South Asia

China and Pakistan have been faithful allies since the early 1950s. The Sino-Pak relationship has proved to be fundamental for both countries, deriving mutual benefits from their strong diplomatic alliance and economic ties. Therefore, it came as no surprise when Pakistan welcomed President Xi Jinping in April 2015 to inaugurate the “China-Pakistan Economic Corridor“ (CPEC), a key project under China’s ambitious One Belt and One Road Initiative (OBOR).

CPEC is designed to connect the city of Kashgar, in China’s landlocked Xinjiang province, to the port city of Gwadar in Pakistan’s Baluchistan province, offering a vital infrastructural network linking China to the Arabian Sea. CPEC commits Pakistan’s land and resources to a massive 62 billion USD investment that will have tremendous socio-economic and geopolitical implications for the partnering nations and the region as a whole. Pakistan’s then Prime Minister Nawaz Sharif, who advocated for the venture, characterized CPEC as a “game changer” that would bring about a transformational change and pull the nation out of its economic misery.

Indeed, Pakistan’s financial and geostrategic position may enjoy a considerable advantage courtesy of CPEC. However, any real gains will require an appropriate execution of this ambitious initiative coupled with a sound understanding of how the Sino-Pak collaboration will relate to the competitive interests of major regional stakeholders, in particular, the U.S. and India.

Perceived Gains

The planned 15-year-long collaboration encapsulates projects that span across Pakistan’s five provinces, focused on improving the country’s infrastructure and power generation capabilities while producing an estimated 700,000 jobs. Unfolding at a steady pace, approximately 19 projects have reached completion making it the fastest developing of OBOR’s proposed corridors.

China’s investment has fostered greater economic activity in Pakistan and paved the way for a more robust GDP growth. Pakistan now ranks 115th on the World Economic Forum’s global competitiveness scale for 2017-18, a jump of seven positions over the previous year, and earlier this year was upgraded to the MSCI Emerging Market Index, which has further enhanced prospects for future foreign direct investment. Additionally, the World Bank, in its Pakistan Development Update for 2017, projected that the nation’s economic growth could reach 5.8 percent in 2019, partially owing to the investment inflows from CPEC. Moreover, CPEC has managed to attract interest from Iran, as conveyed by President Hassan Rouhani last year, as well as from Russian investors who are keen on exploring investment options.

Importantly, Pakistan’s global image has also undergone a drastic makeover. Where Pakistan was harboring fears of isolation and was largely being overlooked for its extremely volatile security situation, it is now increasingly being recognized as an important regional player in South Asia.

Economic and Geopolitical Realities

While CPEC paints a promising picture, not everyone is optimistic about this venture. Business insiders have expressed grave concerns that China will have a disproportionate economic advantage, a sentiment validated by a breakdown of CPEC’s recently published “Master Plan.” For instance, the plan briefly highlighted how Chinese investments are tailored to facilitate the Kashgar Prefecture, and also mentions China’s aspirations towards building the largest textile production and export processing base in Xinjiang. Such developments would mean a serious competitive disadvantage for Pakistan’s textile sector and local industries in general.

Furthermore, Pakistan’s provinces have always been divided by their own self-interests and it is only a matter of time before these divisions pose barriers to CPEC’s progress. Today, the tribal leadership in Balochistan views CPEC as a tool for exploitation that compromises local rights and interests and has warned both the government and China to halt the project with immediate effect. Equally critical are the emerging security concerns such as the recent grenade attack on Gwadar Port, while the murder of two abducted Chinese nationals has created a daunting scenario for the safety of the deployed workforce necessitating Pakistan to establish a Special Security Division to guard CPEC.

Another major point of concern is asset risk. CPEC’s financing is primarily based on a set of Chinese grants and concessionary loans, and failure to deliver on financial gains means Pakistan will have much to lose, particularly considering the country’s track record of debt obligations to the IMF and World Bank. Under the pressure of such exorbitant loans, Pakistan could be in jeopardy of forfeiting a stake in its own land and resources. This prospect has prompted certain Pakistani lawmakers to compare CPEC with the East India Company, arguing that any incoming capital could very well be offset by an even greater outflow. The handover of the Hambantota Port  following Sri Lanka’s debt crisis and inability to repay 301 million USD to China is often raised as an example of what could go wrong in Pakistan.

Within this context, the increasingly close relationship between the United States and India has also become a point of interest for Pakistan. U.S. Secretary of State Rex Tillerson recently suggested solidifying a free and open “Indo-Pacific” and endorsed India as a responsible regional partner. India has always maintained its stance against CPEC suggesting that the corridor passes through disputed territory and that it is non-compliant with the Indian ideals on “Belt and Road” projects. On the other hand, the U.S. has a strong interest in sustaining a balance of power in Asia and maintaining regional stability. However, the Trump administration has expressed doubts over Pakistan’s role as a counter-terrorism ally, straining current relations. Arguably, U.S. support of India’s claims could further add fuel to the fire and create bottlenecks for CPEC.

The Road Forward

Driven by geostrategic interests, China’s architecting CPEC means it is naturally the frontrunner for the lion’s share of  anticipated returns. In contrast, Pakistan’s bifurcated leadership, administrative inadequacy and lack of operational transparency make it imperative for the incumbent government to prioritize effective project implementation and to exercise sustainable long term policies if it wishes to achieve envisioned gains. The highly anticipated CPEC Long Term Plan is set to be finalized at the upcoming 7th Joint Cooperation Committee meeting in Islamabad and should provide a more realistic benchmark for Pakistan’s cost and benefit analysis.

Pakistan’s policymakers also have a crucial task at hand in balancing the possibly broad implications of the growing U.S.-India nexus. Pakistan cannot afford to lose its alliance with the United States if it wishes to safeguard its national security in the long run, necessitating enhanced bilateral cooperation that recognizes areas of shared interests and encourages the U.S. to adopt, at a minimum, a neutral perspective on CPEC, appreciating its potential value for Pakistan.

CPEC remains a remarkable initiative and many of its industrial and economic benefits are already materializing. Ultimately, despite internal and external pressures, Pakistan’s ability to adequately leverage and monetize this commitment will determine CPEC’s real worth to its economy, its citizens and its standing in the region.

Farwa Aamer is a Research Associate for the EastWest Institute’s Asia-Pacific Program.

The views expressed in this post reflect those of the author and not that of the EastWest Institute.

Photo credit: "Xinjing 2013 mountains Pakistan border_M" (CC BY-NC-ND 2.0) by peteropaliu

The EastWest Institute (EWI), the National Institute of Strategic Communication at Peking University (NISC), the Centre for China & Globalization (CCG), and the Chinese Academy of International Trade and Economic Cooperation (CAITEC) convened on June 15-16 an international symposium entitled “’Afghanistan Reconnected’: Renewed Opportunities Under China’s Belt and Road Initiative (BRI)” in collaboration with the Embassy of Afghanistan to China, Kabul University and the United Nations Industrial Development Organization (UNIDO).

Following the Belt & Road Summit in Beijing in May of this year, the EWI symposium was the first follow-up event dedicated to one particular country along the “New Silk Road.” Given the tragic backdrop of the recent terror attacks in Kabul, the symposium was a timely event in reinvigorating a collective hope for the future as the general consensus was that peace in the region is dependent upon a stable and thriving Afghanistan.

The event focused on how China’s new outgoing economic strategy can provide benefits for Afghanistan's stability, security and prosperity in a regional context. To this end, it aimed to build trust between political and business contacts among countries (India, Pakistan, Iran and Afghanistan) with significant interests in the future stability of the country as well as to develop policy recommendations for regional economic cooperation.

Conceived as a Track 2 dialogue, the symposium brought together parliamentarians, diplomats, academics and professionals from across the private sector and several international organizations. Despite being an unofficial event, significant assurances from speakers associated with the National Reform and Development Commission (NDRC), the Ministry of Commerce (MOFCOM) and the Ministry of Industry and Information Technology (MIIT) represented the authentic expression of Chinese government strategy.

Key Themes

As a consequence of Afghanistan’s weakened governmental institutions and endemic corruption, the need to address the very real concerns that BRI may forgo Afghanistan completely was a main topic of concern. However, amongst Chinese reassurances that Afghanistan is very much a central cog of BRI, other delegates warned that an unstable and economically regressive Afghanistan will also hamper the future success of its neighbors.

Chief among several tangible Chinese pledges was the commitment to further financial investment and professional training.  Improving and increasing the possibilities for people-to-people exchanges between all countries along the New Silk Road was also emphasized as a perquisite to BRI’s possible success.  Several Chinese speakers voiced China’s commitment to provide 10,000 scholarships to train Afghan researchers, managers and engineers to run 50 jointly-organized laboratories.  The mining industry, in particular, was identified as a specific area of win-win cooperation, as Afghanistan boasts rich deposits of several minerals and can benefit from the infrastructure and technical expertise of China to exploit these resources.

Along with discussions concerning trade and transit, investment and infrastructure, and energy cooperation, sustainable or “green” development was a new theme to emerge as a guiding principle of BRI. In order to ensure the New Silk Road is conscious of its environmental impact, there were calls for concerted efforts from the Chinese government and its international partners to share information in order to develop thorough regulation and policy. In addition to its abundant natural resources, Afghanistan also has masses of renewable energy potential waiting to be tapped into, such as 23,000 megawatts of hydropower which, if developed, could be exported to Pakistan. Furthermore, well over 200,000 MW of solar energy and tremendous possibilities for wind energy are yet to be realized. As a concrete outcome, cooperation between Kabul University and Poly Solar Technologies was concluded to help both the university train Afghan students and the company invest in the Afghan market.

During the discussions, participants drew attention to how BRI can both learn and expand from previous initiatives which attempted to revitalize and reestablish the centrality of the Old Silk Road in global economics. Several philosophies underpinned previous attempts, but BRI’s strength lies in its extensive research and identification of significant focus areas, including Afghanistan.  A major task for BRI in this regard is to address the large trade imbalance between China and Afghanistan by creating stronger trading links through the China Pakistan Economic Corridor (CPEC).

When considering the more polarizing foreign policy emanating from Washington, a significant geopolitical observation to come out of the symposium was the prospect for BRI to be a driving force in convincing regional states to put aside their differences in order to foster a richer culture of cross border cooperation. With over 20 terrorist groups said to be operating in Afghanistan, several delegates dispelled the myth that a difference between “good” and “bad” insurgent groups exists. Delegates, therefore, expressed the hope that both the U.S. and China would use their leverage over Pakistan and Afghanistan to work towards a common understanding of combatting violent extremism, and at the same time towards connecting the two countries through the existing and new rail and road systems. EWI’s CEO Cameron Munter, former U.S. Ambassador to Pakistan, pointed out that BRI and the converging interests of the U.S. and China represent not only an immense mobilizer of unprecedented economic opportunities, but also an opportunity to strengthen institutional capacities and state building.

These arguments echoed Afghan President Ghani’s sentiments just a week prior, while he was in Astana, Kazahkstan as part of the latest Shanghai Cooperation Organization (SCO) summit, where he expressed his willingness to step up cooperation in transportation to enhance connectivity. Chinese influence is seen as a potential driver for brokering bilateral agreements regarding border management control along the hotly contested, and often tense, Durand Line. A common complaint, reiterated several times throughout the symposium, was that despite hundreds of agreements and MoU’s in place between Afghanistan and its neighbors, these policies often go unimplemented. In terms of the border between Afghanistan and Pakistan, Chinese/U.S. influence was envisioned as serving the dual purpose of providing an independent check on illegal crossings and assisting with trade management processes for trucks transiting goods in and out of either country.

Contrary to more pessimistic reports amongst geopolitical and international relations analysts, and with respects to other local infrastructure projects in the region, delegates at the event highlighted the potential synergies between the Iranian Chabahar and Pakistani Gwadar ports. Some see the construction of the two ports as physical manifestations of the wider geopolitical tensions in the region, especially considering the former is largely viewed as an avenue by which India and Afghanistan can increase trade by circumventing Pakistan. Yet, it was the compatibility of the two ports which garnered most discussion at the symposium with comments that Gwadar could complement the overall function of Chabahar by handling any spillover cargo. Moreover, the short distance between the two ports was seen as the ideal reason to implement a feeder vessel service, transporting both cargo and people to greatly enhance the economy and build trust between Iran, Pakistan and Afghanistan.

All parties to the symposium were thus unanimous in their insistence that Afghanistan will be an indispensable building block in the realization of BRI as it shall provide the bridge between east and west. More importantly, all delegates agreed BRI offered a unique chance for the countries of the region to focus on their mutual interests, rather than their mutual differences, in pursuit of economic prosperity and peace. As one delegate put it succinctly, this is a chance the region must not pass up.

While mounting tensions in recent years have caused U.S.-Russia relations to deteriorate—and as a matter of course, bilateral channels of communication to freeze—EWI has managed to sustain dialogue on this common threat. As a forum for cooperative engagement, the working group regularly brought together U.S. and Russian technical and policy experts to share knowledge, make consensus assessments and deliver innovative and concrete policy solutions to counter Afghan narcotrafficking that would have traction in both countries, as well as in the larger relevant policy communities.
 
In the course of its implementation, the working group engaged and consulted with a number of experts and officials from key stakeholders, including Afghanistan, Iran and the Central Asian states. The working group also garnered positive feedback and support from the Drug Enforcement Administration (DEA), the United States Department of State Bureau of International Narcotics and Law Enforcement Affairs (INL), the United States Senate Caucus on International Narcotics Control, the Ministry of Foreign Affairs of the Russian Federation and the Federal Drug Control Service of the Russian Federation (FSKN), in addition to various multilateral organizations/agencies such as the North Atlantic Treaty Organization (NATO), Collective Security Treaty Organization (CSTO), Shanghai Cooperation Organization (SCO) and United Nations Office on Drugs and Crime (UNODC). 

Published in April 2013, the working group’s first report, Afghan Narcotrafficking: A Joint Threat Assessment, provided a summary of the experts’ consensus findings on the scope and threat of Afghan narcotrafficking. In subsequent years, the working group also prepared issue-specific reports on the following: (1) an assessment of the post-2014 security, political, and economic situation in Afghanistan and the expected impact on narcotrafficking and counternarcotics efforts; (2) border protection against narcotrafficking around Afghanistan and in Central Asia; (3) alternative poppy-free development strategies for Afghanistan; and (4) flows of Afghan drug money and laundering in the international financial system. A sixth and final report, a joint policy assessment, will comprise a compendium of the group’s key recommendations and updated assessments on the overall narcotics situation in Afghanistan and is expected to be released in July 2017.

PREVIOUS REPORTS

Afghan Narcotrafficking: A Joint Threat Assessment, April 2013

In English

In Russian

Afghan Narcotrafficking: Post-2014 Scenarios, February 2015

In English

In Russian

Afghan Narcotrafficking: The State of Afghanistan’s Borders, April 2015

In English 

In Russian 

Afghan Narcotrafficking: Finding an Alternative to Alternative Development, July 2016

In English 

Afghan Narcotrafficking: Illicit Financial Flows, June 2017

In English

Afghan Narcotrafficking: A Joint Policy Assessment

Anticipated release date: July 2017

In an interview with the South China Morning Post, Cameron Munter, President and CEO of the EastWest Institute, said that China's trade push in Afghanistan would "make an enormous change in the way countries in the region see one another."

Munter was speaking during an international symposium in Beijing last week, which was co-organized by EWI's Afghanistan Reconnected Process. The conference—the first one dedicated specifically to the trade plan between Afghanistan and Beijing—focused on ways to unlock both Afghanistan's and the broader region's economic potential during a vital time of transition as well as on on fresh opportunities provided by China's Belt and Road Initiative. 

Click here to access the article at the South China Morning Post. 

Beijing, China — The EastWest Institute (EWI), the Chinese Academy of International Trade and Economic Cooperation (CAITEC), the National Institute of Strategic Communication at Peking University (NISC), and the Centre for China & Globalization (CCG) will co-host the international symposium “’Afghanistan Reconnected’: Renewed Opportunities Under China’s Belt and Road Initiative” in collaboration with the Embassy of Afghanistan to China, Kabul University and the United Nations Industrial Development Organization (UNIDO) from June 15-16, 2017. 

The symposium will focus on ways to unlock both Afghanistan’s and the region’s economic potential during a time of transition, and on fresh opportunities provided by China’s Belt and Road Initiative. In light of a declining security situation, these discussions will be a timely reminder of the importance of stabilizing Afghanistan and utilizing its strategic location as a pivot towards greater economic cooperation. Senior political and business leaders from Afghanistan, China, India, Iran, and Pakistan will work in multiple panels towards producing a set of feasible recommendations concerning trade & transit, investment & infrastructure, energy, and regional dynamics. 

The opening event will offer keynote addresses from EWI’s CEO Amb. Cameron Munter; Mr. Mou Xiongbing, Director of International Economic Cooperation Office, Academy of Macroeconomic Research, National Development and Reform Commission; and Ambassador of Afghanistan to China, H.E. Mr. Janan Mosazai.

The Beijing symposium is set to be the final stage of EWI’s multi-year “Afghanistan Reconnected Process.” Sponsored by the government of Germany and private donors, the Process addresses regional economic security issues in Afghanistan and its neighborhood. The focus is promoting the win-win potential of enhanced regional economic and political cooperation in order to not only foster development but also security and stability in Afghanistan and greater Central Asia. EWI established a network of senior experts from governments, parliaments, and the private sector, mainly from Afghanistan, Iran, India, Pakistan, Tajikistan, Turkey, China, the U.A.E., the U.S., and Europe, as well as from multiple regional and international organizations. Through a series of high-level consultations, this network identified major obstacles to regional trade and transit. A set of practical recommendations on how to overcome these obstacles have been presented to the governments of Afghanistan, India, Pakistan, Tajikistan and Iran.

The EastWest Institute is proud to release its 2016 Annual Report, highlighting last year’s programmatic activities, achievements and new initiatives.

The impact of the institute across the globe is a testament to the talented and diverse staff working across five offices, our distinguished Board of Directors and a profound global network of decision makers and experts that help facilitate our mission.

At the conclusion of the leaders’ summit of the Asia-Pacific Economic Cooperation (APEC) in Peru last week, the Pacific Rim trade group reasserted the importance of free trade in a joint communiqué. The APEC economies, including the United States, further committed to “keep our markets open and to fight against all forms of protectionism” — an intentional pushback to the growth of protectionist rhetoric, especially from the incoming administration in Washington. President-elect Donald Trump has vowed, most recently in a YouTube video released on Monday, to make America’s withdrawal from the Trans-Pacific Partnership (TPP), the U.S.-led flagship free trade deal in the Asia-Pacific, a top priority for his administration. Trump’s vitriol has already eliminated any chance that Congress will ratify the pact during the remaining lame-duck period of the current administration.

America’s credibility in the region is already crumbling before the TPP’s official burial. The almost certain failure of the deal — at least in its current form — is a body blow to key U.S. allies, especially Japan, and other important regional states in Southeast Asia, such as Vietnam and Singapore, that viewed the deal as the litmus test of Washington’s commitment to Asia. Singaporean Prime Minister Lee Hsien Loong put it best on the potential of the TPP failing: “It is your credibility as an ally [that is at stake]. How can anyone believe in you anymore?”

Indeed, the election of Trump has rattled U.S. friends and allies in the Asia-Pacific who are worried that the incoming administration might signal Washington’s gradual retreat from the region. The range of concerns among U.S. allies, such as Japan and South Korea, is vast: from the questioning of alliance burden-sharing, to the new administration’s plans for North Korea, or the black box that is Trump’s strategy — or lack thereof — for dealing with China.

Click here to read the full article on Foreign Policy.