LONDON: The finalised agreements represent a deepening of China’s strategic alliance with Pakistan and the first large-scale Chinese investment worth $45billion in a trade link connecting China to the Arabian Sea through Pakistan, according to Asad Ali, analyst at IHS Country Risk.
On 20 April, a Chinese delegation in Islamabad led by President Xi Jinping signed agreements worth over USD28 billion under the China Pakistan Economic Corridor (CPEC) initiative, which aims to establish a trade link between Gwadar in south Pakistan to Kashghar in west China.
The advantages for Beijing are apparent. China will have alternative access to the oil routes in the Arabian Sea and an economically stronger ally in Pakistan against mutual rival India.
The agreements are only part of China’s planned $45 billion investment programme under the CPEC initiative. Notably, the projects initiated yesterday can be feasibly completed before the end of the current Pakistan Muslim League-Nawaz (PML-N) government in Islamabad in 2018. This reflects Beijing’s understandings of government instability in Pakistan, a risk facing all foreign direct investment in the country.
The agreements involve concessional loans to Pakistani companies from Chinese banks to be used in paying Chinese contractors for the host of projects. Infrastructure development features heavily in the agreements, including the construction of Gwadar International Airport, sections of the Karachi-Lahore Motorway and the upgrade of the Karakorum Highway. The Chinese investment is also focused on Pakistan’s crippled energy sector, with Beijing agreeing to construct coal-based power plants, hydropower plants as well as other solar and wind energy parks to add about 8,400 Megawatts (MW) to Pakistan’s national grid.