Effect of one Belt one Road on Global Trading Routes

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Table of Contents

Executive Summary1

Introduction2

Background of CPEC and Changes to Global Trade Routes2

Major Challenges to Successful Implementation of CPEC2

Key Policy Responses3

Recommendations3

Conclusion4

References5

Executive Summary

The One Belt One Road (OBOR) Initiative is a major strategic agenda being implemented by the Chinese government that will have widespread economic and political impacts throughout the Asia-Pacific region. As the Chinese government priorities continued economic growth as the key characteristic of their long-term vision, it is crucial that they facilitate more efficient methods of trade with neighbouring countries in order to ensure that improved platforms for trade expansion are secured. Foremost among the key projects which have been promoted as focal points of the OBOR initiative is the China-Pakistan Economic Corridor (CPEC), which involves the development of a network of highways, railways and pipelines connecting Pakistan's Port of Gwadar with Kashgar in China’s north-western Xinjiang province. CPEC will have a range of significant impacts, with the Strait of Malacca, one of the world’s most important shipping lanes set to become of less importance for the Chinese as they amplify their use of CPEC shipping route. CPEC will be facing pronounced challenges, stemming from both internal and external forces, largely due to the political instability in the region as well as potential environmental impacts caused by the infrastructure projects of the initiative. As such, there are several key policy responses that must be implemented by the governments of both China and Pakistan to guarantee the long-term success of CPEC as well as the overall regional stability. The China-Pakistan Economic Corridor is a decisive element of the One Belt One Road initiative, which will have widespread effects on global trade and allow both China & Pakistan to benefit immensely if they can successfully execute this hugely challenging project.

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Introduction

An analysis of the background, global trade implications, major challenges and key policy responses of the China-Pacific Economic Corridor will be conducted in this report. The steps being taken by both China and Pakistan to implement this initiative will be examined, with a focus on determining the reasons why this project is of such vital importance to both countries and how they can both deter the vast challenges that may threaten their ability to carry out this huge undertaking.

Background of CPEC and Changes to Global Trade Routes

The China-Pakistan Economic Corridor will involve the construction of numerous China-sponsored infrastructure projects, from the ‘construction of a railway track from Havelian to Abbottabad to Xinjiang,’ the ‘construction of a motorway between Lahore and Karachi,’ as well as the creation of a ‘coastal highway between Karachi and Gwadar,’ culminating in the massive expansion of the Port of Gwadar (Hussain 2016).  An estimated ‘40 projects of $14 billion are expected in Pakistan,’ (Hussain, E. 2016) which will generate enormous economic activity in Pakistan. Arguably the key element of CPEC is the maritime route that will be created linking Gwadar to Kashgar. China is the ‘world’s second largest oil consumer’ as well as being the ‘largest oil importer’ from a bulk of countries in the Middle East and Africa (Hussain, J. 2016). With China’s oil consumption expected to grow by 5.8% annually in the next decade the creation of new maritime trade routes as ‘envisaged in CPEC’ has become ‘imperative for the continued growth and sustenance’ of China’s economy (Hussain, J. 2016). About 83% of China’s oil supplies are transported via sea freight, of which 77% are ‘operated through the Strait of Malacca, a ‘potential choke point’ and region of instability (Shaikh, Ji, & Fan 2016). The rising level of oil imports and reliance on a single route are serious challenges for China’s energy security. Factors such as ‘China territorial disputes, pirate attacks on oil supplies and geopolitics’ have resulted in the Strait of Malacca being considering a ‘strategic weakness’ (Shaikh, Ji, & Fan 2016) for China, highlighting their need to establish alternative trade routes. With the reasons clear as to why China must seek new maritime transport routes, Pakistan presents themselves as an ideal option for China as they seek to ensure long-term energy security. The geography of Pakistan is ‘perhaps the only strength’ that has attracted foreign powers, with Pakistan having enormous ‘geographical potential and prospects for regional connectivity,’ that can ‘link the Middle East and central Asian energy supplies’ to growing energy demands in China (Shaikh, Ji, & Fan 2016). The deep-sea Port of Gwadar, which was inaugurated in 2007 is strategically located at the convergence of Southwest and South Asia, with convenient access to many of China’s oil trading partners (Haider 2015). China understands the importance of securing access to the Port of Gwadar, and to ‘extend the benefits from this potential’, China largely financed and is now in charge of the port. Pakistan handed operation of the Port of Gwadar to the state- owned China Overseas Port Holding Company and the previous operator PSA (Port of Singapore Authority) withdrew due to as Pakistan ‘refusing to provide it the land allotment it demanded for development work’ (Khalid 2013).  China’s ‘significant investments in infrastructural projects in and around Gwadar Port’ (Shaikh, Ji, & Fan 2016) surely played a role in Pakistan’s decision to hand the port to a Chinese state-owned company and it is clear that Pakistan recognises the potential for their own economic growth that will arise from a strong commitment to CPEC. The China-Pakistan Economic Corridor is of high importance for China as it will allow them to protect their energy security by circumventing the unstable Strait of Malacca maritime route, while the benefits for Pakistan are also immense, with the many major infrastructure projects being financed by China providing a huge boost to their economy.

Major Challenges to Successful Implementation of CPEC

Despite the enormous potential for the China-Pakistan Economic Corridor to provide vast benefit to both China and Pakistan, it is not without several major challenges that must be overcome to ensure the long-term success of this trade route. These challenges mainly arise in Pakistan, a country that has experienced chronic instability for several decades, with Balochistan, the province where Gwadar is located, ‘facing security challenges at the hands of certain insurgent organizations such as the Balochistan Liberation Army’ (Hussain, E. 2016). Khyber Pakhtunkhwa is another province that will be of great importance for CPEC, ‘has a poor law and order situation’ which may cause ‘another hindrance for the smooth functioning of the corridor’ (Hussain, E. 2016). Furthermore, CPEC has many environmental concerns that it must address, as it is likely that the corridor will cause ‘land pollution such as contamination of bottom sediments by harmful or toxic substances’ (Nolintha 2012). Adding to these challenges is religious extremism and terrorism that pose serious threat to the ‘very existence of Pakistan as society and the state’ (Hussain, E. 2016).  Since 9/11, more than 30,000 civilian and security personnel have lost their lives in terrorist attacks (Hussain, E. 2016), therefore Pakistan must adopt an effective strategy that will curb terrorism and uproot religious radicalism, which will be an immense challenge. While on a lesser scale, China also has their own issues with terrorism and has cracked down hard on perceived Islamist separatists in the Xinjiang region, which has a significant Muslim population. Furthermore, there are many external challenges that may threaten the success of the corridor. CPEC is ‘likely to spur economic and strategic competition with India and Iran’ (CPGS Report 2014), which may result in attempts by these countries to hinder the implementation of the initiative. Also, the ‘chaotic security and political instability in Afghanistan’ may cause ‘repercussions’ for the construction of CPEC infrastructure in the bordering areas with Afghanistan (CPGS Report 2014). These challenges are vast and it will be a significant achievement for both countries if they can successfully carry out their plans for CPEC in the wake the many impediments that they are facing.[pic 4]