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Of Mutual Detriment: A Look at CPEC

Parth Sharma | China Fellow

Image: Khunjerab Pass - China-Pakistan Border. Sourced via Unsplash.

On August 13, the Balochistan Liberation Army (BLA), an insurgent group located in Pakistan's largest province attacked a convoy of Chinese engineers working on one of China’s largest infrastructure projects: the China-Pakistan Economic Corridor (CPEC). The attack places a spotlight on the ailing project and casts doubt on the long-term viability of China’s trillion-dollar Belt and Road Initiative (BRI) of which it is a vital part. In the BRI's lifespan, CPEC has been faced with project delays, marred by security issues, and plagued with corruption and allegations of predatory behaviour. The culmination of these factors could stand to make CPEC a lose-lose situation for both Pakistan and China.

Balochistan, the province which carries CPEC, is known for its abundant deposits of natural gas, copper, coal, and gold. Despite these natural riches, the decades-long contest of powers and insurgent groups in the province have rendered it the least developed in Pakistan.

The history of Balochistan, as well as the motives of its predominant insurgency group, the BLA, are central to CPEC’s stalling. Though primarily involved in low-level insurgency, the BLA has been designated as a terrorist organisation by Pakistan, the UK, and the US. Its motives include grievances of ethnicity and economic neglect by the Pakistani government. An ethnic minority in Pakistan, Balochs view themselves as possessing a unique historical identity. In 1947, they declared Balochistan as an independent state, claiming, at the time, the territory to be part of neither the newly partitioned India or Pakistan.

For the BLA, China's development of CPEC in collaboration with the central Pakistani government is an effort to consolidate and expand the exploitation of Balochs and Balochistan. In retaliation, the BLA have conducted several attacks against Chinese nationals and CPEC projects. Recent protests against China's involvement also reflect mounting public resentment over development projects that have not benefited local populations.

For China, CPEC is seen as of enormous geopolitical importance. The project would allow it to receive energy imports from the Middle East via land through Balochistan and into China’s western Xinjiang province. The success of CPEC would guarantee China an alternate trade route to the Malacca Strait, a strategic chokepoint in which over 70% of China's energy imports and 60% of global trade pass through. CPEC is, therefore, an attempt to prevent the ‘Malacca dilemma’, where conflict or heightened tensions with Western-aligned powers could lead to them blocking the trade routes upon which China is dependent. CPEC’s land corridor could, if successful, safeguard China's long-term economic and energy security.

Appreciating the national significance of CPEC, China has asked the Pakistani government to increase security to protect Chinese workers and projects in Balochistan. In addition to the region’s economic anxieties, extra security measures could further the already rising costs of the project. These security costs will likely need to continue even after the completion of the pipeline owing to the region’s insurgent activity. Most notably in the Ukraine War, critical energy infrastructure has frequently been sabotaged in efforts to reduce state capacity and operability. Attacks on three of the four gas pipelines of Nord Stream 1 and 2 which spans from Russia to Germany rendered them inoperable. Of lethal importance to CPEC’s completion, the Gwadar-Xinjiang pipeline could be vulnerable to attack.

Corruption also appears to be responsible for the project’s rising costs. Most notably, Chinese contractors have overcharged the Pakistani government by almost USD $3 billion on two power plants that were part of CPEC. Critics of these contractors have compared CPEC’s power plant deal to a similar project in India that used higher-grade technology and was larger in scale, despite the project costing USD $360 million less than CPEC.

Moreover, the IMF has warned Pakistan that CPEC is adding to the country's rising economic deficit. COVID-19 and a catastrophic flood in 2022 have compounded Pakistan's economic woes and led to a balance-of-payment crisis which has forced Pakistan to take IMF bailout packages and rollover Chinese debt. The strain on Pakistan’s economy has made payment difficult for the project’s implementation.

Security concerns, ballooning costs, and inability to generate capital have caused project delays for CPEC. As a result, it appears to bring little economic benefit to either China or Pakistan. These issues have compounded to the point that the signature project of CPEC, the Gwadar Port, accounts for less than one percent of the cargo that comes through Pakistani ports annually. Moreover, estimations show that shipping oil through the Gwadar-Xinjiang pipeline which traverses through rugged Himalayan terrain would cost USD $10 per barrel and another USD $5 to transport to Eastern China where the majority of the Chinese population lives. In comparison, it costs USD $2 per barrel to transport oil from China's current trade route through the Malacca Strait. China would approximately lose half a billion dollars annually through the Gwadar-Xinjiang pipeline arrangement.

The broader concerns regarding China’s economy spell trouble for CPEC’s future. Pakistan’s ability to repay China’s BRI loans over the medium to long-term is also uncertain considering its own domestic pressures. If CPEC continues, it could easily prove to be mutually detrimental to both parties and stand as a shining example as one of Beijing’s and Islamabad’s billion-dollar sunk cost fallacies.

Parth Sharma is the China Fellow for Young Australians in International Affairs. He is studying a Master of International Relations at the University of Melbourne and is a Melbourne Graduate Scholarship award holder from the 2022 intake.

Throughout his studies, Parth has extensively examined China’s internal domestic context and foreign policy. He is currently interning at the Australia India Institute and will be heading to Jakarta at the end of the year to take part in the Australia-Indonesia Youth Exchange Program.


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