China-Pakistan Economic Corridor (CPEC)

In News

  • Recently, according to a report from the Green Finance and Development Centre, China’s investments in infrastructure projects under its Belt and Road Initiative (BRI) have declined while its short and medium-term assistance to partner countries have increased.

Major outcomes of the report

  • Declining Investments
    • In the first half of 2022, China’s engagement through financial investments and contracts in 147 countries amounted to $28.4 billion, up by 47% from the previous year.
    • This marked a decline from $48.5 billion in the same period in 2019.
  • The report noted three clear trends in the BRI:
    • A growing role for Chinese State-owned Enterprises
    • The average size for project deals falling from $558 million in 2021 to $325 million last year
    • An increasingly uneven spread of engagement.
  • Assistance to partner countries
    • Several countries saw no Chinese engagement in the first half of the year, including Russia, Sri Lanka and Egypt, while the figure in Pakistan was down by 56%.
    • In the past five years, China made nearly $26 billion in short and medium-term loans to Pakistan and Sri Lanka alone marking a shift in its overseas engagement from funding infrastructure toward providing emergency relief.

About China-Pakistan Economic Corridor (CPEC)

  • Launched in 2015, the CPEC is the flagship project of the multi-billion-dollar Belt and Road Initiative (BRI), a pet project of Chinese President Xi Jinping, aimed at enhancing Beijing’s influence around the world through China-funded infrastructure projects.
  • The 3,000 km-long China–Pakistan Economic Corridor (CPEC) consists of highways, railways, and pipelines.
  • CPEC eventually aims at linking the city of Gwadar in South Western Pakistan to China’s North Western region Xinjiang through a vast network of highways and railways.
  • The proposed project will be financed by heavily-subsidised loans that will be disbursed to the Government of Pakistan by Chinese banks.

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Significance of the Plan

  • The agreement is aimed at boosting Chinese investment in Pakistan as well as transferring Chinese industrial capacity.
  • The framework will promote industrialisation and development of economic zones, and initiate, plan, execute, and monitor projects, both in the public as well as the private sectors.
  • The corridor links Xinjiang with Gwadar and also passes through Pakistan-occupied Kashmir (PoK) where China is investing in a number of projects.
  • CPEC’s early-harvest projects had transformed Pakistan’s economic landscape, thus laying a solid foundation for sustainable economic growth.

Challenges associated with the plan 

  • Delays in execution: The CPEC projects were also facing delays because of the change in taxation policies by the last government in violation of commitments given to China.
  • Pakistan’s failure: The Chinese authorities were irritated because of Pakistan’s failure to honour its contractual obligations under the CPEC framework.
  • Financial crisis: China is also concerned over the acute financial crisis faced by Pakistan, prompting it to step in periodically to bail it out with induction of foreign exchange loans.
  •  Pakistan was a critic of the China Pakistan Economic Corridor (CPEC) earlier for its secrecy and uneven investments neglecting certain provinces of the country.
  • India has protested to China over the CPEC as it is being laid through the Pakistan-occupied Kashmir (PoK).
  • A report by US-based international development research lab AidData said that a substantial chunk of Chinese development financing under the CPEC consists of loans that are at or near commercial rates as opposed to grants.
  • Lack of transparency: As much as 40 percent of China’s lending to Pakistan does not appear on the government’s books.
  • Laxity: The project is behind schedule and only three of the total 15 projects announced have been completed so far.
  • China’s debt trap policy: Critics also foresee that the weak economic indicators of Pakistan might lead to a possibility of the country defaulting on debt repayments, as Chinese loans have high interest rates.

India’s Concerns

  • Violation of Indian Sovereignty: 
    • The project violates the sovereignty of India as it passes through Pakistan-occupied Kashmir (PoK), which is a disputed territory between India and Pakistan. 
    • As per well-established international conventions, no construction is allowed in any disputed territory, without taking the other country into confidence.
  • Exploitation of Natural Resources: 
    • Under CPEC, China plans to build two mega-dams on Indus, named Bunji Dam and Bhasha Dam
    • This will put a heavy strain on the Indus Water Basin.
  • Security Concerns for India: 
    • Increase in China’s Activities in IOR: 
      • With Gwadar being a part of CPEC, India fears an escalation of PLA Navy activities in the Indian Ocean Region (IOR). 
    • Threat to Indian Trade and Connectivity: 
      • Majority of Indian tangible imports pass through the Strait of Hormuz. 
      • China can easily create impediments to its access to the Middle-east in case of a conflict, jeopardizing India’s energy security.
    • Enhanced threat from Pakistan: 
      • With the overhauling of the Karakoram Highway, Pakistan will enjoy an advantage in mobilizing troops as well as heavy military equipment to PoK
      • At the same time, an increase in financial returns to Pakistan through CPEC may expand its ability to fund military infrastructure as well as state-sponsored terrorism in Kashmir, thus destabilizing the region.

Way ahead

  • Maintain Communication: 
    • Experts have advocated that India maintain communication and cordial relations with its neighbours. 
    • In such a context, India has done well to keep participating in forums like Shanghai Cooperation Organization to maintain communication with both Pakistan and China.
  • International Collaboration: 
    • It is well settled that India cannot compete with China in the matter of financing developmental projects like CPEC in other developing countries. 
    • Therefore, it needs to collaborate with agencies like Japan International Cooperation Agency (JICA) to offer soft loans to save them from falling into the Chinese debt trap.
  • Security Concerns: 
    • Developing countries, especially the countries of Southeast Asia have pinned their hopes on India to counter China’s hegemony in the region. 
    • Here, India needs to build on alliances like Quad to maintain the balance of power in the Indo-pacific region.

Source: TH

 
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