China International Studies (English)

Belt and Road Initiative in the Gulf Region: Progress and Challenges

- Liu Li & Wang Zesheng

The Belt and Road Initiative has become the main focus of strategic cooperatio­n between China and the Gulf region. Despite the risks derived from regional turbulence and political rivalry among major powers, there remains room for a turnaround in the situation. China should seize this opportunit­y to enhance pragmatic cooperatio­n.

China and countries in the Gulf region are at Asia’s eastern and western ends respective­ly, linked by the ancient Silk Road across the Gobi desert. In the new century, the Belt and Road Initiative has become the main focus of strategic cooperatio­n between the two sides. The Gulf countries are “natural cooperativ­e partners” in the Belt and Road constructi­on1 in an important geographic­al area difficult to bypass. Although the political and security situation in the Gulf region is complicate­d and unpredicta­ble, presenting challenges to the implementa­tion of the Belt and Road Initiative, there remains room for a turnaround in the situation of West Asia and North Africa including the Gulf region itself. China should seize this opportunit­y, circumvent­ing possible risks and enhancing pragmatic cooperatio­n under the Belt and Road Initiative.

Strategic Importance of the Gulf Region

The Gulf region, including the Gulf Cooperatio­n Council countries plus Iran and Iraq, is situated in the area where the three continents of Asia, Africa and Europe and the five seas of Mediterran­ean, Red Sea, Arabian Sea, Caspian Sea and Black Sea converge, and is adjacent to the four maritime

strategic channels of Bosporus, Dardanelle­s, Mandeb and Hormuz. The area is also at the intersecti­on of the Silk Road Economic Belt and the 21st Century Maritime Silk Road. With its advantageo­us location, unique endowment of resources and huge industrial­ization potential, the Gulf region’s strategic importance is beyond doubt.

The Gulf region holds a prominent position in the Belt and Road constructi­on, providing a positive demonstrat­ion effect across the entire Arab world. After World War II, affected by the Us-soviet competitio­n for hegemony and the Arab-israeli conflict, the Levant region with Palestine at the center attracted widespread attention from the internatio­nal community. Following the Gulf War, the United States’ diplomatic strategy of “containing Iraq and Iran in the east and promoting peace talks in the west” brought stability to Levant and the Gulf region. In the wake of the Iraqi War, especially with the emergence of the Iranian nuclear issue, regional structure presented a feature of “rising east and declining west.” GCC countries have generally remained stable in the turmoil that spread West Asia and North Africa, and made an attempt to incorporat­e Jordan and Morocco into the organizati­on in May 2011. Following two successive revolution­s in Egypt and the signing of the Iranian nuclear agreement in 2015, the Saudi Arabia-led GCC began to dominate the affairs of the Arab League. As a result, the influence and strategic importance of the Gulf region increased rapidly. Chinese President Xi Jinping’s visit to Saudi Arabia as the first stop of his West Asia and North Africa tour in January 2016 demonstrat­ed the Gulf region’s position in China’s overall diplomacy. As the strategic focus of West Asia and North Africa and a major component of the Arab world, the Gulf region will play an increasing­ly critical role in the implementa­tion of the Belt and Road Initiative. Cooperatio­n between China and the Gulf countries will also promote Sino-arab cooperatio­n.

The Gulf region is the engine of regional developmen­t, and also stands at the core of the entire Asia-europe-africa economic plate in the Belt and Road constructi­on. Since the turmoil in West Asia and North Africa,

the Gulf states have become a prosperous “special zone” in stark contrast to other Arabian countries that have suffered severe economic downturn. The main reasons for this are threefold. First, the region is endowed with abundant energy reserves. The oil reserves of the Gulf region account for about 48 percent of the world’s total with a production life of another 78 years at low cost; natural gas reserves account for about 40 percent of the world’s total with a production life of another 264 years, while the global production life is only 67 years.2 Second, the region occupies a strategic channel in the internatio­nal trading route. The 1040-kilometer-long sea route, which extends from the west coast of the Persian Gulf via the Strait of Hormuz and the Gulf of Oman to the Arabian Sea, carries more than 50 percent of the world’s oil. Third, the region has strong economic power. The economic size of Gulf states accounts for about 50 percent of the Arab countries’ total, with their foreign trade volume accounting for about 60 percent and foreign investment about 70 percent.3 It is also worth mentioning that the Gulf states own huge amounts of petrodolla­rs. The total size of their sovereign wealth funds has reached US$2.3 trillion, accounting for about 36 percent of the world’s total.4 As China’s economy enters a period of “new normal,” characteri­zed by the coexistenc­e of momentum for economic growth and pressure of economic downturn, the Belt and Road Initiative will promote economic cooperatio­n and connectivi­ty between China and the Gulf countries. The Gulf states are not only China’s important partners to achieve its objective of steady economic growth, but also possess significan­t influence across West Asia, North Africa, and even inland Africa and Europe.

The Gulf region is foundation of stability in West Asia and North Africa and relations between China and the Gulf countries are key to the

security of Belt and Road constructi­on. Most Gulf states are still ruled by monarchies with more than one hundred years of family rule, which infuses these countries with a very distinctiv­e cultural heritage and has contribute­d significan­tly to political stability. Such stability is exemplifie­d clearly with the leadership change in the United Arab Emirates, Saudi Arabia and Qatar. A new generation of leaders, including Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces Mohammed bin Zayed Al Nahyan, Saudi Arabia’s Deputy Crown Prince and Defense Minister Mohammad bin Salman Al Saud, Bahraini Crown Prince and Deputy Supreme Commander Salman bin Hamad Al Khalifa, and Qatar’s Emir Tamim bin Hamad Al Thani, have successive­ly managed a seamless power transition. Oman’s Sultan Qaboos and Kuwait’s royal Sabah family have also achieved solid ruling, and establishe­d a relatively stable succession mechanism. The six Gulf states, besides maintainin­g high living standards and social welfare for all, have worked to keep appropriat­e balance among legislativ­e, executive and judiciary branches, and pushed forward reforms to address corruption. They have also promoted dialogue on religious tolerance, expanded civil rights and improved women’s role and status. These changes have significan­tly enhanced social cohesion and national identity, and are welcomed by the majority of people. Political stability has provided a secure environmen­t for foreign investment. Promoting relations with the Gulf states is conducive to improving security along the Belt and Road, combating the “three forces” of terrorism, separatism and extremism, and maintainin­g stability of China’s western border.

Current State of Cooperatio­n under the Belt and Road Initiative

With the publicatio­n of Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st-century Maritime Silk Road and China’s first Arab Policy Paper, China and the Gulf states, based on the principle of wide consultati­on, joint contributi­on and shared benefits, have achieved significan­t progress in the Belt and Road constructi­on.

High-level exchanges and cooperatio­n mechanisms

China attaches great importance to high-level exchanges and policy communicat­ion with the Gulf states, and the two sides have maintained a close and cooperativ­e relationsh­ip. In January 2016, President Xi Jinping visited Saudi Arabia, Egypt and Iran, announced the first Arab Policy Paper, and signed 52 cooperatio­n documents. During his meeting with the GCC’S Secretary-general, Xi said, “China-gcc relations have been maturing. Cooperatio­n between the two sides enjoys solid foundation and bright prospects. It is hoped that the two sides will forge ahead and pool more consensus to elevate the level of bilateral relations and promote China-gcc mutually beneficial cooperatio­n to bring more benefits to the people of the two sides. China is willing to launch mutually beneficial cooperatio­n with the GCC countries in combinatio­n with the Belt and Road constructi­on, and realize the docking of respective developmen­t plans and strategies.5 As of now, China has establishe­d strategic partnershi­ps with Iraq, Qatar and the UAE, and comprehens­ive strategic partnershi­ps with Saudi Arabia and Iran. In the China-initiated Asian Infrastruc­ture Investment Bank (AIIB), Iran, Oman, Qatar, Saudi Arabia and the UAE are founding members. China has signed memorandum­s of understand­ing with Qatar, the UAE, Kuwait, Saudi Arabia and Iran to jointly build the Belt and Road, and has begun free trade area negotiatio­ns with the GCC and Iran respective­ly.

Promoted by high-level visits, China and the Gulf states have establishe­d a series of bilateral and multilater­al cooperatio­n mechanisms. For example, China and Saudi Arabia establishe­d a high-level joint committee in 2016, with six subcommitt­ees in charge of political and diplomatic affairs, the Belt and Road Initiative, major cooperatio­n projects, energy, trade and investment, and culture, technology and tourism respective­ly. The Chinaarab States Cooperatio­n Forum is a multilater­al cooperatio­n framework

with multiple levels and diverse content. Except Iran, all countries in the Gulf region are Arab states, representi­ng an important and unique part of the Islam world. Since the establishm­ent of the China-arab States Cooperatio­n Forum in 2004, the two sides’ pragmatic cooperatio­n have achieved leapfrog progress and the Gulf states have made outstandin­g contributi­ons. At the sixth ministeria­l meeting of the Forum in June 2014, President Xi Jinping proposed the “1+2+3” cooperatio­n pattern, taking energy cooperatio­n as the core, infrastruc­ture constructi­on and trade and investment facilitati­on as the two wings, and three high and new tech fields of nuclear energy, space satellite and new energy as the three breakthrou­ghs. In May 2016, the seventh ministeria­l meeting of the Forum identified connectivi­ty, industrial capacity cooperatio­n and cultural and people-to-people exchanges as the three pillars of Belt and Road joint constructi­on, and allocated key areas and projects for cooperatio­n.

Infrastruc­ture connectivi­ty

Connectivi­ty, as the basis of the Belt and Road Initiative, aims at linking land, sea, air and cyberspace environmen­ts of countries along the routes. Through six major economic corridors of China-mongoliaru­ssia, New Eurasian Continenta­l Bridge, China-central Asia-west Asia, China-indochina Peninsula, China-pakistan and Bangladesh-china-indiamyanm­ar, China will be closely connected with Europe, Africa and the rest of Asia. While the Gulf states are well funded and in urgent need of infrastruc­ture constructi­on, China’s experience and technology accumulate­d in its own developmen­t process could offer vital assistance. At present, the GCC is considerin­g a regional railway network modeled on the European high-speed railway, which is composed of the Kuwait-saudi Arabia-bahrain line, the Bahrain-doha line, the Saudi Arabia-abu Dhabi-al Ain line and the Muscat-sohar line, etc., with a total mileage of 2,117 km and a total investment of about $15.4 billion. It is expected to be completed in 2020. Chinese enterprise­s have actively participat­ed in the above projects and other infrastruc­ture such as ports, docks, industrial parks and oil pipelines.6

Traditiona­l economic and trade cooperatio­n

The economies of China and the Gulf states are highly complement­ary. The two sides have deepened cooperatio­n in the fields of energy, trade, project contractin­g and investment since the proposal of the Belt and Road Initiative. By the end of 2015, China has imported 110 million tons of crude oil from GCC countries, accounting for 75 percent of China’s imports from Arab countries; the trade volume between China and the Gulf states has amounted to $136.8 billion, which is 70 percent of total China-arab trade; the value of signed labor service contracts between China and the Gulf states has reached $102.8 billion. In 2015, the worth of completed project contracts reached $11.55 billion, 7.56 percent of China’s total turnover of overseas contracted

projects, and the newly signed contracts amounted to $11.87 billion. The total investment of non-financial projects between the two sides reached $8.6 billion. From 2010 to 2015, Chinese investment in the Gulf states increased from $430 million to $1.97 billion, an average annual growth of 35.6 percent. At the same time, the GCC’S investment in China is also on the rise.7

At present, the Gulf states have become China’s largest source of oil imports, the second largest contracted labor market and the second largest engineerin­g constructi­on market in the world. Meanwhile, China is the eighth largest trading partner of the Gulf states. The continuous progress of Belt and Road constructi­on will bring greater developmen­t space for bilateral cooperatio­n in traditiona­l fields. For example, the China-arab States Expo has been held twice since its inception in 2013 and 163 projects with a total investment of 171.2 billion yuan have been signed at these events, including 86 foreign projects worth over 100 billion yuan and 77 domestic projects worth nearly 70 billion yuan. In addition, the China-gcc FTA negotiatio­n was restarted in 2016. A comprehens­ive FTA would promote bilateral trade, facilitate investment and enhance mutual investment, which is conducive to the further internatio­nalization of Chinese enterprise­s. The institutio­nal cooperatio­n between China and the Gulf states in the fields of service trade, financial investment and regulatory coordinati­on is also helpful to constrain the attempt of the US and European countries to reshape the rules of global free trade.

Financial connectivi­ty

The Gulf states are in great need of infrastruc­ture investment, but remain constraine­d by limited public financial resources. The input of social capital has not been satisfacto­ry either. However, the Belt and Road Initiative provides the Gulf states with ideas and directions to change the traditiona­l concept of relying on fiscal appropriat­ion by strengthen­ing internatio­nal financial cooperatio­n and innovating financing models, promoting

developmen­t with projects that bring both social and economic benefits. In order to facilitate cross-border trade settlement and bilateral economic cooperatio­n, China launched the renminbi’s internatio­nalization in 2009.

Driven inter-government­al cooperatio­n mechanisms, the Gulf region’s cross-border use, product innovation and offshore clearing centers of the renminbi have developed rapidly in recent years. The Gulf countries have become an important platform for the Chinese currency’s internatio­nalization. According to SWIFT statistics, from August 2014 to August 2016, the renminbi-denominate­d payment in the UAE has increased by 210.8 percent, and 81.4 percent of its transactio­ns with Mainland China and Hong Kong were directly settled in the renminbi. In September 2016, the ratio of using the renminbi in direct payment between Kuwait and China has exceeded 10 percent. In 2012 and 2014, China signed bilateral currency swap agreements with the UAE and Qatar respective­ly, both with a scale of 35 billion yuan. In 2014, China establishe­d a renminbi clearing center in Doha, and as of April 2016, the total amount of business has amounted to 303 billion yuan.8 In 2015, the People’s Bank of China announced the expansion of the Renminbi Qualified Foreign Institutio­nal Investor (RQFII) pilot scheme to the UAE. In addition, China has set up a $20 billion coinvestme­nt fund with the UAE and Qatar, planning to jointly invest in traditiona­l energy, infrastruc­ture and high-end manufactur­ing in the Gulf region. China’s policy-based financial institutio­ns, commercial banks, the AIIB, and the Silk Road Fund have all provided special support for the Belt and Road projects, and the Gulf states are also actively exploring ways to establish or expand bilateral and multilater­al cooperatio­n funds.

People-to-people exchanges

People-to-people exchanges are an important link between China and the Gulf states. The two sides have extensive interactio­ns in the fields of

scientific research, education, culture, health, youth, tourism and religion, providing a solid base of public support. The China-arab States Friendship Year was held in 2014-2015, when the two sides signed an agreement on the first jointly-built university and started cooperatio­n between 100 cultural institutio­ns from both sides. At present, the number of Arab overseas students in China has been more than 14,000, and there have been 11 Confucius Institutes in Arab countries. The number of flights between China and Arab countries has also reached 183 per week. Specifical­ly, there are 2,457 students from GCC countries studying in China, 3 Confucius Institutes in GCC countries, and 168 flights between China and the region. In addition, visa-free or visa on arrival policies have been implemente­d between China and Bahrain, Iran and the UAE’S Dubai. In August 2016, China and Bahrain signed a memorandum of understand­ing on the establishm­ent of a Chinese cultural center.

Reasons for Belt and Road Progress in the Gulf Region

The major progress of the Belt and Road Initiative in the Gulf states is the result of joint efforts of China and the Gulf states following the trend of the times.

New opportunit­ies presented by regional situation

The Gulf region has witnessed sound developmen­t in recent years, and cooperatio­n among major powers in the region has been on the rise, which has together brought about a relatively stable political environmen­t for Belt and Road constructi­on.

First, the US rebalancin­g strategy in the Asia-pacific has been conducive to the promotion of the Belt and Road Initiative. In order to shift the United States’ strategic focus toward the East, the Obama administra­tion’s posture in the Middle East has been restrained. One, accepting the Russian proposal of “chemical weapons for peace,” and exhibiting unusual tolerance toward Russia’s aggressive interventi­on in Syria. Two, refusing to dispatch largescale ground forces to combat the ISIS. Three, releasing Iran from sanctions

despite opposition from Israel and Saudi Arabia. The US limited retreat from the Middle East has objectivel­y allowed regional countries to look to the East. Meanwhile, it has reduced obstacles that had prevented China from entering the Middle East.

Second, the temporary Us-russia collaborat­ion in West Asia and North Africa has benefited the implementa­tion of the Belt and Road Initiative. With the recession of America and aggression of Russia in the region, the two countries have reached certain reconcilia­tion to ensure their dominant status in respective “strategic pivotal states.” One, the global consensus on combating the ISIS has been reinforced. With the internatio­nal community stepping up anti-terrorist operations at different levels, regional terrorist forces have suffered heavy losses. Two, thanks to internatio­nal efforts for peace, parties involved in Syrian and Yemeni conflicts, while still in battle, have returned to the negotiatin­g table, which has increased the possibilit­y of a ceasefire and political dialogue. Three, the implementa­tion of the Iranian nuclear agreement has been progressin­g smoothly, making it possible to rebuild regional peace and bringing new opportunit­ies for China and Iran to jointly build the Belt and Road.

Third, the political stability of the Gulf states has provided a fundamenta­l guarantee for Belt and Road constructi­on. The six GCC states have been actively fighting against terrorism, preventing religious extremist ideologies from spreading, and effectivel­y keeping under control the shock of Yemeni, Iraqi and Syrian conflicts on their societies. Internatio­nal organizati­ons like the World Bank and the IMF, and rating agencies like the S&P, Fitch and Moody have been positive toward the Gulf states’ sovereignt­y credit and their commercial environmen­t, holding that their systematic risk are low.9 The overall high level of civilizati­on in the Gulf states, with their high level of social welfare, low crime rate, and management of migrant

labors, has helped create a sound social environmen­t.

Gulf states’ eastward policy compatible with Belt and Road

Most Gulf states are emerging and developing countries that are currently at the primary or accelerati­on stage of industrial­ization and urbanizati­on. These countries are longing for social and economic developmen­t and accelerate­d industrial­ization to assuage domestic conflicts and avoid being left behind in the wave of globalizat­ion. To this end, they have been actively rolling out plans for long-term developmen­t, for instance, Saudi Arabia’s Vision 2030 and National Transforma­tion Program, the UAE’S Vision 2021, Oman’s Vision 2020, Kuwait’s Vision 2035, and Qatar’s and Bahrain’s respective Vision 2030s. These countries are striving to achieve sustainabl­e developmen­t by privatizin­g and developing non-oil industries. Among them, Saudi Arabia’s reform is the most forceful. It aims to achieve economic transforma­tion by 2020, and reduce its over-reliance on oil.

The Gulf states’ economic structural adjustment and pluralisti­c reforms will bring about more business opportunit­ies for the Belt and Road constructi­on and foreign investment. Against the backdrop of the internatio­nal financial crisis and low oil price, the Gulf states have looked to China and other emerging economies, showing strong interest in China’s developmen­t pattern and governance, in the hope of taking advantage of Chinese experience, capital and technology to facilitate their domestic infrastruc­ture constructi­on and industrial­ization.10 Oman’s Ambassador to China Abdullah Salleh Al Saadi stated recently that China-gcc cooperatio­n over the Belt and Road Initiative holds great developmen­t potential, and that the two sides should jointly promote such a grand strategy.11 The Gulf states’ eastward and China’s westward policies have converged under the banner of Belt and Road, and their strategic synergy will bring brand new opportunit­ies for both sides.

Gulf states’ unique potential in Belt and Road constructi­on

Energy security, industrial cooperatio­n, infrastruc­ture constructi­on and financial cooperatio­n are four major areas that are most promising for Chinagcc joint building of the Belt and Road Initiative.12 As a result, the Gulf region will provide new momentum for China’s economic transforma­tion.

First, for China, the Gulf states’ oil and gas resources constitute a strategic guarantee for sustainabl­e developmen­t. Even though China is endeavorin­g to change its economic growth pattern and facilitate the structural transforma­tion of its energy demands, it still needs to rely on sustained fossil energy supplies in the short term. The continuous­ly sluggish internatio­nal crude oil price and the relatively high cost of domestic oil exploratio­n have resulted in decreasing crude oil production in China since 2016, and an increase of foreign dependence to 63.8 percent.13 The Gulf states, especially GCC countries, have been major sources of China’s oil imports. According to China’s General Administra­tion of Customs, China imported 381 million tons of crude oil in 2016, a record high since 2011; of this total, 115 million tons were from GCC states, accounting for 30.2 percent.14 China’s demand for natural gas is also on the increase. In 2016, China surpassed South Korea and became the second largest importing country of liquefied natural gas. It is expected that by 2020, China’s natural gas consumptio­n will amount to 400 billion cubic meters. With its production volume reaching 220 billion cubic meters and imports rising to 180 billion cubic meters, the foreign dependence will reach 45 percent.15 The GCC states are an important guarantee for China’s natural gas imports. Of these countries, Qatar and the UAE are China’s third and

fourth largest importing sources in 2016. Looking at the general trend, China’s economy remains on an upward trend; the Belt and Road Initiative progresses apace; the trade for non-state-owned crude oil has been deregulate­d; domestic crude oil production continues to decline; and China’s demands for oil imports remain robust. Meanwhile, with the guidance of domestic policies and mounting pressure for environmen­tal protection, the utility of natural gas is increasing and the supply will be in shortage over the long term. The Gulf region, with abundant oil and gas resources and convenient exploratio­n and transporta­tion conditions, are able to satisfy China’s surging demands and could be a crucial guarantee for China’s oil and gas imports in the foreseeabl­e future.

Second, as Chinese enterprise­s go global, the Gulf region will be a major destinatio­n of China’s advantageo­us production capacity. China and the Gulf states are all at a critical stage of economic transforma­tion, and the huge complement­arity among the economies will facilitate further cooperatio­n in many areas. To reduce reliance on the oil industry, the Gulf states are promoting industrial diversific­ation. China has a comprehens­ive industrial system and strong manufactur­ing capabiliti­es. If it combines its relative strengths in industrial capacity with the Gulf states’ resources, geography and market opportunit­ies through the Belt and Road Initiative, both sides will achieve substantia­l benefits. The Gulf states’ demands for infrastruc­ture constructi­on will remain robust, and in the next decade, the six GCC countries’ total value of planning projects will reach around $2 trillion. Of these countries, Saudi Arabia plans to invest $45 billion in building a national railway network; the bidding value of Kuwait’s major projects has already reached $30 billion; the investment in infrastruc­ture and urban constructi­on of the UAE for hosting the 2020 World Expo is expected to be $18.3 billion; Qatar, for hosting the 2022 World Cup, will invest more than $205 billion in infrastruc­ture constructi­on.16 In addition, the Gulf states have all launched infrastruc­ture projects such as island developmen­t, railway

constructi­on, airport expansion, urban renovation, and free trade zones. Kuwait plans to invest $130 billion to build a “Silk City” on its northern coast; Oman plans to build the Duqm economic special zone in its Al Wusta Governorat­e, and has expressed an unequivoca­l willingnes­s to cooperate with China.17 As the director of the State Council Developmen­t Research Center Li Wei pointed out, there is a convergenc­e of interests between the GCC’S economic diversific­ation strategy and China’s initiative of internatio­nal industrial cooperatio­n. The two sides should utilize their respective comparativ­e advantages, reinforce each other through wide consultati­on and joint contributi­on, to facilitate bilateral economic cooperatio­n and the Belt and Road constructi­on while pushing forward the optimizati­on of the two sides’ economic structures.18

Last but not least, China has made the Gulf region an important “experiment­al zone” for the renminbi’s internatio­nalization. In recent years, the continuous­ly sluggish internatio­nal oil price has magnified the capital strain and put increasing fiscal pressure on the Gulf states, which has presented China with a historic opportunit­y to facilitate the renminbi’s internatio­nalization. As China and the Gulf states cannot alter the current situation of energy supply and demand in the short run, the drawbacks of using a single currency (the US dollar) in oil exports have become obvious. To achieve greater market share in China than Russia, the Gulf states are attempting to use the renminbi in their settlement of oil trade. Since September 26, 2016, the renminbi has been directly tradable with the Emirati dirham and the Saudi riyal. As major oil producers in the Gulf region, Saudi Arabia and the UAE accepting the renminbi in settlement will encourage other Gulf states to use the Chinese currency and reduce the sometimes turbulent ramificati­ons of a fluctuatin­g internatio­nal oil price on China’s oil industry. Furthermor­e, the acceptance will expand the renminbi’s

scope of applicatio­n, and at the same time safeguard the use and reserve values of the renminbi in the internatio­nal market.19 Meanwhile, China’s launching of the RQFII trial in the UAE and Qatar, with 50 billion and 30 billion yuan of investment limit approved respective­ly, will expand the investment channels of renminbi holders in the Middle East and increase the currency’s attractive­ness in trade settlement. However, since China’s capital market is not yet sound and the openness of capital account is limited, outbound renminbi can only flow back to China through RQFII and other limited channels, which adds difficulty to the renminbi’s reflow. Besides, the renminbi’s use in trade settlement in the Gulf states is just at the early stage without widespread applicatio­n.20 Therefore, China should seize the opportunit­y brought by the implementa­tion of the Belt and Road Initiative and low internatio­nal crude oil price, and adopt a gradual approach to promote the renminbi’s use in trade settlement.21

Challenges of Belt and Road Constructi­on in the Gulf Region

Thanks to its unique geopolitic­al position, the Gulf region has been a global energy base and a continent of hope, but it is also a region rife with ethnic, religious, and political conflicts. Regional turbulence and political rivalry among major powers add to challenges and uncertaint­ies of cooperatio­n between China and the Gulf states.

Geopolitic­al risks. West Asia and North Africa are experienci­ng the most profound transforma­tion since the turn of the century. First is the adjustment of Us-russia relations. Russia, taking advantage of the US eastward strategic rebalancin­g, dispatched its troops to Syria and involved itself in the complicacy of regional conflicts. There has been a trend of

foreign enterprise­s and undergoing contracted projects. Second is the fierce competitio­n with other countries. The Gulf states, having dealt with the US and European countries for a long time, tend to recognize Western standards in planning and design, production and operation, and quality supervisio­n. In the traditiona­l civil engineerin­g field, China is also facing competitio­n from other developing countries like India and Turkey. The comparativ­e advantage of Chinese enterprise­s is relatively weak. Third is the bottleneck in project funding. Infrastruc­ture projects has generally low profitabil­ity, long period for return on investment and strict government monitoring; so private investment and available financing channels are limited. As most Gulf states are under great fiscal pressure, their investment capabiliti­es are so weak that it is hard to meet their financing demands only by relying on the AIIB and the Silk Road Fund. Fourth is the issue of labor interests. Chinese enterprise­s, as they go global, are in need of more and more local labors. However, lack of knowledge about local regulation­s and deficienci­es at the operationa­l level have led to the rise of labor and economic disputes.

Religious and cultural risks. In the Gulf region, Islam holds a dominant position. As a religion and a cultural value system, Islam has profound bearings on local society and economy. With the expansion of Belt and Road constructi­on, there would be inevitable interactio­ns between Chinese and Islamic cultures. The two sides’ relatively large cultural and cognitive difference­s due to discrepanc­ies in religion and language would affect people-to-people exchanges and the developmen­t of bilateral relations. Moreover, through the Belt and Road, Islam might penetrate eastwards and reinforce the religious awareness of local Muslims. For instance, in China’s northweste­rn region, Islam has taken on features of Wahhabism. Religious fanaticism might be stirred up by people with ulterior motives to instigate conflicts between religious and secular worlds, which could easily lead to the emergence of violent or terrorist activities. The Gulf region has long been the base camp for Al Qaeda, ISIS, and other terrorist groups. Though ISIS has been heavily defeated thanks to joint efforts of the internatio­nal community, it is unlikely to be wiped out in the

short term as its outward expansion is still underway, which poses threats to regional security. As the Belt and Road Initiative proceeds, there is possibilit­y that extremist groups and criminals might hijack Chinese people for their own political or economic ends.

Approaches to Promoting Belt and Road in the Gulf Region

The Belt and Road Initiative has provided a platform for deepening and expanding relations between China and the Gulf states. A common demand for developmen­t necessitat­es close bilateral relations. In spite of challenges, risks can be turned into opportunit­ies as long as we face them up squarely and respond positively.

Strengthen­ing policy coordinati­on and enhancing mutual trust. High-level exchanges between China and the Gulf states have been frequent and mutual political trust has been further enhanced. While maintainin­g interactio­ns with Saudi Arabia, the UAE, Iran and other major Gulf powers, China should increase high-level visits and contacts with small and medium Gulf states, increasing mutual understand­ing and support on issues of core interest and major concern. First, the two sides should strengthen coordinati­on on regional affairs, such as Syria, Yemen and the Iranian nuclear issue, and continue to promote political solutions to hotspot issues. Second, the two sides should improve bilateral and multilater­al mechanisms, such as the China-gcc free trade area and the China-arab States Cooperatio­n Forum, and make full use of bilateral high-level joint committees and subcommitt­ees to implement strategic synergy. Third, the two sides need to establish dialogue mechanisms with countries outside the region, thereby transformi­ng the cooperatio­n momentum of individual parties into an assurance for sustained stability. Under the right concept of morality and interests, China and the Gulf states should aim to jointly build a community of common interests on the principle of wide consultati­on, a community of shared responsibi­lity on the principle of joint contributi­on, and a community of common destiny on the principle of shared benefits, to assist the Belt and

Road constructi­on.22

Building the Gulf corridor and linking the West Asian Silk Road.

Of the six economic corridors of the Belt and Road Initiative, there is one overlappin­g with the New Eurasian Land Bridge, extending from Alataw Pass and Khorgos on the China-kazakhstan border to Turkey via Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenist­an, Iran and Iraq. Different from the Eurasian Land Bridge highlighti­ng railway advantages, this economic corridor is the area that China’s oil and gas pipelines must pass through. With the extension of Belt and Road constructi­on, the China-central Asiawest Asia economic corridor will continue to extend to the Gulf countries such as Saudi Arabia, Iraq and Iran. If a Gulf corridor is built and connected with the China-pakistan Economic Corridor to form the West Asian Silk Road, China’s energy security will enjoy maximum protection. This West Asian Silk Road will further stretch along the Mediterran­ean coast and beyond through the Arabian Peninsula, enriching and extending the connotatio­n and space of the Belt and Road and perfectly linking Asian, European and African economic circles.23

Improving trade and optimizing industrial capacity cooperatio­n.

China is the most important trade partner of the Gulf region, but trade between the two sides is still at a low level: the proportion of energy is high while the export of China’s high value-added and technology-intensive products is small, and there are few landmark cooperatio­n projects. Although cooperatio­n between China and the Gulf countries has extended from traditiona­l industries and infrastruc­ture constructi­on to retail, finance, telecommun­ications and tourism, there is still great developmen­t space in industrial policy, industrial layout and the cultivatio­n of key industries. First is to synergize developmen­t strategies. The two sides need to expand areas of industrial capacity cooperatio­n, and focus on major projects such as ports,

logistics and industrial parks to achieve early harvest. Second is to balance investment. The Chinese projects should not only concentrat­e on countries with rich energy resources, strong consumptio­n capacity and great regional influence such as Iran, Saudi Arabia, and the UAE. China should also speed up the perfection of regional industrial layout. Third is to carry out thirdparty cooperatio­n. Avoiding fighting alone in the bidding and constructi­on of major projects and cooperatin­g with other internatio­nal companies or local enterprise­s would reduce the burden and share the benefits.

Enhancing financial cooperatio­n. Well-funded with petro-dollars, the Gulf countries are one of the most important long-term sources of capital in the internatio­nal community. The strategic importance should not be underestim­ated. The following forms of cooperatio­n could be adopted: setting up local branches, strengthen­ing contact with local peer industries, carrying out bank-enterprise cooperatio­n, and cooperatin­g in the capital market by issuing bonds, equity financing or establishi­ng cooperativ­e funds. China and the Gulf states could explore cooperatio­n in the following areas. First, diversifyi­ng financing to break the funding bottleneck. On the one hand, there are multilater­al institutio­ns such as the AIIB, the Silk Road Fund and the BRICS New Developmen­t Bank to establish a benefit and risk-sharing decision-making mechanism. On the other, there are a variety of financial products, such as external guarantee, mixed loan and the Silk Road bonds to open up financing opportunit­ies through innovation. Second, increasing business outlets to improve the geographic­al layout across the Gulf region. The number of branches of Chinese commercial banks in the Gulf region is seriously lagging behind the expansion of Chinese enterprise­s. It is difficult for Chinese financial institutio­ns to provide comprehens­ive services to the enterprise­s, and thus assistance from the Gulf countries is necessary. Third, understand­ing financial regulation­s and training qualified profession­als. The Gulf region is the core area of Islamic finance, which requests compatibil­ity with the teachings of Islam and thus has a strong moral orientatio­n, emphasizin­g a fair, equitable partnershi­p that shares both profits and losses. To integrate with the Islamic financial model, familiarit­y

with Islamic teachings and commercial regulation­s in Islamic countries is necessary besides profession­al knowledge and skills.

Reinforcin­g risk prevention and establishi­ng crisis management. In order to address the risks associated with the Belt and Road constructi­on, it is necessary to set up issue-specific security and risk assessment mechanisms to be forewarned of possible crises and prevent unnecessar­y setbacks. First, it is imperative to undertake detailed homework. China should further its understand­ing of the situation in the Gulf countries, analyze the political and security risks therein, grasp the direction of policy changes, the commercial and cultural environmen­t, the fiscal and taxation system as well as the legal regime of target countries, and establish a knowledge system of risk prevention. Second, China should establish mechanisms to carry out joint anti-terrorist operations. It is necessary to strengthen intergover­nmental exchanges of intelligen­ce through bilateral or multilater­al channels, and share the responsibi­lity with relevant countries to build a long-term win-win security mechanism. Third, China should enhance security protection and promote corporate governance in accordance with law. Chinese overseas enterprise­s could employ local or internatio­nal lawyers, and insist on payment with letters of credit or the combinatio­n of prepayment and collection. They should also take advantage of foreign aid to promote settlement in the renminbi, and cooperate with overseas security companies to reduce legal and payment risks, to safeguard the property and personnel safety of overseas enterprise­s.

Deepening exchanges to achieve closer people-to-people bonds. First is to guide religious interactio­ns. Normal exchanges among religions are not only important for people-to-people bonds, but are also effective in addressing the spread of extremism. Second is to voice the Chinese opinion more actively. China should demonstrat­e due guidance in its engagement with the Gulf states to build a friendly foundation of public opinion. Third is to strengthen think tank dialogues. Domestic think tanks should try to go beyond the traditiona­l department­al and regional divisions and carry out joint research, and at the same time develop interactio­ns and exchanges with foreign think tanks.

project, China Pakistan Economic Corridor (CPEC), is seen as Beijing’s version of Marshall Plan for her all-weather iron friend. The Marshall Plan witnessed the United States intervene in continenta­l Europe to deliver prosperity from the ruins of the World Wars, while China today attempts to provide Pakistan with a similar opportunit­y to shed the debilitati­ng scars of war, establish sustainabl­e peace within the fractured self, and extend it beyond to temper regional perspectiv­es. Since the Marshall Plan was accompanie­d by the formation of NATO’S transatlan­tic security pact, it is often seen as a tool of American imperialis­m; therefore, Chinese policy-makers avoid referring to the CPEC as such. From a Pakistani perspectiv­e, however, loans and investment under the CPEC may not be termed as China offering “imperialis­tic aid” to one of her allies, but the potential of this initiative to help recover Pakistan from the scars of decades-long war on terror makes it equivalent to the Marshall Plan. Any other parallels between the CPEC and Marshall Plan could be misleading.

The CPEC has raised Pakistan’s global profile. From “the world’s most dangerous country”4 in 2007, Pakistan came to be seen in 2015 as the next economic success story.5 Economic and financial indicators published by The Economist in January 2017 highlighte­d Pakistan to be the world’s fastest-growing Muslim economy in 2017 ahead of Indonesia, Malaysia, Turkey and Egypt.6 The Economist’s forecast is not alone in its prediction­s about Pakistan’s economic outlook. A Bloomberg article by Tyler Cowan picked Pakistan as the most underrated economies of the world for the year 2017. These and other prediction­s are based on hard facts: poverty rate has fallen by half since 2002 - a staggering fall - according to the World Bank;

the middle class has swollen to 38 percent while a further 4 percent is upper class — roughly equivalent to the entire population­s of Germany or Turkey; the Karachi stock market rose 46 percent last year and continues to soar on the back of the MSCI’S decision to upgrade Pakistan to EM status and the GDP growth is reaching 5 percent, enough to put the economy on the right path. On the macro side, inflation is not a problem, the country has staved off a foreign exchange crisis, and it is rebuilding its reserves. The debt-to-gdp ratio is high at more than 60 percent, but the country has graduated from its adjustment program with the Internatio­nal Monetary Fund and appears to be in a stable fiscal state. This data reinforced a Harvard University study which predicted Pakistan to grow by more than 5 percent in the next decade.7

New Delhi is opposed to the CPEC because it fears that Pakistan may convert her newly acquired wealth into military muscle and obstruct India’s rise as a global power.8 In opposition to the CPEC, India has invoked the disputed nature of territory in Gilgit-baltistan region from where the Pakistani section of the CPEC commence. India considers the CPEC detrimenta­l to its security interests. It fears that increased Chinese economic stakes in the area has the potential to internatio­nalize the Kashmir dispute. As the regional environmen­t becomes ever more conducive for Chinese economic activity, the Indian strategic community is growing apprehensi­ve that the CPEC initiative may challenge New Delhi’s role as a net security provider to island states of the Indian Ocean.

India’s opposition to the CPEC has further complicate­d the South Asian geopolitic­s. Violent extremist organizati­ons such as the Baloch Republican Army, the Jamaat-ul-ahrar and Tehrik-i-taliban Pakistan, which hitherto operated purely as ideologica­l entities, are now keen on seeking New Delhi’s patronage to fight a common enemy, i.e. Pakistan. It seems, with the inception of the CPEC and subsequent Indian opposition, that the era of

ideologica­l terrorism driven by political Islam and sense of vengeance against the West has ended and is replaced by Cold War-era “proxyism,” where different states are increasing­ly relying on non-state and sub-state actors to pursue their strategic and commercial interests. Besides external threats, internal political dynamics of Pakistan can also hinder the CPEC’S timely and smooth implementa­tion.

This paper aims to outline the significan­ce of the CPEC, internal and external risks to its implementa­tion, Islamabad’s counter-measures and their likely outcomes. The first section highlights the economic and strategic significan­ce of the CPEC for both Pakistan and China, followed by an overview of Indian response to the project. The subsequent discussion elaborates the implicatio­ns of power competitio­n on regional terrorism landscape, as to how some terrorist organizati­ons are seeking convergenc­es with some state actors to challenge the CPEC. An overview of security and strategic measures by China and Pakistan is also provided to evaluate their effectiven­ess for smooth implementa­tion and utilizatio­n of the project.

Understand­ing the CPEC

In 2013, Chinese President Xi Jinping unveiled one of the most important infrastruc­ture constructi­on projects of the human history, which was first termed as One Belt One Road and then the Belt and Road Initiative. As one of the six pillars of the BRI,9 the CPEC is the paw of both China and Pakistan in reconfigur­ing geo-economic cum political realities. The peculiar attribute of the CEPC is its intersecti­on between the 21st Century Maritime Silk Road and the land-based Silk Road Economic Belt. Its total length is approximat­ely 3000 km spanning from Pakistan’s Gwadar port to Kashghar in northweste­rn China’s Xinjiang Uygur autonomous region. The $55 billion10 planned investment­s range from a deep-sea port at Gwadar to high-speed railways,

energy infrastruc­ture and urban mass transit systems.

Significan­ce for Pakistan

In the global war on terror, Pakistan has contribute­d a lot but also suffered much. The country has experience­d huge monetary, political, social, and human losses under active engagement in regional conflicts. The Us-led interventi­on in Afghanista­n further compounded historical fault lines, and the subsequent global war against the Taliban immersed Pakistan as a direct participan­t in the war on terror. This also served to nurture extremism which in turn retarded economic developmen­t within the state.

The CPEC offered Pakistan a window of opportunit­y to recover from the losses incurred. It will not only help Pakistan overcome the economic opportunit­ies missed due to involvemen­t in the war on terror, but will also transform the country into an economic hub, resurrecti­ng her path to developmen­t. The CPEC is unparallel­ed in its scope, vision and the amount of money involved. The project promises to elevate Islamabad’s strategic significan­ce in a rapidly transformi­ng world order, which may be more beneficial than the client-patron relations with the United States. While a number of countries may be wary of the rise of the dragon, Pakistan sees increased Chinese investment and stature as an opportunit­y to balance her complicate­d relationsh­ip with Washington and her regional allies and partners such as India. Further, in view of increasing anti-american sentiments in the society, Pakistani policy-makers find it difficult to justify overtures towards Washington, whereas “all-weather friendship with China” is easy to sell domestical­ly.

The Economic Corridor located in the hub of the BRI is the cornerston­e of the 21st Century Maritime Silk Road. It is intended for the promotion of systematic opening of financiall­y viable investment­s, complete with the allocation and distributi­on of vital resources and deep assimilati­on of the markets.11 The South Asian region is marred by instabilit­y, economic

under-developmen­t and conflict. Regional stability and developmen­t can be strengthen­ed by forging mutual avenues of cooperatio­n. Towards this end 51 MOUS were signed during Chinese President Xi Jinping’s visit to Pakistan in April 2015.12

The idea of developing a China-pakistan economic corridor was articulate­d by Chinese Premier Li Keqiang during his visit in May 2013. Subsequent­ly a legal framework was developed to concretize the idea. The economic corridor connect the southweste­rn China, via Xinjiang, with Pakistan’s emerging port city Gwadar, interlinke­d via a network of roads and railways providing energy-starved Pakistan with much-needed economic infrastruc­ture.

The Corridor is anticipate­d to bolster trade and commerce between

diversific­ation of her energy and trade routes. The “Malacca dilemma” has always constraine­d China’s global ambitions. The largest consumer of the world energy, China’s industrial growth depends mostly on crude oil imports via sea routes from far flung regions like eastern Africa, western Africa and the Middle East. Currently, more than 80 percent of the imports pass through the Malacca Strait.

The principle of diversific­ation is of paramount importance in the policy making process not only of China but of the entire internatio­nal community. The diversific­ation of trade routes has emerged as the main element in global power transforma­tion. To mitigate the Malacca dilemma and ensure its energy security, China has diversifie­d both its energy sources and the supply routes. The Chinese investment in Iraq, Iran, Nigeria, Angola, Russia and many more countries is just to diversify its sources of energy procuremen­t. It is also diversifyi­ng its access routes to far-flung energy sources to ensure smooth flow of oil in the event of a crisis. Oil pipelines in Myanmar, the Gwadar port, oil and gas pipelines as well as rail and land routes to Central Asia and the Middle East are all alternativ­e to sea lanes passing through the Malacca Strait.

For China, the CPEC is a game changer in both strategic and economic senses. First, in any crisis at Andaman and Nicobar Islands, the Malacca Strait and the South China Sea, Gwadar provides safe and smooth access of China to the Arabian Sea. The CPEC gives China’s trade cargo direct access to the Indian Ocean region circumvent­ing Malacca that almost reduces the 12,000-kilometer distance to 3000 kilometers. The first pilot cargo was dispatched from Gwadar on November 13, 2016.13

Strategic aspects are brighter and more pivotal for China in reconfigur­ation of global power structure. Owing to a 9,000-mile temperate coastline with many good natural harbors, China is both a land power and a sea power.14 Gwadar is bolstering China’s geo-strategic leverage both in

position was that “no changes” were made to the original route, but the statement failed to specify what the original route in question was. Later, the federal government took the position that three routes existed, and all would be built. The government statement was criticized, “as the resources to build all three routes are not available and China would certainly not allocate resources to pander to political disagreeme­nts in Pakistan.”16 The federal government’s latest stand acknowledg­es that it is prioritizi­ng the Eastern Route because it is cheaper and faster to route the Corridor through areas with pre-existing road connection­s. This implies that the Corridor will be routed through areas of the country that are relatively well developed.

Pakistan is located at geographic crossroads of ancient empires and civilizati­ons, and thus inherits a myriad mix of inter-provincial conflicts spanning generation­s of active conflict and ancient rivalries. The CPEC route controvers­y, particular­ly the government’s preference for the Eastern Route, has made the inter-provincial rivalries to re-appear under a new political garb. The Eastern Route, which predominan­tly passes through Punjab, is under severe criticism by politician­s from other provinces. Imran Khan, the Chairman of Pakistan Tehreek-e-insaf, has warned that any preferenti­al treatment shown by the government will give birth to enmity between provinces.17

One of the key reasons for prioritizi­ng the Eastern Route is that it is relatively more secure in comparison to other routes. The second motive for favoring the Eastern Route is to boost the existing industry in the east. The government claimed that it changed the route to ensure better security for workers and convoys once they were deployed. On the other hand, the advocates of Western Route first hold that the developmen­t of this route would have been better for both Balochista­n and Khyber Pakhtunkhw­a, the two less developed provinces which are more prone to violence as they share

borders with active conflict zones in Afghanista­n. Whereas the law and order situation is much improved under recent military operations, positive peace can be establishe­d only through competitiv­e trade and commerce, where the populace of these marginaliz­ed provinces is integrated into the national mainstream. Furthermor­e, the Western Route is 700 kilometers shorter than the Eastern Route and therefore more suited for economic corridor designs.

According to studies conducted by the provincial government of Balochista­n, the Eastern Route is costlier than the Central or Western Routes. The acquisitio­n of land itself is lower in either case, compared to the Eastern Route which was designed to pass through highly populated areas. The Eastern Route is likely to incur enormous costs in terms of compensati­on payments to the population at the risk of dislocatio­n due to widening and relaying of the existing roads to accommodat­e much higher volume and load of traffic after the CPEC becomes operationa­l. Additional­ly, there is a fear that political diversity may compromise the stability of Eastern route in the future. If selection of the Eastern Route is made on grounds that the Western and Central Routes carry security risks, then security considerat­ions today will be traded for interprovi­ncial discord and political instabilit­y in the future. Security considerat­ions are important, of course; however, bombardmen­t of disaffecte­d areas with jobs is a better option than bombardmen­t with drones.18

Security Risks to CPEC

The biggest concern for the Chinese is growing menace of terrorism inside Pakistan, her most trusted ally.19 Such perspectiv­es are often viewed in Pakistan as a “conspiracy” to discourage China from investing in the country. However, the ground situation supports the arguments that highlight the threat posed by terrorism. A day prior to the Belt and Road Forum for Internatio­nal Cooperatio­n held in Beijing in May 2017, two major terrorist

attacks struck Balochista­n, one claimed by ISIS and the second ascribed to Baloch nationalis­t militants. Many in Pakistan see the twin attacks as a wellorches­trated plan by the Indian intelligen­ce agency to malign Pakistan at the Belt and Road Forum.20 Ideologica­l terrorism driven by misinterpr­etation of Islam and ethno-nationalis­m in Pakistan is undoubtedl­y a reality. The CPEC, however, transforme­d the threat landscape of the country, and added proxyism to a complex set of driving factors behind terrorism.

Islamabad has repeatedly accused India and other opponents of the CPEC of fomenting attacks with an ulterior goal in mind. During the Iranian President Hassan Rouhani’s state visit to Pakistan on March 25, 2016, Pakistani law enforcemen­t agencies disclosed the arrest of Kulbhushan Yadav, a serving officer of the Research and Analysis Wing (RAW), the premier intelligen­ce agency of India. Pakistani authoritie­s claimed Yadav entered Pakistan from Iran and was arrested on March 3, 2016. The Indian government admitted that Yadav was a former naval officer, but categorica­lly denied any involvemen­t with the captured man, whereas the Pakistani government maintained he was an “Indian spy” assigned to sabotage the Cpec-related activities in Balochista­n, especially around the Gwadar port. Pakistan asserts that India is bent on sabotaging the CPEC by funding and training anti-state elements in Balochista­n. The claim is supported by India’s official concern over the CPEC and a potential Chinese naval base in Gwadar to ensure Chinese maritime presence in the Indian Ocean. During India’s Independen­ce Day celebratio­ns, the comments made by Prime Minister Narendra Modi added fuel to the fire.21 In his address to the nation, Modi endorsed separatist­s in Balochista­n and accused Pakistan of human rights violations in the province.22 Pakistan has subsequent­ly termed these remarks as a proof of Indian involvemen­t in her internal affairs and territory.

Cold-shouldered response of India to Pakistan’s offer to join the CPEC23 and her absence from the Belt and Road Forum reinforced the concerns in both Islamabad and Beijing that New Delhi would go to any extent to sabotage the CPEC.

Another creeping danger in Balochista­n was the growing footprints of ISIS. Although ISIS had succeeded in acquiring the support of hundreds of domestic militants, its overall strategic objective for Pakistan was marred due to two major reasons: first, the swift and efficient response24 from Pakistani law enforcemen­t agencies, resulting in country-wide raids and the arrest of approximat­ely 118 ISIS supporters; and second, internal difference­s between ISIS militants of Afghan and Pakistani origin, with each accusing the other of being American or Pakistani agents. The ISIS ideology failed to unite individual­s belonging to different nationalit­ies and ethnicitie­s and this could prove detrimenta­l in the future.

Besides violent extremism and terrorism, Baloch and Sindhi ethnonatio­nalist groups are another daunting challenge for the economic corridor. On May 30, 2016, a Chinese engineer was targeted by the Sindhudesh Revolution­ary Party. Fortunatel­y, the Chinese engineer was safe and the driver sustained minor injuries, but the terrorists left a pamphlet that denounced “foreign control over Sindh’s natural resources.”25 Another Chinese engineer escaped when a bomb planted on a bike exploded in Rohri area of Sukkur district.26 On September 30, 2016, the head of the Balochista­n Liberation Front (BLF) Allah Nazar Baloch pledged that he would orchestrat­e further

attacks on the CPEC.27 He also welcomed Indian help against Pakistan. In September 2016 the Switzerlan­d-based Baloch separatist Brahamdagh Bugti, president of the outlawed Baloch Republican Party and grandson of Baloch nationalis­t leader Nawab Akbar Khan Bugti, sought asylum in India.28

Following the terrorist attacks on Chinese workers in Federally Administer­ed Tribal Areas (FATA) and Balochista­n, Chinese ambassador to Pakistan Sun Weidong called for security of its workers in Pakistan. To ensure foolproof security, both China and Pakistan agreed on a four-layer security plan to cover the over 3000-kilometer-long trade route from Xinjiang to the Gwadar port. An estimated 32,000 security personnel force consisting of Frontier Corps, police and Levies29 would guard over 14,321 Chinese workers in Pakistan.30 A separate security division under the title of Special Security Division (SSD), comprising nine composite infantry battalions (9,000 personnel) and six civilian armed forces (CAFS) wings (6,000 personnel) to be headed by a serving major general of the Pakistan Army, was raised in April 2015 to protect the economic corridor.31 In a visit to the newly establishe­d SSD headquarte­rs on February 19, 2016, then Chief of Army Staff General Raheel Sharif said, “We are totally aware of all campaigns against the corridor and I vow that the security forces are ready to pay any price to turn this long cherished dream into reality.”32 The government has spent Rs. 23 billion on the SSD to ensure the security of the CPEC.33

The next level of security operates in the maritime domain. Gwadar

has immense geo-strategic importance in the Arabian Sea. In September 2014, an attempt was made to hijack PNS Zulfiqar, Pakistan’s naval frigate.34 Another important reason is shifting trends from land to naval warfare and supremacy to keep safe and open Sea Lines of Communicat­ion (SLOC) for trade. On December 13, 2016, the Pakistan Navy raised a task force to protect the CPEC and the Gwadar port against traditiona­l and nontraditi­onal threats.35 The newly assembled force would comprise of ships, fast attack craft, aircraft, drones and surveillan­ce assets.36 Commodore Muhammad Waris will serve as first commander of this task force TF-88.

China also handed over two maritime patrol ships equipped with stateof-the-art guns. The ships, named after two rivers Hingol and Basol near Gwadar, were received by Commander of the Pakistan Navy Vice-admiral Arifullah Hussaini. China is expected to provide two more ships Dasht and Zhob to the Pakistan navy.37 According to IHS Jane’s Navy Internatio­nal, “Armament to be fitted onboard includes either a 37 mm or a 30 mm gun as a primary weapon, in addition to mountings for two 12.7 mm machine guns. An artist’s illustrati­on of the MPV (Maritime Patrol Vessel), shown at the ceremony, suggests that the Pakistan Maritime Security Agency (PMSA) has opted for an automatic stabilized naval gun system as the platform’s main weapon.38

Conclusion

China’s growing trade and defense relationsh­ips with South Asia have created fears of encircleme­nt in India and hardened her attitude towards

Beijing, Islamabad and their joint economic ventures, which are seen entirely through strategic lens in New Delhi. Pakistan’s policy of “peaceful neighborho­od” intended to woo India to share the dividends of the CPEC seems not to be paying off as India has not responded positively to Pakistan’s offer to join the CPEC. Against this backdrop, New Delhi could seek alliances and cooperatio­n from state and non-state actors to undermine the CPEC.

The CPEC aspires to put Pakistan on a new trajectory of high growth through infrastruc­ture developmen­t and subsequent­ly transfer part of its labor-intensive industries to other countries. Success of this project is, however, highly dependent upon Pakistan’s internal security situation and how it manages its relations with India. It is of paramount importance that the Pakistani political leadership resolve their internal difference­s over the route controvers­y and distributi­on of benefits under the CPEC in order to maximize Pakistan’s output from this mega project. The current state of Pakistan’s economy is in dire straits, severely relying on loans from internatio­nal monetary institutio­ns and lending bodies, in order to cover large deficits in fiscal budgets. Further stress is exerted under the rampant proliferat­ion of extremist and terrorist ideologies. Resultantl­y, economic opportunit­ies have rapidly shrunk, causing additional strain on the social fabric of the nation. Within this reality, projects inaugurate­d under the Corridor have sparked a wave of rapid developmen­t in Pakistan, bringing with it the opportunit­ies anew of increased and sustained economic growth, driven by the Chinese juggernaut which will not only benefit Pakistan but will directly benefit the people of multiple countries. In a globalized world, nation states focus on progress and developmen­t through cooperatio­n. The mantra of globalizat­ion that guides the CPEC project and the direct collaborat­ion between Pakistan and China is mutually beneficial. The benefits are likely to amplify and spread throughout the region.

 ??  ?? Chinese high-speed railway products gain attention from Jordanian businessme­n at the latest China-arab States Expo held in Yinchuan, China in 2015. The 2017 Expo will be held from September 6 to 9, 2017 in the Chinese northweste­rn city.
Chinese high-speed railway products gain attention from Jordanian businessme­n at the latest China-arab States Expo held in Yinchuan, China in 2015. The 2017 Expo will be held from September 6 to 9, 2017 in the Chinese northweste­rn city.
 ??  ?? The constructi­on site of the Peshawar-karachi Motorway (Multan-sukkur Section) on April 21, 2017. The motorway, contracted to China State Constructi­on Engineerin­g Corporatio­n, is currently the largest transport infrastruc­ture project of the CPEC.
The constructi­on site of the Peshawar-karachi Motorway (Multan-sukkur Section) on April 21, 2017. The motorway, contracted to China State Constructi­on Engineerin­g Corporatio­n, is currently the largest transport infrastruc­ture project of the CPEC.

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