A flagship component of BRI is the China-Pakistan Economic corridor (Figure 7), poised to link Kashagan in Xinjiang province to Gawader Port in Baluchistan, Pakistan. With its access to the Arabian sea and close proximity to Bab al-Mandeb strait; the southern corridor to the Red Sea, and energy resources in the Persian Gulf, Gawader is the embodiment of China’s geostrategic aims of BRI. Not just allowing Beijing to secure transhipments away from the United States’ navy choking point of the Strait of Malacca and disputes at the South China Sea, it may assist in extending friendly support from a Muslim nation in dealing with the Uyghur insurgency threat. Relieving poverty while creating cross-border linkages with Pakistan through trade and industrialization are some of the positive impacts senior Chinese officials envisage. Yet, the trade potential trumps all. Chinese goods manufactured in East China can potentially be transported in 36 hours to the Middle East via Gwadar, in contrast, it takes 15 days today.
Showering Islamabad with cash comes with great risk. For decades, Pakistan was seen as Washington’s darling Muslim ally during the war to oust the Soviets from Afghanistan. The United States spent almost $33 billion supporting the Pakistani government with the lion’s share, almost two-thirds of this sum, being wasted on security (Sellin Lawrence, 2018). Nonetheless, the Baluchistan region, with its inhabitable dry desert and rough mountainous terrain, is largely a Taliban haven. Historically, the Taliban have been greatly influenced, some even go as far as controlled, by Islamabad’s very capable intelligence services. These ties go back to a time when the Mujahideen, predecessors of Taliban, was the tip of the spear in fighting the Soviets in neighboring Afghanistan. A recent endorsement, even an offer of protection, by the terrorist group for the construction of long-delayed Turkmenistan, Afghanistan, Pakistan, and India (TAPI) gas pipeline shows the scale of sway the Pakistanis hold over Taliban. Pakistan is poised to receive transmission fees and volumes of gas from this project (VOA Afghanistan Service, 2018). The Chinese understand this risk very well and have advanced their military and defense ties with Pakistan. To Beijing, the Taliban is a Pakistani problem with Pakistani solutions and assurances. This approach contrasts with the United States. For years, Washington failed to acknowledge Islamabad’s capacity to tame the Taliban in Afghanistan. Recent moves by President Trump to call out the Pakistanis for undermining American efforts in Afghanistan in addition to decreasing aid will further press the Pakistanis to move towards Beijing’s interests in the region.
Pakistani and Chinese naval strategists have accelerated plans to turn the Jiwani peninsula just a few kilometers west of Gwadar into Beijing’s second overseas military installation (Sellin Lawrence, 2018). Leaked information suggests plans for submarine tunnels, seismic mapping, undersea drones and airport development. Jiwani is located just at the entrance to the Strait of Hormuz. With this base, the Chinese navy will effectively have all the American bases in the Persian Gulf boxed while bypassing the United States naval forward operating base in Diego Garcia, the latter is seen as a rapid deployment point for any effort to reign control over maritime activity in the Indian ocean. With the Djibouti and Jiwani bases, Beijing confirms that BRI does not come with merely a carrot, but also a stick to protect Chinese investments on BRI routes and corridors.
In addition to the Maldives and Sri Lanka as previously mentioned, Pakistan, being BRI’s main beneficiary is seeing its trade deficit with China ballooning (Figure 8). The Pakistanis comfort themselves by taking a geostrategic approach; Beijing needs them for their rivalry with India, in addition to the locational benefits of Gwadar as outlined above. Islamabad reckons that debt repayment comes second to the political and economic targets of this relationship in Beijing. Yet, this attitude really fails to acknowledge that Pakistan ranks 147th out of 190 countries in terms of fostering a healthy business climate as per the World Bank’s flagship report ‘Doing Business 2018’ (Staff, 2018).
With those concerns in mind, the Chinese are planning their investments rationally. Out of the $63 billion pledged to be invested in Pakistan, Gwadar related projects are prioritized with a combined value of $5.36 billion (ISSI Islamabad, 2018). Chinese foreign direct investment in Pakistan, according to the State Bank of Pakistan, has been steadily increasing from a mere $90 million in 2012, to triple figures thereafter. By the end of 2017, it stood at $718.3 million. Yet, out of 15 energy projects, 5 projects are completed or under construction, mainly; wind farms and grid expansions by Chinese companies. Also, out of 8 transportation infrastructure projects planned, only two are undergoing works as they directly link to Gwadar, namely the Peshawar-Karachi highway and Thakot-Havelian phase II highway. As for projects located in Gwadar itself, almost all declared developments are either under-construction or at final phases prior to actual operation (CPEC, n.d.).
A partial public reporting on BRI projects as compiled by Nikkei Asian Review and The Banker shows poor overall progress (Yamada Go & Palma Stefania, 2018). Most of the projects completed are well below the $1bn mark. A sign of persistent and quiet resistance to Xi’s plans by Chinese financers. A significant ticket item, at $5.8 billion, is the China-Laos railway which the Chinese government is strongly pushing for. However, the greatest project announced thus far, in terms of value, is the construction of a nuclear power plant in Turkey at $25 billion (Ozeke Bilgen, 2018). Overall, progress at the BRI has been hampered by construction delays, as in the cases of Indonesia’s rail project as well as infrastructure developments in Bangladesh and Kazakhstan (Maulia, 2018). Additionally, countries are concerned over the influx of Chinese workers and non-involvement of local companies.
The development of Gawader, although at infant stages, has raised concerns within the Arab Gulf states, members of which enjoy significant non-oil income from logistics and trade. Also, spurred lots of competition. Saudi Arabia, leader of the Gulf Cooperation Council, sees tremendous opportunities of foreign direct investments coming through their integration into BRI. They see this as an integral complement to their ‘Vision 2030’, Crown Prince Mohammed Bin Salman’s aspiring plan to diversity the heavily oil-dependent economy of the kingdom (Cafiero & Wagner, 2017).
Recently, the crown prince unveiled NEOM, a mega economic futuristic city north of the Red Sea that may require $500 billion in foreign investments. The location of NEOM itself proves that its economic viability will heavily rely on the success of BRI and increased shipping through the Suez Canal. This is not the first time the Saudis envision a major seafront economic development on the Red Sea. Saudi’s King Abdullah port in Jeddah is almost 200 kilometers from the proposed NEOM project. This port boasts of their capacity to handle customs in 24 hours and their readiness to be an integral part of Vision 2030’s emphasis of capitalizing on Saudi’s location as a focal point between the global east and west (News, 2018). On the other hand, Oman, the region’s quiet power, is one of China’s stable oil exporters. 84% of Omani oil was directly swept off the market by Chinese refiners in 2016 (MIT, n.d.). The development of Duqm (Figure 9) as a major economic zone is largely done with Chinese investments.
Close to Gwadar, Iran is rapidly developing the Chabahar port. Consisting of two terminals and five berths. India has taken an interest in developing it in cooperation with Iran and Russia as part of a proposed North-South Transport Corridor (NSTC). The latter is India’s counter venture to challenge BRI by linking Central Asia to Eastern Europe via the Gulf of Oman. Iran is poised to benefit from both projects, Tehran is integral to Beijing’s Eurasian corridor as it links it directly with Istanbul. In May 2017, Prime Minister Modi of India promised the Iranians to accelerate work on the Chabahar expansion and finalizing works within 18 months. Little has progressed since as global investors, not just India, are skeptic of investing in Iran with the likeliness of Trump abandoning the Iran Nuclear deal signed with the P5+1 (more details on page 21).
To overcomplicate the relations, the Americans have pressured New Delhi, amongst others, to ensure that their companies do not deal with corporate facades or proxies of Tehran’s Revolutionary Guard Corps, the nation’s elite military force responsible for developing missile capabilities and the nuclear program, as claimed by Washington. Failure to comply means ending up in a blacklist of companies to be both sanctioned and prosecuted by United States authorities. India is also late on the development of the Zahedan rail project, a link crucial to transport Indian products to Afghanistan, Russia, and the Caucasus from Chabahar while bypassing Pakistan. Recent visits by Modi to Arab monarchies in the Persian Gulf and Israel, also vice versa, sent Iran’s President Rohani on a charm offensive in New Delhi in February so as not to lose Iran’s significant trade partner. Safeguarding Iranian Rupee bank accounts, proposing Rupee-Rial commercial contact models and even, to many observers’ surprise, a likely gas price concession on the Farzad-B gas development were on the table.
As far as the development of Chabahar goes, interest by Indian companies has wined down, they are in a wait and see position. Recently, European manufacturers have shunned away an Indian attempt to contract for machinery to be used in Chabahar in fear of United States retaliation (Gilani, n.d.). Tired of Indian reluctance, Tehran has invited both China and Pakistan to take over the Chabahar development in March (Point, 2018). But for a project that was designed to counter BRI and Gwadar, Beijing and Islamabad will be happy to see it die slowly. Tehran might have hidden her good cards from India far too long.
Dubai’s Jebel Ali, the middle east’s largest port is situated amidst five continents and thus relies heavily on trade with China. 60% of UAE-China trade is re-exportation of Chinese manufactured goods to Europe and Africa (Cafiero & Wagner, 2017). With billions of dollars in military funding, the UAE has risen to become the world’s third largest arms importer and the Arab world’s single power with a battle-hardened, western trained and enhanced expeditionary force. To consolidate its position, Abu Dhabi started what many may call a frenzy of port acquisitions from the southern rim of Arabia to the Horn of Africa.
In Somaliland and Eritrea, the UAE signed deals to operate both Barbara and Asseb. The former gives access to Africa’s largest growing economy; Ethiopia. The latter is used as a military Launchpad for further port acquisitions in Yemen. Starting with Aden in Yemen’s South. It was to the surprise of the Saudis – UAE’s main ally in Yemen – when they swiftly occupied Aden by an amphibious attack defeating the Houthis. Few months after, Abu Dhabi remarkably continued to acquire Mukalla, Shihr and the island of Socotra then followed by Mokha. 4 million barrels of oil pass daily from the Suez Canal by these ports. Today, only Huddaida, Yemen’s largest port remain outside Yemeni government control (Figure 10). On the other side of the Suez, DP World, the UAE’s major port operator home based in Jebel Ali, has bought stakes in Limassol port in Cyprus. These moves by Abu Dhabi are an early attainment of hot spots around the proposed maritime routes of BRI from Gwadar to the Suez Canal with the objective of substituting Dubai’s role if it diminishes due to lost traffic (BERBERA, 2017).
Note: this is the second article of three investigating the precedents and possible impacts of China’s Belt & Road Initiative (BRI).
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