Geo-economics or Geo-politics? The CPEC at the Edge

Dr. Siegfried O. Wolf
October 6, 2019


Image Courtesy: Economic Times

The implementation of the China-Pakistan Economic Corridor (CPEC) and the increasing Chinese presence in South Asia is a matter of domestic, regional, and global concerns for countries. The CPEC, which is one of the largest and most advanced development schemes of the Belt and Road Initiative (BRI), has increasingly become an influencing factor in the power dynamics of the Indian Ocean Region (IOR) and beyond. This is extremely relevant considering the CPEC is not only a program to promote economic growth but also serves as an instrument for Beijing to extend its ‘strategic influence from the South China Sea to the Indian Ocean and the Arabian Sea’. This has severe geopolitical implications for states, the existing security architecture, and particularly for the distribution of power in the extended area. Moreover, considering the assertiveness and willingness among Chinese leadership to use coercive elements to push the BRI in general and the CPEC in particular, it is clear that China questions not only the hitherto accepted norms and behavior among international actors but also the established liberal international order. By approaching this complex scenario, an assessment of the state of development in the ongoing CPEC implementation will offer valuable insights in two directions. Firstly, how far will the CPEC be a successful – understood as sustainable – development initiative? Secondly, is one to identify the CPEC as an economically-driven or a geopolitical-strategic endeavor?

In order to address these questions, one needs to be aware that the CPEC project is an ongoing development scheme, divided into several phases. Currently, the corridor implementation is close to end its first phase, which focuses mainly on the build-up of road infrastructure and generation of energy capacities, the so-called ‘Early Harvest Projects’. The second phase, which will start later this year, aims at the establishment of Special Economic Zones (SEZs) which are supposed to achieve the industrialization and modernization of Pakistan’s economy. The latter goal is the main feature of each Economic Corridor project, at least according to its conceptual understanding. As such, it is far too early to measure the economic viability and sustainability of the CPEC. Nevertheless, by monitoring the first phase, especially regarding the way individual projects were chosen, negotiated, and implemented as well as the management of upcoming challenges, several trajectories can be identified, pointing to a potential failure of the CPEC (at least from an economic perspective).

From an economic point of view, we must state that the CPEC is accompanied by various restrictive phenomena – namely a reduction of economic freedom through severe market distortions. One of the main problems here is that all the major contracts were allocated either to Chinese firms or Pakistani military-owned and/or run companies – not only enhancing business activities by the armed forces (the so-called MILBUS) but also keeping Pakistani private companies, especially SMEs, out of the market. Other CPEC-related economic challenges include the entrenchment of corruption and state capture by both civilian and military elites, the growing economic dependence on China, the increasing trade deficit due to an FTA which overwhelmingly favours Chinese companies, the challenge of debt trap (including hidden risks such as financial guarantees, and costs for security and development project insurances). Considering the extremely tensed and/or complex relations of Pakistan with its immediate neighbours, namely India, Afghanistan and Iran, one cannot expect the CPEC to function as an engine of regional cooperation due to a strong lack of external connectivity – identified as a sine qua non condition to gain maximum benefits from an Economic Corridor project. The future of the CPEC from an economic perspective looks rather grim, and the much-hoped reversal of the brain drain, return of highly educated overseas Pakistani, and stopping the ‘capital flight’ ( Pakistani citizens investing in Pakistan instead of abroad) will not materialize, at least not in the near future. There is a concrete fear among domestic experts such as Kaiser Bengali that Chinese investments are promoting a kind of ‘Casino Economy’ aiming at the achievement of short-term economic interests instead of economic viability and sustainability. A significant problem in this context is that the Pakistani government is either unable or unwilling to frame and enact an enabling policy that would flank the implementation of the CPEC in order to avoid or reduce potential negative side-effects and create additional stimulus. Some of these side-effects include destructive environmental impacts such as deforestation, pollution (air, water, noise), and destruction of valuable agricultural land – all of which affect public health and traditional livelihoods among local communities. Here, the policies of Chinese companies to employ Chinese workers and use Chinese materials for CPEC projects do not give much space for the creation of employment among domestic workforces or business opportunities for Pakistani entrepreneurs. 

The situation worsens for Pakistan and its citizenry when one considers the political and social implications of the corridor initiatives. The lack of local ownership and the neglect of regional stakeholders are leading to grievances and protests against the CPEC. In consequence, Islamabad is stepping up repressive measures so as to silence CPEC critics – which lead to the further truncation of all kinds of political rights and freedoms and a deteriorating human rights situation.

There is also the peril that Chinese leverage in Pakistan’s political arena is growing, leading to a loss of sovereignty and decision-making power in crucial policy fields.

Also, from a geopolitical, strategic, and security perspective, the CPEC is revealing various unfortunate dynamics. First of all, the whole corridor is mired in legal limbo due to the incorporation of disputed territories, namely Gilgit-Baltistan (and to a lesser extent Pakistani-occupied Kashmir). As such, the CPEC is further deepening existing fault-lines within South Asia’s extended regional security architecture. In this context, one needs to point out that the CPEC projects lead to a deteriorating security situation and subsequent militarization within their geographical framework. Chinese maltreatment of its Muslim population, foremost Uighurs citizens within the Xinjiang province, is apparently stirring up Jihadist backslashes in the form of attacks against Chinese projects and citizens. Also, the unwillingness by the Pakistani central government to install fair mechanisms for the distribution of revenues from provincial resources as well as CPEC projects is giving new impetus for armed resistance against Islamabad and its tight grip over regions.


One can assert that the economic value of the whole project remains highly questionable. This raises the question about the real motives behind this ‘development scheme’ and the increased Pakistan-China collaborative activities in the broader context of the CPEC. Approaching this puzzle, it becomes evident that the CPEC is evermore a predominantly security-oriented, geopolitically, and strategically-driven endeavor. The strong likelihood of a second Chinese overseas military base on peninsular Jiwani (close to the Gwadar port, the flagship project of the CPEC) and the boosting of the defense cooperation between Pakistan and China are clear indications of this fact. In sum, one can bring forward the following rationale. Firstly, BRI’s CPEC serves strategic and geopolitical interests rather than economic ones. Secondly, the BRI and especially the CPEC, presents a growing military dimension. Thirdly, the CPEC is part of Beijing’s aim to establish a new international order more conducive to Chinese national interests. This order will not lead to more cooperation between the great and major powers but instead severe security competition in the IOR and the Indo-Pacific, especially between the US and China, as well as between India and China. Furthermore, it also becomes evident that Beijing strives for a hegemonic position in the Asian hemisphere as part of its vision for a new multi-polar, global order. 

 *** The author is the Director of Research at the South Asia Democratic Forum (SADF), a Brussels based think tank, and he is the Senior Researcher (member) at the South Asia Institute, Heidelberg University ***