CPEC’s promise for the South Asian region

Established in 2013, the CPEC (China Pakistan Economic Corridor) is a signature project of the Chinese Belt and Road Initiative (BRI) and crucial to the long-term success of both Pakistan and China. When completed, it will connect Kashgar city in Western China, to the center-stage of the project, Gwadar Port in Pakistan.For Pakistan, CPEC will directly generate an estimated 1.2 million jobs and crucial infrastructure in the energy, transportation, agricultural, health, and tourism sectors. Additionally, it will also provide much-needed Foreign-Direct-Investment (FDI) through the Special Economic Zones. These factors combined hold the potential to rescue Pakistan out of its financial woes and stir it towards a strong and self-reliant economy.

For China, it offers an enticing opportunity to tap into the market of 200 million-populated Pakistan. This can be a game-changer for the western region of China which is considerably less developed than the Eastern portion and can greatly benefit from enhanced regional trade. The CPEC infrastructure will also provide on-ground access to the strategically important Gwadar port. This means easier and cheaper access to the Middle East, Central Asian, and African markets for the flourishing Chinese Economy. Lastly, CPEC also promises to grant China a greater influence than India over the politically hot South-Asian region.

But CPEC is meant to be much larger than just infrastructure development agreements to benefit Pakistan and China. This initiative is meant to be pivotal in spurring regional connectivity, development, and growth. The 8 countries in the South Asian Region (India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives) are home to roughly one-fourth of the world population. However, much of the region still has vastly untapped markets and is combatting unemployment, poverty, and industrialization issues. However, this also means that there is extensive room for growth. The World Bank expects the growth rate of the region’s GDP to stabilize at around 7 percent in this decade, compared to the 2.9 percent World GDP growth expectation.

This provides a great outlook for South Asian economies overall and opens massive opportunities for CPEC to positively impact the region. Projects under CPEC will provide an on-ground connection between China and Pakistan, upgrade cross country highways and railroads in Pakistan, and help maintain the existent highway-railway corridors with Iran and Afghanistan. Moreover, BRI initiatives China is working on with Sri Lanka, Nepal, and Bangladesh will also enable them to enhance bilateral trade with Pakistan, Iran, and Afghanistan. Therefore, through the trade routes developed under CPEC and BRI initiatives, the South Asian region will benefit from the ease of doing business and decreased transportation costs like never before.

If operationalized properly, these trade routes can provide a massive boost to regional trade, which is shockingly low.

According to the World Bank, regional trade (amounted at $23 Billion) accounts for 5% of South Asia’s total, whereas 50% of trade in East Asia accounts for regional trade. For the growing South Asian economies, a lack of bilateral trade with countries in its region can have grave implications. Experts believe this sort of regional economic activity can significantly decrease unemployment, drive market expansion, and create political stability in South Asia. Therefore, South Asia, which houses more than 33% of the world’s poor, can greatly benefit from an increase in regional trade. With that said, the Gravity Model of international trade illustrates that regional trade in South Asia has the potential to grow to $67 billion, which leaves a prospective 300% margin for growth, leaving it for CPEC to avail. Hence if CPEC can be operationalized under its original vision, it holds the potential to exponentially expedite connectivity in the region and assist in boosting regional trade.

Experts believe that this regional connectivity, as well as ease of doing business and transportation, can prove to be the engine South Asia needs to industrialize and bring economic prosperity in the region. These two factors can be pivotal in the improvement of living standards that South Asia desperately requires by providing an increase in South Asia’s Per Capita income of $1951. Hence, in addition to being beneficial for Pakistan and China, CPEC has the promise to become a beacon of light for the whole South Asian region.