Written by Xiaoming Huang.

At the Belt and Road summit in Beijing last month, Pakistan Prime Minister Nawaz Sharif was one of the 29 heads of state attending. In a meeting with Sharif, Chinese President Xi Jinping said that “the two sides shall make firm progress on building the China-Pakistan Economic Corridor (CPEC) project, steadily push forward Gwadar Port project and related projects in surrounding areas, speed up the long term planning of CPEC[…].” Along with their political commitment, China added another $500 million to financing projects under CPEC, which is already valued at $54 billion.

…the Belt and Road network, unlike regional institutions for economic integration in the past, is not a multilateral framework for horizontal economic integration across countries, but primarily a vertical integration between China and B&R partner countries.

In commenting on India’s absence from the Belt and Road summit, Indian Ministry of External Affairs spokesperson Gopal Baglay stated, “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity.” Policy analysts suggested India objects because CPEC passes through the Pakistan controlled part of Kashmir disputed between India and Pakistan.

This touches on one particular element in CPEC’s strategic significance. CPEC is an umbrella framework of a cluster of projects building roadways, railways, oil and gas pipelines, optical fibre cable lines that connect China’s Xingjiang (Kashgar) in the north to Gwadar Port on the Pakistani coast, as well as economic and industrial parks, free trade areas, energy and power plants, airports, etc. along the Corridor.

CPEC’s development is typical of the “Belt and Road way” in terms of organization, ownership, financing and management. It is not one single incorporated project in the commercial sense, but rather a network of a series of projects that economically may or may not be linked with each other. It is not invested or owned by a single investor or investor group.

Yet there is an intergovernmental framework on financing projects under CPEC. In 2014, China and Pakistan signed “Agreement on CPEC Energy Cooperation Projects” in which China pledged $46 billion to finance Chinese companies for projects under CPEC. In 2015, Xi Jinping’s visit to Pakistan expanded CPEC to include projects on four “lines” that make up the corridor: roadway, railway, oil & gas pipeline, and an optical fibre cable line, making China’s financial commitment to CPEC at $57 billion.

Enterprises and investors, presumably from China, receive various forms of financing to participate in the projects, largely under the framework agreed on CPEC, operating in various forms of purchasing power parity (PPP) on the Chinese side.

These include Gwadar Port project, funded directly under CPEC, operated by China Overseas Port Holding Company; Karachi Nuclear Plant project, built by China Zhongyuan Engeering Co, with 79 percent financing by China under CPEC.  Lahore Matro project, contracted commercially to be constructed by China Rail and Norinco, but with funding from China Exim Bank; Karot Dam project, invested by China’s Three Gorges Corporation, with loans from China’s Silk Road Fund, China Exim Bank, China State Development Bank, and constructed by Sinohydro Bureau 7 Co; Qasim Power Project, a joint adventure by Qadar’s Al-Mirqab Capital and China’s Power Construction Corporation, with 75 percent financing by China Exim Bank; ML1 railway by China Rail; Karakoram Highway reconstruction and upgrade project, by  Chinese state enterprise China Road and Bridge Construction Corp., with 90 percent financing from China Exim Bank.

These are just a few examples of the types of projects and the way they are organized, financed and operated under CPEC. This leaves space for the governments on both sides to play a role: CPEC becomes a useful framework for the governments to organize, finance and coordinate these projects under.

This is indeed the same model China uses to set up intergovernmental partnerships for Belt and Road (B&R) projects around the world. There is a lot of debate as to what exactly the Belt and Road initiative is, what it entails, and what institutional form it takes. CPEC is considered by many to be a model of how the Belt and Road Initiative (BRI) would operate.  The BRI is a giant network of economic, development and growth projects that can integrate capital, resources, labour and technicians, production capacities, and technology from different national sources for production and services. It is also a set of intergovernmental partnerships between China and the partner country to support, facilitate, coordinate, and, most importantly, finance the projects. It is a unique institutional form.

CPEC is also important as a key “node” in the Belt and Road network.  It is strategically located between the Belt and the Road, and between the East and West ends of the network. It can potentially provide connections to the central part of the Belt and Road and form a fully connected network along the Eurasian land mass connecting East Europe, West Asia, Central Asia, South Asia and Southeast Asia, an area that past waves of globalization from the 16th century have not been able to connect for transnational organization of economic activities.

However, there are some uncertainties over whether and how CPEC can fit into this large role. First, CPEC’s further connection to the Belt in the north via Iran, through railway connection, can possibly affect the value of the Road in the south.

Moreover, CPEC, along with the Kunming-Singapore Indochina Peninsular railway, and the China-Myanmar oil and gas line, is one of the three key economic corridors that connect China to South and Southeast Asia. The Bangladesh–China–India–Myanmar (BCIM) economic corridor has not progressed well so far.

Third, the Belt and Road network, unlike regional institutions for economic integration in the past, is not a multilateral framework for horizontal economic integration across countries, but primarily a vertical integration between China and B&R partner countries. It is a network of economic projects under separate bilateral partnerships. Projects under different bilateral partnerships are often “homogenous,” and these projects are not connected across boundaries for the purpose of economic integration.

CPEC therefore is a node in the Belt & Road network, and may not necessarily turn Pakistan – or for that matter, any node for any partner country in the network – into a member of an integrated economic community, much less likely into a political “bloc.” The network is about connectivity. The nodes connect. CPEC connects Pakistan internally, with China bilaterally, and may possibly connect different parts of the Belt and Road network in some form.

Professor Xiaoming Huang is professor of international relations at Victoria University of Wellington. He can be reached at Xiaoming.huang@vuw.ac.nz. Image credit: CC by taylorandayumi/Flickr.


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