China’s US$62 billion belt and road project in Pakistan risks becoming corridor to nowhere
- Almost seven years after the China-Pakistan Economic Corridor (CPEC) was established, less than one-third of announced projects have been completed
- In Gwadar, an airport is among projects that have yet to materialise as economic slowdown forces China to scale back its global ambitions
The factories have yet to materialise on a stretch of beach along the bay south of the airport. And traffic at Gwadar’s tiny, three-berth port is sparse. A Pakistan Navy frigate is the only ship docked there during a recent visit, and there’s no sign of the sole scheduled weekly cargo run from Karachi.
“The biggest constraint for China now is its own economy,” says Jonathan Hillman, a senior fellow at the Center for Strategic and International Studies in Washington.
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Pakistan may be a harbinger of bigger problems, according to Hillman, who directs Reconnecting Asia, a project that tracks belt and road progress. “That is generally where the rest of the belt and road seems to be going,” he says. “It’s not dead in the water, but I’m sceptical whether China is going to be able to achieve what it set out to do.”
Gwadar is shaped like a barbell dangling from Pakistan’s coastline. A strip of sandbar and rocks less than 1km wide at its narrowest connects to a rocky outcrop where the luxury Zaver Pearl-Continental hotel sits like fortress. The city of 140,000 is closer to the Iranian border than to Karachi, a 10-hour drive, in an area so remote it was part of the Sultanate of Oman until 1958.
Just getting around is a challenge. Foreign visitors must be accompanied by an entourage of 10 Pakistani soldiers in low loaders. At the deep water port on the eastern side of the barbell, there’s little sign of commerce on a hot October day. The only cargo ship that calls in Gwadar, operated by China’s Cosco Shipping Holdings Co., delivers construction materials and sometimes departs with seafood. Occasionally, it does not arrive at all. A manager who answers Cosco’s phone in Karachi, where the weekly run originates, says the line is operational, but it’s up to the captain whether he wants to stop in Gwadar or go directly to Oman. The captain recently had a cold and did not want to stop, the manager says.
Yet Naseer Khan Kashani, chairman of the Gwadar Port Authority, maintains that all is well. Cosco was frustrated by problems with a web-based customs system, but it has been sorted out, he says, sitting in his office at the port. He declines to give figures for cargo volume.
“Everything is going to be fine,” Kashani says. “The volume of trade is going to increase tremendously.”
That view is echoed by Zhang Baozhong, chairman of China Overseas Ports Holding Co., which operates Gwadar’s port and free-trade zone. He dismisses the apparent inactivity with a wave of his hand, comparing it to four years earlier when he first arrived. Then, there was only one flight a week to Gwadar, with a handful of people on it. “My impression was that this place was completely neglected by the whole world,” Zhang says. “I felt this was a mission impossible.”
Now, he says, there’s progress – US$250 million in port renovations, including new cranes for unloading cargo, a business centre, a desalination plant and sewage disposal. “This port is now becoming a node in international shipping,” he says. “Of course, the quantity is not big enough, but it takes time. By 2030, we believe Gwadar will be a new economic hub of Pakistan and will be the highest GDP contributor to Pakistan’s economy.”
A free-trade zone was established in Gwadar in 2015, and officials say nine or 10 companies, including a Chinese steelmaker and a Pakistani producer of edible oils, have signed up. But there are no signs of any factories operating. An additional 30 are targeted for the Free Zone’s Phase II, closer to the site of the new airport, officials say, and US$400 million has been invested so far.
Zhang says twice that number of companies applied, including some from European countries. “It’s going to be established in the near future,” says Kashani. “They talk about CPEC slowing down, but nothing is slowing down.”
The zones still need critical infrastructure, including water and power, according to CPEC’s website.
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Construction began in November on a 300-megawatt, US$542 million plant, which will run on imported coal and is expected to reduce the frequency of power cuts. An acute scarcity of water, with annual rainfall less than 4 inches, was alleviated by freak rains in 2018 that temporarily filled reservoirs, according to Shahzeb Kakar, director general of the Gwadar Development Authority. He says the city will meet future needs by building desalination plants. A plan for a “safe city” project with surveillance cameras may reduce the need for Gwadar to feel like it’s under military occupation.
“We have three basic issues – power, water and security,” Kakar says. “All three of these issues have now been taken care of. Now things are moving in the right direction.”
Not everyone is so upbeat. Mariyam Suleman, the Gwadar-based editor of the Balochistan Review, says life for people in the area has not improved much after five years of planned developments. “Their neighbourhoods are still without good infrastructure; there’s a sewage issue; there isn’t electricity for long hours, especially in summer; and the water crisis has always been an issue,” she says.
Even if Gwadar weren’t under threat of violence and had sufficient power and water to build and operate 40 factories, it does not have enough people to work in them. The city’s population, mostly fishermen and their families, is about one-fifth that of Washington’s. A proposal for a project called China-Pak Hills envisages a gated community with a “Hong Kong financial district” and luxury housing for 500,000 Chinese professionals who could move to Gwadar and provide a labour force by 2022 – an influx that wouldn’t sit well with either Baloch separatists or the Pakistani government, according to Asad Sayeed, an economist at the Collective for Social Science Research in Karachi.
It’s also hard to imagine how Gwadar would need Pakistan’s largest airport, with capacity for Airbus A300 jets and 30,000 tonnes of cargo annually. Yet that is the plan for the 4,300-acre area demarcated by razor-wire fence on the outskirts of town. Announced in 2014, the new airport was supposed to have been built by China Communications Construction Co., the largest builder of projects along the belt and road, with a US$230 million loan from China and a grant from Oman. But construction never started. The following year, the Chinese government said it would convert the loan to a grant, and Pakistani officials said the airport would be completed by the end of 2016, then by October 2017. Still nothing.
Last year, Prime Minister Imran Khan travelled to Gwadar and broke ground on a new airport site. And a new contractor was announced to take over from CCCC: a branch of state-owned China Railway Engineering Corp. that would also build schools and a hospital. Completion is now scheduled for 2022.
During a visit in October, a tractor started up and began driving around the empty, dusty stretch of land without evident purpose. “They are doing as much as they can at the moment to show it is still happening,” says Andrew Small, author of the 2015 book The China-Pakistan Axis and a senior fellow at the Washington-based German Marshall Fund. Small says Khan’s government is simply trying to complete about US$20 billion worth of CPEC projects already in the works, mostly power plants, under pressure from China. “The full-scale version is not really in the cards,” he says. “It’s going to land in a far more modest place than envisaged. It’s not going to be a game changer.”
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The CPEC project was intended to reduce oil and gas routes from the Middle East by thousands of miles, a way to cut overland into western China instead of going thousands of miles around South Asia and Southeast Asia by ship. Pakistan was supposed to get 2.3 million jobs and a 2.5 percentage-point boost to its gross domestic product. The deal, negotiated by former Prime Minister Nawaz Sharif and touted in a 2017 communique by his successor Shahid Khaqan Abbasi after Sharif was jailed on corruption charges, called for the corridor to start taking shape by 2020. It was described as a pilot project, a model for belt and road countries around the world.
If China’s interests were purely economic, says economist Sayeed, it could have helped expand the port of Karachi, already connected to the highway from China, instead of seeking to build new roads through desolate, dusty and dangerous Balochistan.
Whatever their ambitions, China and Pakistan have had to scale them back. Khan, the former cricketer who was elected in 2018 on an anti-corruption platform and who had criticised expensive infrastructure deals signed with China by previous governments, inherited an economic disaster. To address its current account deficit, his administration has cut imports, depreciated the rupee, slashed spending and raised taxes. GDP growth fell to an estimated 2.4 per cent last year, from 5.8 per cent in 2018, as manufacturing experienced double-digit declines and exports remained flat.
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As for China, which has become the world’s largest creditor, it is refocusing on smaller projects crafted for the needs of recipient countries. Winning hearts and minds has become more important than announcements of gargantuan airports. Instead, according to guidelines issued by Xi in late 2018, people-to-people exchanges in education, science and technology, culture, and tourism will help make belt and road projects “deeply rooted in the hearts of the people.”
All this seeks to play down the more strategic aspects of what China has sought to achieve, says Nadege Rolland, senior fellow at the Washington-based National Bureau of Asian Research. “My hunch is there will not be big splashes of money any more,” she says. “The investments were only an incentive.”
China’s ultimate objective, she says, “is not to build connectivity but to increase Beijing’s political and strategic influence.”
This means that even if belt and road spending ends up being a third of what was originally forecast, China may still have got its money’s worth. It will have broadened its influence in countries that are potential providers of natural resources, as well as future markets, and gained allies in international arenas such as the United Nations at a time when the US is pulling back.
In Pakistan, an oil refinery in Gwadar and a railway and oil pipeline to China are among projects that have yet to materialise. An motorway connecting the new airport to Gwadar was supposed to have been completed by CCCC in 2018 for US$168 million. It’s now expected to open later this year. In October, dump trucks with piles of rocks were parked on the edge of the existing roadway nearby, but no work was being done. The Chinese site manager says he is too busy to speak. His assistant explains there’s no need for an interview, as all information about CCCC’s work can be found on the internet.
On a visit to Beijing in October, Khan assured Chinese officials that CPEC plans are proceeding. But with Pakistan’s budget maxed out and austerity imposed by the IMF, it is clear there will not be any big, new projects and unclear how many of the current ones can be finished, says CSIS’s Hillman. Still, both Pakistan and China pledged during Khan’s visit “to speedily execute the CPEC so that its growth potential can be fully realised,” according to an official communique.
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Full realisation may mean figuring out how much can be built to save face, provide some benefit to both sides and declare success. An update on the project from Pakistan’s ambassador to Beijing, published in Chinese state media last year, said 11 projects had been completed in the past five years and another 11 were underway, with total spending of US$18.9 billion. It said an additional 20 were planned, without giving amounts, details or a time frame. There’s no longer any mention of the original US$62 billion pledged.
Adding to Gwadar’s development challenges, other parts of Pakistan such as Karachi have started their own special economic zones. Even if the corridor to Gwadar could be developed and security issues resolved, there’s only the Karakoram Highway, an inhospitable, two-lane route through the treacherous mountains separating China and Pakistan. It is prone to landslides and threatened by attacks, and has yet to be connected to roads leading to Gwadar, says Alyssa Ayres, Washington-based senior fellow for India, Pakistan and South Asia at the Council on Foreign Relations. “It’s hard to imagine this as a viable freight corridor,” she says.
Hillman has come to a similar conclusion, though one with wider implications. “The Chinese are having some regret about making Pakistan the flagship,” he says. “There’s a lot more caution on all sides.”
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