The China-Pakistan Economic Corridor comprises a collection of road, rail, and pipeline projects currently under construction to connect Kashgar in China with Gwadar in Pakistan. The project intends to rapidly expand and upgrade Pakistan’s infrastructure, as well as deepen and broaden its economic links with the People’s Republic of China.
The CPEC will affect Pakistan’s trade flows through multiple channels. First, it will reduce behind- the- border trade costs and bring about a shift in the modes of transportation. Second, it will strengthen economic integration with the world’s largest trading nation, China. Finally, it was give a boost to intra-country trade within Pakistan.
More than 86 per cent of the country’s exports occur through sea, the use of air and land transport is relatively limited. While Pakistan has access to the sea only through Karachi, its manufacturing is unevenly distributed in the hinterlands. Owing to long internal transportation, the country’s geography becomes a natural non-policy barrier to trade through sea.
Shipping a standard freight container’s load from Sialkot to Karachi involves internal transportation of more than 1,000 kilometres. These high costs of internal transportation potentially act as an implicit tax on exports and put firms at a comparative disadvantage in international markets. The CPEC project will provide a network of road and railways to link remote manufacturing facilities to the Karachi and Gwadar seaports. The improved connectivity will reduce the costs of transportation and curtail travel time.
Furthermore not only will it enhance competitiveness of existing firms, it will also incentivise exports.
Moreover the project will also lead to the expansion of the export product set. For instance, Pakistan’s northern areas produce vegetables and fruits, such as apples, apricots and cherries. But due to a lack of good connectivity, most of this produce cannot be exported.
The CPEC will link the northern areas to airports in Peshawar, Rawalpindi, and Lahore. This will give a boost to the export of agricultural commodities, as most of these products are transported by air owing to their perishable nature.
This improved connectivity to sea port and airports is just one aspect of the CPEC’s influence on trade flows. Another important change would occur in the modes of shipment (Table 1). A large fraction of Pakistan’s trade with China — $16bn — occurs through the sea route: 97pc through sea, 2pc by air and 1pc by land.
The CPEC would bring a shift in the modes of transportation. A substantial fraction of trade with China will be diverted to the land route following the completion of the project. While sea transport is relatively cheap, road transport is the cheapest.
Moreover, it will link the country to the One-Belt-One-Road project and provide direct access to the markets of Central Asia and Europe as well. It may be noted that essentially the CPEC is not a bilateral project but has regional dimensions.