The China-Pakistan Economic Corridor (CPEC) IS A WHITE ELEPHANT AND DRAG ON CHINESE ECONOMY

 

 

The China-Pakistan Economic Corridor (CPEC) is a flagship project of China's Belt and Road Initiative (BRI), designed to connect China's western Xinjiang province to Pakistan's Gwadar Port on the Arabian Sea. It aims to provide an alternative trade route to the Strait of Malacca, which China views as a potential chokepoint for its sea trade.

Here's a detailed economic analysis of CPEC's effectiveness for transporting goods from Gwadar to China, and its economic benefits to Xinjiang province and mainland China:

1. Effectiveness for Transporting Goods from Gwadar into China:

• Reduced Travel Time and Distance: CPEC significantly reduces the travel time and distance for goods moving between western China and the Middle East/Europe. Studies indicate a reduction of 10 to 20 days in travel time and 3,000 to 10,000 kilometers in distance compared to traditional routes. For instance, a 40-foot container from Kashgar (Xinjiang) can reach Gwadar in approximately 2.9 days by road, and then the Port of Jebel Ali in UAE in another 7.4 days by sea, totaling around 10.3 days. This is a substantial saving compared to routes through the Strait of Malacca.
• Cost Savings for Xinjiang: For Xinjiang province, the road transportation cost along the CPEC route is lower. One study suggests a saving of approximately $2,000 on trade with the Middle East and Europe for a 40-foot container. This makes CPEC an attractive option for businesses in Xinjiang looking to access global markets.
• Bypassing Malacca Dilemma: CPEC directly addresses China's "Malacca Dilemma" by providing an overland route to the Arabian Sea. This diversifies China's trade routes, reducing its reliance on the narrow and potentially vulnerable Strait of Malacca for energy imports and general trade.
• Infrastructure Development: The corridor involves an extensive network of roads, railways, and pipelines. While the full network is still under construction, completed sections have improved connectivity within Pakistan and towards China, facilitating the movement of goods.

However, significant challenges hinder its full effectiveness:

• Security Concerns: The corridor passes through Balochistan and Pakistani-occupied Kashmir, regions prone to insurgency and instability. Attacks on Chinese nationals and CPEC projects by groups like the Balochistan Liberation Army (BLA) have been a persistent issue, leading to increased security costs and concerns for Chinese workers and investors. This significantly impacts the reliability and smooth flow of goods.
• Logistical Hurdles and Underdevelopment of Gwadar Port: While Gwadar Port is strategically located, its full potential as a transit hub is yet to be realized. Challenges include limited port infrastructure, lack of facilities for ship maintenance and repair, insufficient clean water, and inadequate electricity supply in the surrounding area. Many large cargo ships are reportedly hesitant to use Gwadar due to these deficiencies.
• Harsh Geography and Weather: The route through mountainous terrain, including the Khunjerab Pass at over 4,700 meters, presents significant engineering and logistical challenges. Extreme weather conditions, landslides, and earthquakes can disrupt transportation, leading to delays and increased maintenance costs.
• Limited Actual Trade Volume: Despite the infrastructure development, the actual volume of goods transported through CPEC from Gwadar into China for wider Chinese consumption or onward transit to Europe has been lower than initially envisioned. Much of the early CPEC focus was on energy projects and infrastructure development within Pakistan, rather than a direct, high-volume trade artery for Chinese goods.
• Cost of Pipeline Transport: While the idea of oil pipelines is part of CPEC, studies suggest that moving oil from Pakistan to western China through pipelines could cost significantly more per barrel than traditional sea routes to China's eastern coast (e.g., $10 per barrel via pipeline vs. $2 per barrel via sea to East China). This raises questions about the economic viability of certain CPEC components.

2. Economic Benefits to Xinjiang Province and Mainland China:

• Xinjiang's Economic Development: Xinjiang, a relatively underdeveloped western province of China, stands to gain significantly from CPEC. It provides sea access, which can stimulate economic growth, promote trade with Central Asia, the Middle East, and Europe, and potentially integrate the region more closely with China's eastern economic powerhouses. The reduced transport costs are a direct benefit to industries in Xinjiang.
• Diversified Energy Supply: CPEC offers a crucial alternative for China's energy imports, especially oil from the Middle East. By using Gwadar, China can reduce its dependence on the Strait of Malacca, enhancing its energy security.
• Market Access for Chinese Goods and Services: CPEC provides a new market for China's excess production capacity in industries like steel, cement, and heavy machinery, by providing opportunities for infrastructure development in Pakistan.
• Geopolitical and Strategic Advantages: Beyond direct economic benefits, CPEC offers China significant geopolitical advantages. It strengthens China's strategic ties with Pakistan, expands its influence in the Indian Ocean region, and is a key component of the broader Belt and Road Initiative, aiming to create a vast network of trade and connectivity.
• Regional Connectivity and Integration: CPEC promotes greater regional connectivity, potentially linking China to Central Asian countries, Afghanistan, and beyond, fostering cross-regional trade and economic integration.

Detailed Economic Analysis Summary:

For Transporting Goods:

• Potential: CPEC has the potential to be highly effective due to significant reductions in distance and travel time, particularly for goods originating from or destined for western China.
• Actual Performance: The actual effectiveness for high-volume commercial goods transport from Gwadar into China for broad use has been limited to moderate so far. This is largely due to:
• Security Risks: Attacks and instability along the route create an unpredictable and risky environment for logistics and supply chains. This increases insurance costs, operational risks, and deters private sector investment in using the corridor for high-value goods.
• Infrastructure Gaps at Gwadar: While Gwadar Port itself has seen development, the supporting infrastructure for handling large volumes of international cargo, including warehousing, cold storage, and efficient customs procedures, is still evolving. The lack of robust repair and maintenance facilities at Gwadar is a deterrent for shipping companies.
• Operational Costs: While some studies show cost savings for Xinjiang, the overall operational costs, factoring in security, maintenance in harsh terrain, and the need for significant logistical coordination, can be substantial. For certain commodities like oil, pipelines through CPEC might be more expensive than existing sea routes to eastern China.
• Underutilization: Despite the investment, the port of Gwadar and the land routes are not yet operating at a capacity that would make them a primary conduit for a significant portion of China's overall trade, especially compared to the established eastern coastal ports.

For Economic Benefits (Xinjiang and Mainland China):

• Xinjiang: Xinjiang has seen some economic stimulus from CPEC-related infrastructure projects and increased connectivity, which is a long-term benefit. However, the direct impact on its overall trade volume via CPEC for international markets still needs to grow substantially to fully realize the projected benefits. The strategic aim of integrating Xinjiang more deeply into the global economy through CPEC remains a key driver for China.
• Mainland China (overall):
• Strategic Gain: The primary economic benefit for mainland China is strategic: diversifying trade routes and enhancing energy security by reducing reliance on the Malacca Strait. This strategic advantage, though not easily quantifiable in immediate trade volumes, is immensely valuable for China's long-term economic stability and geopolitical influence.
• Market for Chinese Firms: Chinese state-owned enterprises have gained significant contracts and opportunities in Pakistan through CPEC, providing an outlet for China's industrial overcapacity. This directly benefits Chinese companies and their workforce.
• Limited Direct Trade Diversion (yet): While CPEC offers an alternative, it hasn't yet dramatically shifted the bulk of China's trade away from its established, efficient, and massive eastern coastal ports. The sheer volume and diversity of trade handled by ports like Shanghai, Shenzhen, and Ningbo-Zhoushan remain unparalleled. CPEC's role is more about complementing and diversifying rather than fully replacing these existing routes for the entire Chinese economy.
• Long-Term Vision vs. Current Reality: The long-term economic benefits, such as increased trade with Central Asia, the Middle East, and Europe via this shorter route, are still in the developmental phase. Many proposed industrial parks and special economic zones along the corridor are yet to fully mature and contribute to significant trade volumes.

Conclusion:

While CPEC undeniably offers strategic advantages and the potential for significant economic benefits, particularly for Xinjiang and in terms of energy security for China, its effectiveness as a high-volume corridor for transporting goods from Gwadar into China and its immediate economic benefits to mainland China have been mixed and somewhat limited so far.

The challenges, especially those related to security, logistical capabilities at Gwadar, and the inherent difficulties of traversing the rugged terrain, have hindered its full realization. It remains a work in progress, with China consistently reiterating its commitment to the project, recognizing its long-term strategic value even amidst the current operational hurdles and slower-than-expected economic returns. For CPEC to become truly economically transformative for both Pakistan and China in terms of goods transport, sustained efforts in improving security, port infrastructure, and regional stability will be crucial.