The China-Pakistan Economic Corridor (CPEC) offers great strategic advantage to China as it gains access to the Indian Ocean and a closer proximity to Persian Gulf and Middle Eastern oil resources, effectively making China a two-ocean power. Other OBOR projects do not offer such advantages to China, writes Florence Eid-Oakden, PhD, chief economist at Arabia Monitor.
Through the Gwadar Port in Baluchistan, CPEC would connect China directly to the Indian Ocean and the Middle East region, reducing its dependence on the Strait of Malacca. This will provide the needed economic security to China in accessing West Asia by making the country less vulnerable to the risks of Malacca, which is currently a contested territory between various global actors. Additionally, the Gwadar port is only 400km away from the Strait of Hormuz and is strategically vital for China in transporting the oil it needs from the Middle East.
Almost 80% of the China’s oil is currently transported through the Strait of Malacca to Shanghai via super tankers, (the distance is almost 12,000km and takes two to three months). Through Gwadar, the distance would reduce to less than 3,000km. The CPEC deal grants the Chinese 40-year operation rights to the port. This is hugely significant for Beijing because it will allow China to ship some of its oil coming from the Persian Gulf to that port and pump it through the pipelines to western China. China’s interest in Gwadar is not only for resuming its Persian Gulf oil supply route, but also as an opening for import/export trade from its Muslim-majority western Xinjiang Autonomous Region.
Gwadar is located less than 100km from Iran, presenting strategic benefits to the country. President Rouhani first expressed Iran’s desire to join CPEC during his meeting with Pakistani Prime Minister Nawaz Sharif in September 2016. Iran’s Ambassador to Pakistan restated Iran’s interest in February 2017.
For Iran, the CPEC will provide the country with much-needed accessibility to the East as well as access to major projects along the corridor, namely the Iran Pakistan India (IPI) gas pipeline, also known as the peace pipeline.
Additionally, Iran has shown interest for connection between Gwadar Port and Chabahar Port. Such arrangements can foster new economic and trade beginnings between the South, West, East and Central Asia, narrowing the existing gap of regional connectivity between these regions.
The CPEC calls for greater security co-operation between Iran and Pakistan. According to President Rouhani, “Pakistan’s security is the security of Iran”. The Pakistani Ambassador to the UAE, Moazzam Ahmed Khan, has also invited the UAE to participate in, and benefit from the CPEC. The infrastructure and energy projects that the CPEC provides can provide an ideal investment opportunity for the UAE, which is increasingly investing in such sectors. These industries provide opportunities for further investment from the UAE, due to Pakistan’s fast-expanding economy. The UAE is currently the second-largest GCC trade partner of Pakistan, with a trade surplus of US$5bn, in the UAE’s favour.
Likewise, Egypt has expressed its wish to take part in CPEC, according to the Egyptian National Assembly speaker Sardar Ayaz Sadiq. This is as part of the booming bilateral relations in trade and investment with China, evidenced by a US$2.6bn currency swap and multiple bank loans in 2016. The bilateral trade volume between Egypt and China has significantly increased in the past years, reaching US$11.3bn in 2016, an increase of 30% compared to 2011.
The CPEC as a flagship of OBOR can be a catalyst to regional trade and economic integration. However, despite its strategic benefits to China, Pakistan and other parts of the region, CPEC faces potentially serious security challenges, which might hamper its realisation.
Specifically, the CPEC passes through Afghanistan, in which the security situation is not improving. Therefore China is actively trying to bring the Taliban to the negotiating table of CPEC, without much success so far. Although special security forces have been formed to protect CPEC, given the volatile situation around the borders between Afghanistan and Pakistan, the rising insurgency in Baluchistan region and the political instability in Pakistan, security will remain a drag on the initiative.