CPEC and the region

The India-Pakistan tensions keep the intra-SAARC trade in the low range of four to six per cent of GDP

China’s transition from the observer status to full membership was to come up in the now unlikely Saarc summit in Pakistan. Saarc has not made much headway in terms of intraregional trade due mainly to the Pakistan-India tensions. In these days of globally integrated economies and regions, Saarc falls in the group of the least integrated regions of the world. With a policy of economic integration without political interference, China aims to achieve its strategic objectives and promote stability and progress in its large neighbourhood. She has settled its borders with 12 out of her 14 neigbours. Only India and Bhutan have running border disputes with China. Bhutan does not even have diplomatic relations with China. The Chinese vision of reviving the historic Silk Road through its One Belt One Road initiative across Eurasia holds the prospects of revolutionising connectivity in terms of trade, energy and logistics. China’s high growth cannot now be sustained by its own market and exports to the markets of the countries pivoting towards Asia Pacific under the leadership of the US. It is carving a new path of pivoting towards the Indian Ocean where some of the largest potential markets are waiting to be connected. Multitrillion-dollar infrastructure programmes have been started to rebalance geo-economics of the region. A new financial architecture has been raised in the form of Asian Infrastructure Investment Bank, the New Development Bank and the Silk Road Fund.

The CPEC covers the Southern Route of the Silk Road, the other two being the Northern and and the Southwestern Routes. In its essence CPEC is a geo-economic project, with economic implications not just for the two direct participants, China and Pakistan, but also for those countries that are not part of the $46 billion investment. Road, rail, air and optical fibre links between Kashgar in China and Gwadar port in Pakistan would create pressures and incentives for trade diversion as well as creation, giving vent for China’s industrial surpluses and providing outlets for the chain of industrial zones being planned along the corridor in Pakistan. The CEPEC would link the entire belt consisting of China, Central Asia, South Asia, West Asia, North Africa and Gulf states.

The geo-economic dictates suggest maximum radiation of CPEC economic flows in the South Asia region. It would link the two largest economies of the belt, China and India. The absence of this link restricts India-China trade to $71 billion and India-Pakistan trade to $2 billion. The absence of the link with India seriously constrains the trade volumes of other Saarc members. Their dividend would remain limited unless India fully partakes of CPEC. Goods from the landlocked Bhutan and Nepal cannot access the Pakistani markets through the shorter land route passing through India. These countries cannot transit their goods through Pakistan to Central Asia and China. Similarly, Bangladesh cannot access the shorter land route through India to Pakistan and onward to China or West Asia, North Africa and Gulf states. The island nations of Maldives and Sri Lanka can of course reach China through Gwadar. Bhutan and Nepal can directly link with China, while Bangladesh lies on the Southwestern route of the Silk Road linking it with Kinmin in Yunnan province of China.

The India-Pakistan tensions keep the intra-Saarc trade in the low range of 4-6 per cent of GDP. Even if these tensions were to subside, the economic flows would still be constrained by poor connectivity. The CPEC investment prepares the region to take full advantage of any thaw in the relations between the two largest members of Saarc. Is it hoping against the hope?

Published in The Express Tribune, September 23^rd, 2016.

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