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From Gwadar to Kashgar

July 15, 2013

TWO and a half hours flying time from Islamabad lies Urumqi, capital of China’s Xinjiang Uighur autonomous region. A further 320 kilometres beyond Urumqi’s airport is the Eurasian continental pole of inaccessibility, the world’s most landlocked spot.

From that vantage point the shoreline of Gwadar must appear as does land to a ship in mid-voyage through a great ocean.

And while a Gwadar to Kashgar corridor may not pretend to be the most viable route to China’s eastern seaboard, where most of the population lives, Xinjiang itself is a sprawling landmass, home to 22 million people, and a $104 billion economy. It is a rich oil-producing region whose growth rate in the recent decade has outstripped the rest of China but the benefits of this growth have been lopsided. It still lags behind the rest of the country and the government in Beijing is keen to bring development to the region and also address the Uighur unrest.

One such significant initiative is the Urumqi Economic and Technological Development Zone that has attracted sizeable Chinese and foreign investment in projects that include manufacturing of wind power turbines, iron and steel, oil and gas drilling equipment as well as food and beverage and consumer products manufacturing.

Xinjiang region is adjacent to the Central Asian countries with which China has become the largest trading partner, ahead of even Russia. A large part of this is overland trade. Accordingly, for the Trade Development Authority of Pakistan (TDAP) the Horgos Free Trade Zone on the Xinjiang-Kazakhstan border might be worth looking into. As the largest land port in Western China this can serve as a springboard for Pakistani goods into the Central Asian region. This would circumvent Afghanistan where perpetual war (and warlordism) has blocked our access to the Central Asian region.

Meanwhile TDAP’s counterpart, the Xinjiang region’s bureau responsible for export and trade promotion, is making efforts to attract industry that can produce goods for Central Asia’s future requirements for chemicals, farm products, capital goods, pharmaceuticals and renewable energy equipment.

Similarly, it plans to develop Kashgar, bordering our Gilgit-Baltistan into a regional logistics centre. Apart from cheap land, the planned fiscal incentives include tax exemptions, subsidised electricity and transport and low interest loans. Ultimately the Chinese vision is to bring Kashgar and Horgos at par with coastal boomtowns like Shenzhen and Xiamen.

Of course, the Chinese endeavour is to stimulate the production of goods in this region and then to get these goods out via land routes to neighbouring countries and via Gwadar to West bound destinations — towards Africa and Europe. Apart from finished goods this would also spur a regional trade in raw materials and intermediate goods and once again TDAP may be able to probe deeper into the potential emerging opportunities for Pakistani industrial produce here.

If one is to benefit from these developments then one has to go further afield than becoming a conduit to other people’s cargo. Just naming a 2,000km stretch of road an ‘economic corridor’ does not make it one. In any event the term has become a deflated buzzword after the ‘national trade corridor’ of the Musharraf government which could not come to life.

Let’s also not forget that for 12 years, Pakistan was a conduit for Nato containers with little economic benefit accruing from that activity, other than transit fee. For example, even bottled water supplies for the troops of the International Security Assistance Force were procured from Dubai.

We have to look beyond exporting our traditional finished goods, and towards integrating Pakistani manufacturing enterprises with regional production networks. In the heyday of the US automobile industry for example, General Motors would outsource the manufacture of many parts to vendors in Canada even if the final assembly was done in Detroit.

With some deeper probing, our Ministry of Industries and affiliated agencies such as the Small and Medium Enterprise Development Authority may be able to identify areas in agro processing, farm implements and textile and leather processing for instance where our value chains can be integrated with Chinese production networks in the Xinjiang region.

If on the other side, the same can be done with South Asian regional trade, then Pakistan emerges as the biggest beneficiary from the network effect that gets created.

There have been concerns in Pakistan about the Iranian port of Chahbahar, located on the same shoreline 70km from Gwadar and that India will use it to access Afghanistan and Central Asia. While I am unable to digress and address the India-in-Afghanistan paranoia, I do not view the two ports as a zero-sum game. On the contrary I would suggest connecting both these ports with a 70km rail line so they could become alternate nodes in the same transport system.

Gwadar and Chahbahar though adjacent, point in different directions — one is oriented northeastwards towards China and eastern Afghanistan while the other is oriented towards western Afghanistan and the Caspian region.

The proposed interlinking would allow each country to access the other. In addition, there are economies of scale and complementarities from which both benefit. One of these could be Iran locating petrochemical facilities between the two ports. One has to look no further than the United Arab Emirates and find a number of seaports (and airports) close to each other and the entire region prospering as a highly efficient logistics and transport hub.

For its part, Pakistan must do its bit to allay Chinese concerns with opening the border and implications for the Uighurs’ religiously-inspired militant separatist movement. In recent years, Pakistani sectarian groups have made inroads into the Gilgit-Baltistan region. These have to be put out of business and the area has to be cleansed because Pakistan’s jihadis providing any stimulus or sanctuary to the Uighurs could become a show stopper.

The writer is a business strategist and entrepreneur.