Published On: Wed, Feb 19th, 2014

Pakistan Looks to China for Big Energy and Infrastructure Projects

pak china friendship

Islamabad Expected to Sign $20 Billion of Projects With Chinese During Presidential Visit

By Jeremy Page

Pakistan’s president is looking to strike agreements with China for joint energy and infrastructure projects valued at an estimated $20 billion as part of a strategy to build a trade and transport corridor between the countries.

Mamnoon Hussain, who began a visit to Beijing on Tuesday, was expected to oversee the signing of memorandums of understanding on projects to be completed by 2018, including upgrades of road and rail links and construction of an airport in the Chinese-built Arabian Sea port of Gwadar, in southwest Pakistan, said Ahsan Iqbal, Federal Minister for Planning, Development and Reform.

Chinese and Pakistani authorities selected these as the first so-called early-harvest projects of a longer-term plan to enhance economic ties and transport links between Pakistan and China, which share a border and have had close diplomatic and defense ties for decades, largely because of their mutual distrust of India.

Indian security officials view the plan with suspicion, fearing China wants to increase its economic influence in South Asia and use Gwadar as one of a string of Chinese-financed ports in the region, where its navy could seek shelter and supplies as it expands operations in the Indian Ocean.

The long-term plan to build a China-Pakistan Economic Corridor, including an oil and gas pipeline from Gwadar to China’s northwestern border, has been discussed for years, but has been delayed by corruption, economic instability and security issues in Pakistan, analysts and diplomats say.

“In the past, the economic relationship could not match the political one. Now the leadership on both sides has realized that we have to bridge that gap,” Mr. Iqbal said in a telephone interview.

“The main idea is not just a bilateral corridor. We’re seeking a much broader integration of the region. Essentially, this economic corridor will integrate a region with a population of some three billion people—about half the world.”

In recent months, China has renewed its commitment to the corridor. Beijing hopes the project will establish a new route for energy imports from the Middle East and help to promote economic growth in China’s northwestern region of Xinjiang, home to a separatist movement among members of the mostly Muslim Uighur minority.

Chinese Foreign Ministry spokeswoman Hua Chunying said Tuesday the planned corridor would have a “model effect” on the region.

“This project is also important for strengthening the entire communication between South Asia and East Asia, bringing economic development and improving the quality of life in the peripheries [of China and Pakistan],” she said.

“As for India’s concerns and understanding of this issue, China has been very clear: We think this is a historical issue between Pakistan and India, and we hope the two sides can peacefully solve their differences,” she added.

Mr. Iqbal said the Pakistani government was hoping most of the early harvest projects would be funded through private investment from Chinese companies on a build-operate-transfer basis as well as through concessional loans from China.

“They’re saying they’ll decide what to fund on a project by project basis,” he said of the Chinese authorities. “We’ll complete the projects tomorrow.”

He added that the two sides would discuss a Pakistani proposal that China establish two $10 billion funds for investment in Pakistan —one for infrastructure and one for energy—for the early projects.

The early harvest projects included construction of a motorway from the eastern Pakistani city of Lahore to the southern port of Karachi, and upgrading a stretch of road from China’s border to the Pakistani capital, Islamabad, he said.

Also included were plans to build an airport, a power plant and new roads in Gwadar and to upgrade rail infrastructure between Lahore and the northwestern city of Peshawar, he said.

The initial list also included investment in ongoing projects to develop the Thar coalfield and construct power plants in Gadani, in the southern province of Baluchistan, and Sahiwal, in the southern province of Sindh, he said.

He said Chinese and Pakistani authorities planned to draw up a timetable by August this year for longer term projects, which included the pipeline from Gwadar to China and a new rail link across the border.

Last year, China agreed to build two large 1,100 megawatt nuclear power plants for Pakistan in Karachi under a $9 billion deal, financed largely through a concessional loan from China.

Mr. Iqbal said Pakistan’s government was taking steps to improve security in areas where it was seeking Chinese investment and was cooperating closely with Chinese authorities on counter-terrorism. “We’ve always cooperated with them on security,” he said. “The success of the economic corridor depends on stability.”

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