China’s Belt & Road Initiative – Blog #10

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(Image credit: srilankabrief.org)

This is the tenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (47 pg, 241 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #10 – China-Pakistan Economic Corridor

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

The China-Pakistan Economic Corridor is important to China for both economic and geopolitical reasons.  The proposed corridor projects have been valued at $62 billion. They include plans for energy infrastructure (pipelines), roads and railroads to connect Kashgar in the underdeveloped Xinjiang region in China to the port of Gwadar on the Indian Ocean coastline of Pakistan.  China’s vision of a connection through Pakistan to the Indian Ocean precedes the “Belt and Road Initiative”, originating well before 2010.[1]

Gwadar has great geopolitical importance—it is a key node in China’s overall “Belt and Road” network and gives China access to the Indian Ocean and the Arabian Sea, and proximity to the Strait of Hormuz and Iran.  This is discussed below.  The massive port upgrades and expansions confirm the importance China is according this once-sleepy, backwater.

China is providing the funding for about 80% of the cost of the port development.[2]  In a break with its funding practices in other “Belt and Road” countries, China is making some sizable grants ($500 million) to Pakistan to pay for other projects like drinking water infrastructure and other community needs, including a hospital, college and airport.[3]  However, the vast portion of China’s investments in the China-Pakistan Economic Corridor is in the form of interest-bearing loans to a degree that Pakistan cannot afford.

This financial exposure has become an international concern.  The International Monetary Fund (IMF) has expressed concern about the level of Pakistan’s debt to China and IMF contributing nations, such as the United States, have communicated opposition to use of its IMF contributions to “bail out” Chinese investors.[4]

Port enhancements include new breakwaters, new berthing areas and channel dredging.[5]  The port expansions will enable Gwadar to accommodate not only giant container ships and tankers but also large warships, which makes Pakistan’s neighbors in the region nervous, particularly India.

The deal with Pakistan reportedly includes providing China with a naval base.[6]  An industrial zone is also developing around the port that is intended to support port operations and to generate commerce for the port.  So far, the port has attracted little traffic.  Even though the port is unprofitable now and will be for the foreseeable future, China intends to double down on its port investment by committing to an interest-free loan to fund a much-needed road to connect the port to Pakistan’s existing road network.[7]

The land connections and development within the Corridor are also critically important.  The Gwadar-Kashgar rail line is an incredibly ambitious project, as it will traverse extremely difficult terrain.  It is a key to completion of China’s overall plans for the Corridor as the road connections are inadequate for much commercial use.  Part of the year the existing road is impassable, due to weather conditions.[8]

The plans for the highway from Kashgar in China’s Xinjiang province to Gwadar have been at least temporarily stymied.  Parts of it have been built but timing of the completion of the rest is highly uncertain.  Another Chinese-funded rail project, the Lahore metro project (Orange Line) was meant to be a symbol of modern urban transportation.  Instead, this USD 2 billion project has become an albatross that cannot operate without large subsidies.[9]

The China-Pakistan Economic Corridor’s energy infrastructure plans are central to Pakistan’s desire to diversify its energy sources and to reduce its reliance on oil and LNG imports, unfortunately with a heavy focus on coal-fired electricity generation—more than half of the money China has promised Pakistan for the CPEC is meant for this means of energy generation.  This puts China in the position of supporting the development of non-green energy at the same time that China striving to “go green” itself.[10]

Government instability and general lawlessness in Western Pakistan have proved to be serious impediments to progress on energy and transportation infrastructure, as well as to development of the Gwadar port itself.[11]  The uncertainties and risks caused by the political upheaval, terrorism and other disturbances have made even the Chinese nervous.  Pakistan has had to commit to the Chinese to secure Gwadar with a large number of armed troops.

The pipeline is important to China’s energy security.  Once completed, China expects that 70%-80% of its oil imports from the Middle East and Africa can be diverted from passage through the Strait of Malacca, with a significant saving in both time and cost,[12] and also allaying China’s fears of a blockades and piracy that would deprive it of vital oil and gas imports.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

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BRI Blog next Monday will be:

Bangladesh-China-India-Myanmar Economic Corridor

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There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] AsiaNews.   “Kashgar-Gwadar railway line would give Beijing a window on the Persian Gulf.   12 July 2010.  http://www.asianews.it/news-en/Kashgar-Gwadar-railway-line-would-give-Beijing-a-window-on-the-Persian-Gulf-18908.html

[2] Shahani, Imran.  “Gwadar vs Chabahar—Op Ed.” Eurasia Review. 9 February 2018. https://www.eurasiareview.com/09022018-gwadar-vs-chabahar-oped/

[3] The News/Reuters. “China  lavishes aid on Pakistan’s Gwadar.”   17 December 2017.                https://www.thenews.com.pk/latest/257224-china-lavishes-aid-on-pakistan-town

[4] Shah, Saeed and Bill Spindle.  “U.S. Seeks to Avoid a Pakistan Bailout That Would Repay China.”  The Wall Street Journal.  31 July 2018.  https://www.wsj.com/articles/u-s-seeks-to-avoid-a-pakistan-bailout-that-would-repay-china-1533056638,

[5]Bennett, Mia.  “Will All Roads Lead to China ?” The Maritime Executive.   3 December 2017.   https://www.maritime-executive.com/magazine/will-all-roads-lead-to-china#gs.gFN7ZOE

[6] Shahani, ImranOp. cit.

[7] Thorne, Devin and Ben Spevack.   C4ADS. “Harbored Ambitions.  How China’s Port Investments Are Strategically Re-Shaping the Indo-Pacific.“ 2017.  p. 35.  https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[8] AsiaNews.   “Kashgar-Gwadar railway line would give Beijing a window on the Persian Gulf.   12 July 2010.http://www.asianews.it/news-en/Kashgar-Gwadar-railway-line-would-give-Beijing-a-window-on-the-Persian-Gulf-18908.html

[9] Page, Jeremy and Saeed Shah. Op,cit  https://www.wsj.com/articles/chinas-global-building-spree-runs-into-trouble-in-pakistan-1532280460?mod=searchresults&page=1&pos=1

[10] Herberg, Mikkal E.  “Introduction:  Asia’s Energy Security and China’s Belt and Road Initiative.” In Asia’s Energy Security and China’s Belt and Road Initiative.   National Bureau of Asian Research.  NBR Special Report #68.  November 2017.  http://www.nbr.org/publications/element.aspx?id=969

[11] Kugelman, Michael.  “The China-Pakistan Economic Corridor: What It Is, How It Is Perceived, and Implications for Energy Geopolitics.”  Hong Kong Trade and Development Council.  8 May 2018.  http://beltandroad.hktdc.com/en/insights/china-pakistan-economic-corridor-what-it-how-it-perceived-and-implications-energy

[12] Travel China Guide.  https://www.travelchinaguide.com/china-trains/pakistan/ Accessed 31 May 2018

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.