5 Ways India’s Going to Be Affected When CPEC Changes World Trade

Pakistan’s Prime Minister Nawaz Sharif (L) shakes hands with China’s President Xi Jinping. (Photo: Reuters)

The much-vaunted USD 54 billion economic corridor in Pakistan that connects the Xinjiang region in western China with the southern Pakistan port of Gwadar is gradually rolling off operations, with the Chinese cargo being loaded onto the merchant vessels docked at the port.

With a whopping USD 11 billion investment in rail and road infrastructure and USD 33 billion in energy and power generation projects – largely financed by Chinese state-owned institutions – this project is being seen as one of the biggest investments made by China. It’s a project that could usher in a new era of economic development in Pakistan.

CPEC runs through the entire length of Pakistan – through Pakistan-occupied Kashmir (PoK) and the southern state of Balochistan. It reduces the distance for Chinese goods bound for the US, Europe, Africa and the entire western world by a substantial 2,000 miles and vice versa by providing an alternate to the ‘Strait of Malacca’ route, through which most Chinese trade currently takes place.

Also Watch: China Unhappy With Dalai Lama’s Invitation to Buddhist Conference

1. India’s Sovereignty

India has continuously opposed the project since it passes through the Pakistan-occupied Kashmiri territory of Gilgit-Baltistan – a claim opposed by Pakistan.

The 1,300-km corridor is also perceived to be an alternative economic road link for the Kashmir Valley lying on the Indian side of the border. Most key players in the Indian state of Jammu and Kashmir, including CM Mehbooba Mufti, have expressed optimism about the project. There have been calls by local business and political leaders to declare Kashmir on both sides of the LoC a ‘Special Economic Zone’.

However, a well-connected Gilgit-Baltistan that attracts industrial development and foreign investment, if CPEC proves a success, will further consolidate the region’s perception as internationally recognised Pakistani territory, diminishing India’s claim over the 73,000 sqkm piece of land which home to more than 1.8 million people.

2. Chinese Control Over Trade Via Sea

Major US ports on the East Coast depend on the Panama Canal to trade with China. Once CPEC becomes fully functional, China will be in a position to offer a ‘shorter and more economical’ trade route (avoiding travel through the entire Western Hemisphere) to most North and Latin American enterprises. This will give China the power to dictate the terms by which the international movement of goods will take place between the Atlantic and the Pacific oceans.

Located a mere 600 km from the Strait of Hormuz, Gwadar places China in close proximity to the Iran-controlled water channel, which supplies 35% of the world’s oil requirements. The 54-km wide Strait has been often used as a strategic weapon of self-defense by the Shi’ite nation, through a threat to choke international oil supplies. This means that the world will look to China to intermediate in the face of any future confrontation between Iran and the Jewish state of Israel or the possible threat of a seizure of the canal.

India, with over 60% of its oil supplies passing through the Strait (mainly from Saudi Arabia, Iran and Iraq), will be no exception.

3. Chinese String of Pearls

China has been increasing its presence in the Indian Ocean with the ‘String of Pearls’ ambition: A term coined by the Americans and often used by Indian defence analysts to refer to a Chinese game-plan of encircling India through a network of airfields and ports.

With an existing presence in Chittagong port (Bangladesh), Hambantota port (Sri Lanka), Port Sudan (Sudan), Maldives, Somalia and Seychelles, a control of Gwadar port establishes complete dominance of the Indian ocean by the Communist nation.

Though Pakistan has denied any current Chinese military presence in the country, China has often hinted at deploying its marine corps at the strategically important port. The possibility of China stationing its troops in the region to secure its investment in case of a possible terror attack in militancy-infected Balochistan cannot be ruled out.

4. Emergence of Pakistan as an Outsourcing Destination

Often referred to as the ‘Marshall Plan’ of China – named after a historic US plan to provide financial aid to western Europe in the aftermath of World War 2, which helped Europe rebuild itself – CPEC is poised to speed up Pakistan’s economic progress.

Development of commercial towns adjoining the corridor and better rail and road connectivity enabling the movement of a skilled workforce from the hinterlands to the urban centres can help Pakistan emerge as a key destination for contract-manufacturing-outsourcing for the WEestern economies. This is more probable at a time when India is becoming costlier and Bangladesh has performed poorly on quality and regulatory standards.

With the logistics of cost and transit time coming down, Pakistani exports, especially from the MSMEs, will also gain an international market, posing serious competition to Indian OEMs and handicraft manufacturers that rely largely on overseas consumers.

Pakistani exports, mainly in the textile and construction material industry, compete directly with those of India in the US and UAE – two of the top three trading partners of both countries. With the supply of raw material from China becoming easier, Pakistan will be suitably placed to become a regional market leader in these sectors – mainly at the cost of Indian export volumes.

Also Read: India Slower Than Pakistan, China in Terms of Resolving Insolvency

5. Stronger OBOR and Chinese Dominance in Trade Leadership

China’s one-belt-one-road (OBOR) project that focuses on the trade connectivity between China and the rest of Eurasia through a network of ports, roads and railways has been often seen as China’s plan to dominate the region politically. CPEC is one giant step in the same direction.

The recent US withdrawal from the TPP (Trans Pacific Partnership) has already left the member countries of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam looking to China for global leadership in trade. An uncertain EU after Britain’s withdrawal and a weakened NAFTA, the renegotiation of which seems certain in the Trump regime, will only help establish China’s superiority across the globe.

A China that is more accepted and integrated with the rest of the global economy will have a better say in the UN and with individual nations, which may prove to be bad news for an India aspiring to acquire a permanent seat at the UN Security Council.

Is the Make in India tiger ready for the Chinese dragon?

Also Read: China’s NSG Doublespeak: Translating the Diplomatese

(The author is a Bangalore-based freelance journalist, covering politics, economy and international affairs. He can be reached @haider_talat. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)