The China–Pakistan Economic Corridor runs 2,000 kilometres from Kashgar in north-western China to Pakistan’s Gwadar Port, through roads, railways, and pipelines and encompasses other specific infrastructure and agricultural projects. The US$60 billion project will provide China secure access not only to Central Asian energy sources but also the Arabian Gulf, bypassing the Strait of Malacca and dramatically shortening the time it will take for Chinese goods to reach Africa and the Middle East.
In addition to serving as a commercial hub, Gwadar may be transformed into a safe harbour for the Chinese navy. This would allow China to project its power deep into the Gulf and Indian Ocean. In return, Pakistan expects to receive much-needed infrastructure and a reliable energy supply to alleviate its persistent power shortfalls.
Two chief financiers of CPEC, the China Development Bank (CDB) and the Exim Bank of China, are well placed to fund projects that align with Beijing’s geoeconomic interests. Government policy guides the distribution of CDB and Exim loans, with state-owed enterprises (SOEs) the primary beneficiary. The Chinese government also holds a stake of at least sixty per cent of the commercial Industrial and Commercial Bank of China and can also direct it to provide loans to SOEs to benefit CPEC projects.
In addition, China aims to create favourable economic conditions for Chinese firms investing in Pakistan. Multiple special economic zones (SEZs) are being established, offering investment incentives to both Pakistani and Chinese businesses. To date, it appears that mainly Chinese firms have taken advantage of the SEZs, such as a Chinese SOE operating the Gwadar Port, which recently received permission from the Pakistani government to set up an SEZ with a forty-three-year lease.
While no direct evidence suggests that the CPEC SEZs are a product of Chinese influence designed to attract Chinese firms, China does have a tradition of establishing ‘strategic’ overseas SEZs, in coordination with host governments. Deborah Bräutigam and Tang Xiaoyang, who have written about China’s economic statecraft and the use of SEZs, note that the Ministry of Finance has previously financed and monitored overseas SEZs populated by Chinese firms. Past SEZ programs projected ‘soft power’ while increasing demand for Chinese-made machinery and encouraging the outward investment of mature Chinese firms. There is no reason to think that the strategy for CPEC SEZs will differ.
Yet the influx of Chinese firms is already stirring some trouble in their host country. According to a report by the Federation of Pakistan Chambers of Commerce and Industry, citizens of Balochistan (where the Gwadar Port is located) are concerned that Chinese workers may take their jobs. Similarly, others worry that infrastructure spending seem mainly to benefit Chinese, not Pakistani, companies as firms import equipment and technology as well as manpower from China. Reports also detail alleged violations of Pakistani laws and social customs by Chinese firms, reminiscent of longstanding problems associated with China’s African investments. While Beijing is able to direct investment to Pakistan, it may lack the ability and/or will to regulate the businesses operating there, even when their actions undermine the Chinese narrative of mutually beneficial engagement.
For details, see Deborah Bräutigam & Tang Xiaoyang, ‘Economic statecraft in China’s new overseas special economic zones: soft power, business or resource security?’, International Affairs, vol. 88, no. 4 (2012), 799–816.