The geoeconomics of CPEC

Updated April 07, 2019

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The writer is a security analyst.
The writer is a security analyst.

GRAPPLING with a crippling economic crisis at home, Pakistan is compelled to tread slowly and carefully in the emerging geoeconomics and politics of the region. Although financial help and support from China, Saudi Arabia and the UAE have contributed to partially resolving the country’s balance of payments crisis, yet an IMF bailout seems inevitable. Some would translate it as a return to old partners in the West — or the US to be more precise.

The outgoing government used the investment under the China-Pakistan Economic Corridor (CPEC) not only to overcome the energy crisis and infrastructure-building but also to counter pressure from the US, which was growing with the resurgence of the Taliban in Afghanistan. The previous government also tried to maintain Pakistan’s traditional policy of keeping a balance in its relationship with Saudi Arabia and Iran and, therefore, withstood pressure to send Pakistani troops into Yemen.

The government of Prime Minister Imran Khan has apparently completely revised Pakistan’s Middle East policy. There is an impression in national and international policy circles that, in the process of economic recovery, Pakistan has lost its geopolitical equilibrium as well.

There is an impression that Pakistan has lost its geopolitical equilibrium.

CPEC, which was until recently being projected as a game-changer for the country and the region, has lost its attraction in policy discourse.

In the process of rationalisation of CPEC projects, Pakistan has put many projects on hold, thus discouraging private Chinese companies and individuals from investing in the special economic zones (SEZs). Beijing has supported Mr Khan’s idea of rationalising CPEC projects for two major reasons. First, the aggravating economic situation in Pakistan has made China concerned about the repayment of the loans it has provided for CPEC projects. Second, China wanted to give time to Pakistan’s new government to overcome its economic challenges, for which it also provided a couple of bailout packages. The government also tried very hard to diversify its options for the foreign investment, and succeeded to a certain extent — but with a heavy price.

Pakistan is fast losing balance in its relationship with Iran and Saudi Arabia. The $10 billion Saudi pledge for a refinery and petrochemicals complex in Gwadar has not only come as cause for caution for Iran, but also China. The latter has concerns that it may lead to Saudi-Iranian proxy warfare in the coastal region, at the bottleneck of CPEC. The Baloch in Gwadar also see the refinery in the context of Iran-Saudi Arabia rivalry. They believe it will bring in US influence due to the common strategic objectives of the Saudis and Americans against Iran. Though the refinery would be set up about 100 kilometres away from the Pakistan-Iran border, it will continue to perturb China.

Pakistan’s support for talks between the Afghan Taliban and the US is widely welcomed. It could become a hugely positive contribution to regional peace if reconciliation is achieved. But many in Pakistan are also arguing about what this country has achieved so far through the facilitation of a peace process. An IMF bailout package could be one but, at the same time, the US is not willing to reduce pressure on Pakistan on multiple strategic fronts. It is believed Pakistan could have gained much more had it extended its support for the peace process a few years ago, when the Obama administration was desperate to achieve a peaceful resolution in Afghanistan.

It is not the economy alone that has pushed Pakistan to a restricted geopolitical position but also the militant groups. Some analysts even suspect that the Afghan Taliban will remain a reliable ally of Pakistan after entering into a peace agreement in Afghanistan. Certainly, by bringing the Taliban to the table, Pakistan has done what it had been avoiding for several years. Internal security and economic challenges notwithstanding, international compulsions and obligations are also bearing upon Pakistan’s policy responses.

Looking ahead, Pakistan needs to develop a geoeconomics framework of engagement with its neighbours and allies. This country can make sure that Saudi investment is coming with no geostrategic strings attached, and that it would be for economic purposes only under the compulsion of the Saudi Vision 2030. Pakistan must not allow any proxy group to use its soil against neighbours. Though it would be difficult to maintain such a relationship with an assertive Saudi regime, Pakistan can maintain a balance through a China-Pakistan-Iran economic partnership.

To balance the Iran-Afghanistan-India bond of Chabahar port, China and Pakistan can work towards connecting Chabahar and Gwadar ports. China and Iran have both hinted at the ports’ connectivity through joint initiatives. Chinese academics consider a trade relationship with Iran via Gwadar as one of the major outcomes of CPEC. Pakistan also needs to speed up transnational energy projects with Afghanistan, apart from taking initiatives to boost bilateral trade.

Though CPEC has not fulfilled the expectations of the common man, especially in Balochistan – where it has not generated the expected economic activities and employment opportunities for the local people – yet speedy development on the SEZs in Gwadar can address their many grievances. The Balochistan government is inviting domestic and foreign donors and investors for infrastructure projects, which can attract private Chinese investors, who are moving towards East and Central Asia. New Chinese investors are desperately looking for investment avenues across the world, mainly in Asia.

The US role in the region is not expected to subside even after a peace agreement with the Taliban is reached. Pakistan will remain an important working partner, if not strategic ally, for the US in the Indian Ocean and in neighbouring regions. For that, the relationship has to be taken out of the shadows of mistrust and non-state actors.

It is often heard in strategic policy discussions in the federal capital that Pakistan is changing its focus from geostrategic to geoeconomics, but this transition needs a clear direction. Pakistan has to set out priorities of a traditional zero-sum game to ensure that its relationship with one nation do not come at the cost of its relationship with another. This country does not have a multiplicity of options to attract foreign investment, and those that are available need to be fully harnessed.

The writer is a security analyst.

Published in Dawn, April 7th, 2019