are
complementary to CPEC.
In November 2015, China included the
CPEC into its 13th five-year
development plan, while in December
2015,
China and Pakistan agreed on a further
$1.5 billion investment to set up an
information and technology park as part of
the CPEC project. On 8 April 2016, during
the visit of Xinjiang's Communist Party
chief Zhang Chunxian companies from
Xinjiang with their Pakistan counterparts
signed $2 billion of additional agreements
covering infrastructure, solar power and
logistics.
Promises for Pakistan:
Gwadar Port complex
Initial infrastructure works at Gwadar Port
commenced in 2002 and were completed
in 2007, however plans to upgrade and
expand Gwadar's port stalled. Under CPEC
agreement, Gwadar Port will initially be
expanded and upgraded to allow for
docking of larger ships with deadweight
tonnage of up to 70,000.
Improvement plans also include
construction of a $130 million
breakwater around the port, as well as
the construction of a floating liquefied
natural gas facility that will have a
capacity of 500 million cubic feet of
liquified natural gas per day and will be
connected to the Gwadar-Nawabshah
segment of the Iran–Pakistan gas
pipeline
Projects in Gwadar city
China will grant Pakistan $230 million to
construct a new international airport in Gwadar
which is to be operational by December
2017.The provincial government of Balochistan
has set aside 4000 acres for the construction of
the new $230 million Gwadar International
Airport which will require an estimated 30
months for construction, the costs of which are
to be fully funded by grants from the Chinese
government which Pakistan will not be obliged
to repay.
The city of Gwadar is further being developed
by the construction of a 300MW coal power
plant, a desalinisation plant, and a new 300 bed
hospital.[53] Plans for Gwadar city also include
construction of the East Bay Expressway – a 19
kilometre controlled-access road that will
connect Gwadar Port to the Makran Coastal
Highway. These additional projects are
estimated to cost $800 million, and are to be
financed by 0% interest loans extended by the
Exim Bank of China to Pakistan.
In addition to the aforementioned
infrastructure works, the Pakistani
government announced in September
2015 its intention to establish a training
institute named Pak-China Technical and
Vocational Institute at Gwadar, which is to
be developed by the Gwadar Port
Authority.The institute is to be completed
by March 2016 at the cost of 943 million
rupees, and is designed to impart to local
residents the skills required to operate and
Roadway projects:
The CPEC project envisages major upgrades and
overhauls to Pakistan's transportation
infrastructure. Under the CPEC project, China
has announced financing for $10.63 billion
worth of transportation infrastructure so far;
$6.1 billion have been allocated for construction
"Early Harvest" roadway projects at an interest
rate of 1.6 percent. The remainder of funds will
be allocated when the Pakistani government
awards contracts for construction of road
segments which are still in the planning phase.
Three corridors have been identified for
cargo transport: the Eastern Alignment
though the heavily populated provinces of
Sindh and Punjab where most industries
are located, the Western Alignment
through the less developed and more
sparsely populated provinces of Khyber
Pakhtunkhwa and Balochistan, and the
future Central Alignment which will pass
through Khyber Pakhtunkhwa, Punjab, and
Balochistan.
Railway projects
The CPEC project emphasises major
upgrades to Pakistan's ageing railway
system, including rebuilding of the entire
Main Line 1 railway between Karachi and
Peshawar by 2020; this single railway
currently handles 70% of Pakistan Railways
traffic. In addition to the Main Line 1
railway, upgrades and expansions are
slated for the Main Line 2 railway, Main
Line 3 railway.
The CPEC plan also calls for completion
of a rail link over the 4,693-meter high
Khunjerab Pass. The railway will
provide direct access for Chinese and
East Asian goods to Pakistani seaports
at Karachi and Gwadar by 203
Procurement of an initial 250 new passenger
coaches, and reconstruction of 21 train stations
are also planned as part of the first phase of the
project – bringing the total investment in
Pakistan's railway system to approximately
$5 billion by the end of 2019, 180 of the
coaches are to be built at the Pakistan Railways
Carriage Factory near Islamabad, while the
Government of Pakistan intends to procure an
additional 800 coaches at a later date, with the
intention of building 595 of those coaches in
Pakistan
Energy sector projects
Pakistan's current energy generating
capacity is 24,830 MW, though the country
currently faces energy shortfalls of over
4,500MW on a regular basis with routine
power cuts of up to 5 hours per day, which
has shed an estimated 2–2.5% off its
annual GDP. Energy generation will be a
major focus of the CPEC project, with
approximately $33 billion expected to be
invested in this sector.
As part of the "Early Harvest" scheme of the
CPEC, an estimated 10,400 MW of electricity
are slated for generation by March 2018 as part
of CPEC's "Early Harvest" projects The energy
projects under CPEC will be constructed by
private Independent Power Producers, rather
than by the governments of either China or
Pakistan. The Exim Bank of China will finance
these private investments at 5–6% interest
rates, while the government of Pakistan will be
contractually obliged to purchase electricity
from those firms at pre-negotiated rates
Other areas of cooperation
Agriculture
The long-term plan for the period 2025-30 during the
CPEC summit held in Islamabad on August 30, 2016.
The plan includes cooperation over livelihood, water
resources, livestock, people-to-people
communications and financial matters.
Under the plan, agricultural information project,
storage and distribution of agricultural equipment
and construction project, agricultural mechanisation,
demonstration and machinery leasing project and
fertilizer production project for producing 800,000
tons of fertilizer and 100,000 tons of bio-organic
fertilizer will be implemented.
Science and technology cooperation
As part of CPEC, the two countries signed an
Economic and Technical Cooperation
Agreement, as well as pledged to "China-
Pakistan Joint Cotton Bio-Tech Laboratory" The
two countries also pledged to establish the
"China-Pakistan Joint Marine Research Center"
with State Oceanic Administration and
Pakistan's Ministry of Science and Technology
Also as part of the CPEC agreement, Pakistan
and China have agreed to co-operate in the field
of space research
In February 2016, the two countries agreed
to establish the "Pak-China Science,
Technology, Commerce and Logistic Park"
near Islamabad at an estimated cost of
$1.5 billion. The park will be situated on
500 hectares, which will be provided by
Pakistan to China's Xinjiang Production and
Construction Corps, with all investments
expected to come from the Chinese side
over the course of ten years.
In May 2016, construction began on
the $44 million 820 kilometer long
Pakistan-China Fiber Optic Project, an
optical fiber cable that will enhance
telecommunication in the Gilgit-
Baltistan region, while offering Pakistan
a fifth route by which to transmit
telecommunication traffic.
Government-to-government cooperation
The two nations also pledged co-operation
in field ranging from anti-narcotic efforts,
to co-operation in an effort to reduce
climate change. The two nations also
agreed to increase co-operating between
the banking sectors of the two countries,
as well as to establish closer ties between
China Central Television and the Pakistan
Television Corporation.
Project financing
Loans to the Pakistani Government:
Approximately $11 billion worth of
infrastructure projects being developed by the
Pakistani government will be financed by
concessionary loans, with composite interest
rates of 1.6%, after Pakistan successfully lobbied
the Chinese government to reduce interest
rates from an initial 3%. The loans are
subsidised by the government of China, and are
to be dispersed by the Exim Bank of China and
the China Development Bank.
 For comparison, loans for previous
Pakistani infrastructure projects
financed by the World Bank carried an
interest rate between 5% and 8.5%,
while interest rates on market loans
approach 12%
Interest-free loans for Gwadar projects
The government of China in August 2015
announced that concessionary loans for several
projects in Gwadar totalling $757 million would
be converted 0% interest loans. The projects
which are now to financed by the 0% interest
loans include: the construction of the $140
million East Bay Expressway project, installation
of breakwaters in Gwadar which will cost
$130 million, a $360 million coal power plant in
Gwadar, a $27 million project to dredge berths
in Gwadar harbour, and a $100 million 300-bed
Pakistan will only repay the principle
on these loans.
In September 2015, the government of
China also announced that the
$230 million Gwadar International
Airport project would no longer be
financed by loans, but would instead
be constructed by grants which the
government of Pakistan will not be
required to repay.
Geostrategic impact:
A stimulus for economic growth in Pakistan:
CPEC is considered economically vital to
Pakistan in helping it drive economic growth.
The Pakistani media and government have
called CPEC investments a "game and fate
changer" for the region, while both China and
Pakistan intend that the massive investment
plan will transform Pakistan into a regional
economic hub and further boost the deepening
ties between the two countries.
 Approximately 1 year after the
announcement of CPEC, Zhang Baozhong,
chairman of China Overseas Port Holding
Company told The Washington Post that
his company planned to spend an
additional $4.5 billion on roads, power,
hotels and other infrastructure for
Gwadar's industrial zone,[6] which would
be one of the largest ever sums of foreign
direct investment into Pakistan