CPEC: The Flagship enterprise of OBOR

Economic interests, of countries, shape International Politics and it is these interests/concerns, which bring countries together, form alliances or create rift among nations. At the core of all alliances and conflicts, it is these economic interests/concerns, which countries aim to protect and further at all costs. Therefore, it is imperative to study developments, in the realm of global Realpolitik, from the lens of economics. The One Belt One Road (OBOR) project of China, hence, must be understood from economic perspective & not just from strategic perspective. 

The political-economic changes in United States and Europe, in the wake of 2007 Recession, dubbed as The Great Recession, compelled China to take grand initiatives, of economic nature. Apart from changes in global economic landscape (gradual transformation of large liberal economies into closed economies), the apprehension pertaining to the political-economic consequences of possible dwindle in the pace of China's economic growth, pushed the country to take these bold economic measures and conceive/implement ambitious projects such as OBOR.

The enterprise, OBOR, is a massive enterprise, on which China intends to invest around $800 billion. The sub-enterprise, of this ambitious initiative is China Pakistan Economic Corridor (CPEC). For this project (CPEC), China initially committed $45 billion; however, later the sum was increased to $65 billion. Several infrastructure and power projects constitute CPEC, which would not only increase the economic potential of Pakistan, but would also realize the objective of regional connectivity, increasing trade between the East and West Asia. The process will not only strengthen existing markets, as per projections, but will also yield new markets.

For Pakistan, the most evident benefit, in the immediate short-run, will be the development of infrastructure, which will radically expand its economic capacity and it will augment its economic potential. In the short-run the multiplier effect will increase commerce related activities and general employment level, at least in theory. However, the skeptics are somewhat uncertain of these alleged reimbursements and their doubts are backed by evidence and sound reasoning.

Foreign Direct Investment is considered engine of growth and its spillovers improve the quality of economy, examples are China and India. However, FDI works when monetary system and policies are effective. Pakistan’s monetary system and its monetary policies are far from effective. Not only are the high interest rates a problem, but also the prevailing perception regarding interest, shaped by Islamic Ideology.  Therefore, some economists are of the view that the multiplier effect, of this huge investment, would be far less in magnitude/strength than what is being projected.

Another challenge pertains to the perception regarding the nature and objectives of CPEC. For instance, India, which is regional power and third largest economy of the world, in terms of PPP, considers CPEC an enterprise of strategic nature, which not only has economic objectives, but also military objectives. Indian strategists assert that Gwader port is being built for military purposes and through that deep port, China intends to increase its influence in Indian/Arabian Ocean. The argument, of Indian politicians-diplomats-strategists, is that if CPEC is entirely an economic project, why Bin Qasim port has not been considered, which is a fully developed port and the route, from Western China to Indian Sea through Bin Qasim port, is more secure?

These apprehensions, of Pakistan’s neighbor (India) and major economic/military power of region, is not only making this flagship project of OBOR controversial, but it is also polarizing the entire region, as India is employing its financial and diplomatic resources to impede the progress on CPEC enterprise.

To make this enterprise, worth $65 billion, a success, it is imperative for Pakistan to force evolution on its economic institutions and improve its economic policies. Without an effective and relevant monetary policy, which facilitates FDI & increases it multiplier effect, CPEC would not be able to produce the projected results. In addition, it is also imperative to allay reservations of India, regarding the nature of project and its objectives. Some experts are of the view that India’s problem with CPEC is far more complex and not just limited to Gwadar port; Gilgit Baltistan. Whatever, might be the concerns, the success of the project, as connectivity hub, is hard to come by, if India is not part of it. If India becomes part of it, Pakistan’s relevance for India will increase and it will allow two countries to address/resolve different issues, such as water and terrorism.  In addition it will give more authenticity to the entire economic scheme, increasing its chances of success.