China has a great strategic interest in Gwadar. In 2013, the state-owned China Overseas Port Holdings Limited acquired Gwadar port. The port is strategically important for China as sixty percent of China’s oil comes from the Persian Gulf by ships traveling over 16,000 kilometers in two to three months, confronting pirates, bad weather, political rivals, and other risks up to its only commercial port, Shanghai. Gwadar will reduce the distance to a mere 5000 kilometers and also serve round the year.
China has been instrumental in the design of the project. China is providing approximately 80% of the cost of the port in the shape of grants and soft loans. Over 500 Chinese workers have worked on the project on a 24-hour basis to complete the port setup. There are still a large number of Chinese workers and engineers working on the project. China is setting up a dry port at the Pakistan–China border to take advantage of the shorter route to sea through Gwadar. China paid US$360 million to Pakistan for expansion and an upgrade for all-weather traffic ability of Karakoram Highway linking Pakistan with China. The contract has been awarded to Frontier Works Organization, who has also started the project. Feasibility and engineering studies to connect China with Gwadar through a pipeline and railway track have already begun.
The Gwadar port-Karakoram Highway (KKH) route is safer, cheaper and shorter than transporting the oil by ocean tanker. Chinese goods flowing in the opposite direction will find an easier, shorter and secure route to the Middle East, increasing trade. The Government of Pakistan has committed to providing a naval base to China in Gwadar. This will not only help secure Gwadar but also take Pakistan-China relations to new heights.Although some analysts claim that China intends to establish a naval presence at Gwadar, others argue that China will be cautious about such a development. A Chinese military presence in Gwadar may provoke a significant reaction from both the United States and India.
Plans for a corridor stretching from the Chinese border to Pakistan’s deep water ports on the Arabian Sea date back to the 1950s, and motivated construction of the Karakoram Highway beginning in 1959.Chinese interest in Pakistan’s deep-water harbour at Gwadar had been rekindled by 1998 and in 2002 China began construction at Gwadar port which was completed in 2006. Expansion of Gwadar Port then ceased thereafter owing to political instability in Pakistan following the fall of General Pervez Musharraf and subsequent conflict between the Pakistani state and Islamist militants.
The current form of the project was first proposed by Pakistani President Asif Ali Zardari, Chinese Premier Li Keqiang and current Pakistani Prime Minister Nawaz Sharif on May 2, 2013 in the President’s House, Islamabad.
In February 2014, Pakistani President Mamnoon Hussain visited China to discuss the plans for an economic corridor in Pakistan.Two months later, Pakistan Prime Minister Nawaz Sharif met with Premier Li Kequiang in China to discuss further plans, resulting in the full scope of the project to be devised under Sharif’s tenure. In November 2014, the Chinese government announced its intention to finance Chinese companies as part of its $45.6 billion energy and infrastructure projects in Pakistan as part of CPEC.
During the state visit of Xi Jinping to Pakistan in April 2015, he wrote in an open editorial stating: “This will be my first trip to Pakistan, but I feel as if I am going to visit the home of my own brother.” On 20 April 2015, Pakistan and China signed an agreement to commence work on the $46 billion agreement, which is roughly 20% of Pakistan’s annual GDP, with approximately $28 billion worth of fast-tracked “Early Harvest” projects to be developed by the end of 2018. As a gesture of friendship, the Pakistani capital at that time was dotted with slogans and signboards such as “Pakistan-China friendship is higher than the mountains, deeper than the oceans, sweeter than honey, and stronger than steel”– an oft repeated phrase coined by the Chinese to describe their deep ties to Pakistan.
On 12 August 2015 in the city of Karamay, China and Pakistan signed 20 more agreements worth $1.6 billion to further augment the scale and scope of CPEC. Details of the plan are opaque but are said to mainly focus on the increasing energy generation capacities part of the agreement, Pakistan and China have agreed to co-operate in the field of space research.
In September and October 2015, the government of the United Kingdom announced two separate grants to the Government of Pakistan for the construction of roadways that are complementary to CPEC. In November 2015, China included the CPEC into its 13th five-year development plan while in December 2015, China and Pakistan agreed on a further $1.5 billion investment to set up an information and technology park as part of the CPEC project.On 8 April 2016, during the visit of Xinjiang’s Communist Party chief Zhang Chunxian companies from Xinjiang with their Pakistan counterparts signed $2 billion of additional agreements covering infrastructure, solar power and logistics.
CPEC is considered economically vital to Pakistan in helping it drive economic growth. The Pakistani media and government have called CPEC investments a “game and fate changer” for the region, while both China and Pakistan intend that the massive investment plan will transform Pakistan into a regional economic hub and further boost the deepening ties between the two countries. Approximately 1 year after the announcement of CPEC, Zhang Baozhong, chairman of China Overseas Port Holding Company told the The Washington Post that his company planned to spend an additional $4.5 billion on roads, power, hotels and other infrastructure for Gwadar’s industrial zone, which would be one of the largest ever sums of foreign direct investment into Pakistan.
Pakistan currently faces energy shortfalls of over 4,500MW on a regular basis with routine power cuts of up to 12 hours per day, which has shed an estimated 2-2.5% off its annual GDP. The Financial Times notes that Pakistan’s electricity shortages are a major hindrance to foreign investment and that Chinese investments in Pakistani infrastructure and power projects will lead to a “virtuous cycle” that will make the country more attractive for foreign investment in a variety of sectors. Poor availability of electricity is considered by the World Bank to be the main constraint to both economic growth and investment in Pakistan.
Gwadar’s economy has, in the past, been dependent mostly on fishing. Gwadar’s economy is undergoing a rapid transformation as a small fishing village is being transformed into a major port city of Pakistan with improved communication links with the rest of Pakistan. In 1993, the Government of Pakistan commenced a feasibility study for the construction of a deep-sea port at Gwadar. On 22 March 2002, the Government of Pakistan began construction of Gwadar Port, a modern deep-sea port, the first phase of which was completed in December 2005 and the second in March 2007. Gwadar Port became fully operational in December 2009. The 1400 km Trans-Afghan Gas Pipeline (TAP) from Turkmenistan to Gwadar (Pakistan), a long-dormant project that would pump Turkmen natural gas to markets in South Asia, may finally be poised to begin at a cost of $3 billion.