China-Pakistan Economic Corridor (CPEC), established in 2013, but officially launched in 2015 with an overriding goal to improve China’s infrastructure, potential bilateral investment, trade and logistics with Pakistan, the Middle East and North Africa (MENA) and beyond. The CPEC initiative is a huge component of China’s Belt and Road Initiative (BRI) – a global development strategy to enhance infrastructure developments and global investment. We can clearly examine China’s strategy as a desire to expand and increase trade potentials at a global level, but with a specific focus in neighbouring regions such as MENA. This long-term initiative is set to revitalise and revive infrastructure, telecommunications, transport and more, and is set to extend up until 2030, with numerous development phases staggered along the way. Through CPEC’s projects, we can understand and assess potential implications on trade relations between China and the Middle East.
What is the significance of CPEC?
CPEC is composed of three fundamental components that highlight and outline its significance.
- To facilitate industrial and infrastructural development in Pakistan,
- To develop modern transportation and a robust telecommunications network that ensures connectivity between western China and coastal Pakistan, specifically the seaports,
- To allow China to develop a deep-water port and, moreover, a special economic zone in the region of Gwadar.
These tri-factors all contribute to greater implications for trade relations between China and the Middle East and each factor has its own significance in accomplishing China’s overriding goals. CPEC is a multi-phase initiative that takes the required steps and process that will enable China’s economic interests in the Middle East and North Africa to grow. Primarily, CPEC aims to establish strong routes, connectivity and connections to a seaport in Gwadar. The significance of CPEC will not only transform China’s influence in MENA but also aid the Middle East in their distribution of oil to China. Currently, the Middle East region is the largest supplier of crude oil and natural gas to China, however, it transports these via sea routes to Eastern China, where the bulk of China’s industrial activities are located. CPEC will establish routes that can deliver commodities to less accessible Western China. This will increase industrial activity within China, using new pipelines and railways to deliver through a more economical route, utilising the Gwadar port.
CPEC – Phase 1
The first phase of the China-Pakistan Economic Corridor initiative set to lay foundations for enhanced trading routes, establishing key areas of influence and finding optimal means to accessibility. The Karakoram Highway Renovation project was a key initiative to set out foundations for increased accessibility to Pakistan, and, consequently, to Gwadar. The highway spans a length of 1,300km, connecting Pakistan’s provinces of Punjab, Gilgit-Baltistan and Khyber Pakhtunkhwa to China’s western region of Xinjiang Uyghur. The highway originally opened in 1979, however, is known as a dangerous route, due to it being at an elevation of over 4,700 metres, passing through the Karakoram mountain range and subject to landslides, earthquakes and floods. China’s renovation project aimed to make the route a safe and secure area for transportation. The renovation took place in 2015 and completed in 2016. This Karakoram highway renovation has provided a method of transportation of goods via trucks in its first phase. The project is set to continue into additional developments up until 2030.
What is the Significance of the Gwadar Seaport?
China sets out to establish a major influence in the seaport of Gwadar for numerous reasons. Due to its geolocation, it will become a key factor in bilateral trade between China and the MENA region, creating a major trade hub. The port will establish four focal contributions for China-Middle East economic relations.
- It will act as a major transit and transhipment port of trade with the MENA region, a cost effective solution in comparison to current trade that currently directs to Eastern China. Additionally, the Gwadar port will retain products that are currently delivered to the Dubai port, therefore, instead of deliveries from China to the port of Dubai, Gwadar could become the hub for delivery across the MENA region.
- Secondly, the port will become a special economic zone. Re-export zones, currently under development, will attract major foreign direct investment (FDI), especially from the Arab countries. As CPEC progresses, there has already been interest in the Gwadar port from many Middle Eastern countries. For example, Qatar, currently under an economic blockade by the UAE, losing access to Dubai’s port, has expressed interest in the Gwadar seaport, with interests in developing food storage facilities. Additionally, the UAE has expressed direct interests in the port, advertising investment opportunities, especially for the second and third phases of CPEC. “UAE and China have common interests,” – Abdul Aziz Al Neyadi, Deputy Head of Mission at the UAE Embassy, Islamabad.
- Gwadar will develop major facilities to aid and encourage FDIs, especially from the Middle East. China and Pakistan will facilitate the construction of a major oil and petrochemical investment zone in Gwadar. Some facilities that the Gwadar Oil Terminal City will include are large terminal and storage facilities for crude oil and associated petrochemical industries and produce-refined oil products.
Middle Eastern investments in the seaport have already begun with Saudi Arabia reportedly contributing $10 billion investment in petrochemical facilities, the UAE finalising on a $5 billion joint venture agreement with Pakistan and many more investments expected to follow.
- The strategic location of Gwadar can aid Iran’s economic relations with the Eurasian region. Due to current economic sanctions imposed against Iran, the country is finding difficulties with exporting oil to India, Afghanistan and central Asia. However, the Gwadar seaport has opened up discussions to link Iran’s Chabahar port to Gwadar by highway and natural gas pipeline. Iran’s Foreign Minister, Mohammed Javad Zarif expressed, “We believe that Chabahar — one of Iran’s developing seaports on the Oman Sea — and Gwadar — a port city on the south-western coast of Baluchistan, Pakistan, also on the Oman sea — can complement each other.”
This development can aid Iran in exporting natural gas to Pakistan and China, while cementing trilateral trade relations. Iran will seek aid from CPEC to help them complete their natural gas pipeline to the Pakistan border.
CPEC has implemented a long-haul strategy, up until 2030, and ongoing from 2013, which included the involvement of many governing bodies, from Pakistan to the UAE, Saudi Arabia, Iran and more. The sheer financial significance and investments of CPEC indicates that China is not solely relying on China-Pakistan bilateral trade, but much deeper and enhanced trade relations with China and the whole Middle East and North Africa region. The capabilities of CPEC will undoubtedly revitalise trade relations, enhancing their strategic relationship with energy-rich Middle Eastern countries. Considering CPEC is a branch off China’s BRI (Belt and Road Initiative), it will allow Arab countries to benefit from and connect with the Belt and Road network in Central Asia & Eurasia. CPEC is transitioning into its second stage, from 2020-2025 and in hope of the entire operation to finalise by 2030.
Investment Opportunities and Mitigating Risks
With CPEC set to transform economic trade relationships between them and the whole MENA region and beyond, it is important to take data-driven approaches to best benefit from investments. With a business credit report, or, for a more enhanced investigation, a due diligence report you can assess the risk of your investment and make sure you avoid any unwarranted risks. With all investments comes risk, however, at Cedar Rose, we have a vast network of experts in the MENA region that can aid in your risk management process. We can help keep the transition of investments secure by providing helpful insights into companies, directors and shareholders. With over 23 years’ experience in the MENA region, we are trusted globally for quality and reliable business intelligence.
Written by Jack Evangelides, Marketing Executive
*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***