by Andrew Small
A combination of economic structure, cultural preference, and the vicissitudes of geography used to be enough to explain the weak commercial relationship between China and Pakistan. The two economies lacked complementarity. China was actually a competitor for Pakistani exports, most significantly its dominant textile sector, undercutting it in third countries and eroding the country’s comparative advantage. Pakistani exporters had a “mental fixation with the western markets”, as one expert put it.31 And while China’s east-Asian neighbours benefited from exposure to its booming coastal cities, the Shenzhens and Shanghais, Pakistan bordered on China’s poorest provinces. But this was all supposed to change. After China’s push to rebalance the coastal and interior economies, Xinjiang enjoyed a sustained boom, becoming one of China’s fastest growing provinces.32 A combination of political will, easy finance, and the China-Pakistan free-trade agreement that took effect in 2007 should have been able to overcome ingrained biases towards Europe, the United States and the Gulf.33 While China may still be partly a commercial competitor, at the very least Pakistan would be well placed to benefit from the same major infrastructure investments, financed by huge sums from Chinese state banks, that were transforming economic life across much of the developing world.34 Pakistan was certainly ready to give the Chinese privileged access to projects, and China extended a similar set of courtesies—as one former Pakistani diplomat put it: “There was a willingness to do things for the sake of political relations—giving loans, we don’t have to stand in line; expeditious processing, approvals, facilitation and so on. We could take advantage of the political relationship but then the commercial side has to work.”35
The problem for Pakistan is that its chits over the last decade have mostly been placed on a series of “mega-projects” that are premised on the value of the country’s strategic economic geography. During Musharraf ’s presidency, a series of plans were dusted off that imagined Pakistan as the heart of a network of trade and energy corridors connecting China’s west to the Indian Ocean and from there to the Middle East. Yet most of these projects were set in motion during a period when the security situation appeared to be under control. And while some of the investments—such as the Thar coal project—had the flavour of being political favours on China’s part, the ambitions that underpinned Musharraf ’s plans seemed plausible for a country that was establishing a profile for itself as a leading emerging market. Pakistan was even included as one of Goldman Sachs’ “Next 11” group, the proto-BRICS, in 2005,36 its GDP growth that year clocking in at almost 9%.37 In subsequent years, not only have growth rates plummeted and violence reached crisis levels, but Chinese workers in Pakistan have become targets to a degree that was unimaginable when the grand initiatives were first launched.38 Instead of being known as China’s gateway to the Gulf, Pakistan has developed a reputation as the most dangerous country to be an overseas Chinese, with kidnappings and killings taking place with disturbing regularity. Insecurity has not only put paid to plans for some of China’s largest investments, but even posed a risk to the economic relationship as a whole: at certain points the Chinese have threatened to pull every one of their workers out of the country.39 The question has switched from whether the political and security relationship between the two sides will help to give Chinese investors privileged access to a booming new market, to whether these close ties are sufficient to keep the major economic projects alive.
The Karakoram Highway is the most potent symbol of China-Pakistan relations, the close-to-literal realization of the claim that their friendship is “higher than the highest mountain”. Stand at the Khunjerab pass, 15,397 feet high, and you can see a memorial to the “pioneers” who built the “eighth wonder of the world”.40 More than a thousand Chinese and Pakistanis died in the construction process, a stunning feat of engineering that took 27 years to complete. What you see little of is trucks. For anyone familiar with bustling Chinese border posts by Kazakhstan or even North Korea, the relative calm is striking. One reason for the lack of commercial activity can be found 100 miles south of Khunjerab at Attabad, where a huge lake, 14 miles long and more than 100 metres deep, has submerged the road since a landslide in January 2010. In 2006, plans had been launched for trebling the width of the KKH and adding an all-weather surface that could accommodate heavy vehicles.41 Much of the early work on this task would end up under water. While the engineers have pushed ahead with resurfacing limited stretches of the road, the more serious effort instead had to been channelled into the “Attabad realignment project”, a vast tunnelling job through the mountains to reconnect the two sections of the highway.42 In the meantime, small boats—the largest of which can barely fit an SUV on board—shuttle a small volume of goods back and forth across the lake. The China Road and Bridge Corporation, the state-owned infrastructure giant responsible for the work, estimated that it will be completed by mid-2014, but delays continued to set it back.43 Either way, a period of at least four and a half years will have passed with virtually no overland trade between the two countries. Some of the commercial activity that used to take place by road was diverted to planes flying between Kashgar and Gilgit. Other goods joined the larger bulk of seaborne trade that passes through Karachi. But the truth is that even before the landslides, cross-border movement on the Karakoram Highway was very limited, with the route distinguished for its scenery more than its traffic. In the preceding years the road bore no more than 7–8% of total Sino-Pakistani trade, at best a few hundred million dollars’ worth a year.44 The bulk of Pakistan’s commerce is with Guangdong and Zhejiang provinces, on the south and east coasts, not across the border with Xinjiang. This remains the principal reason that, for years, talk of building a railway across a similar route elicited almost equal levels of eye-rolling in Islamabad and Beijing: “There is no economic rationale for it whatsoever”.45
Not so long ago, the Karakoram Highway had been billed as the final leg of a more recent and even grander project—the establishment of a trade and energy corridor running all the way down to Gwadar, the Baloch port at the mouth of the Persian Gulf. Yet at the opposite end of the corridor, the story was the same. In February 2013, Chinese companies took over the running of a port that had not had a single ship dock in the previous four months, and at best operated at 15% of its capacity.46 Water shortages had seen as many as 20,000 people leave the city over the previous year.47 Infrastructure links with the rest of Pakistan were seriously underdeveloped. Most economic activity was at a standstill. Gwadar was about as far away from the promises of a “Dubai miracle”48 on the Makran coast as it was possible to imagine, and the transport and energy corridor appeared to be little more than a “pipe dream”, as one Pakistani official dismissed it.49
The building of Gwadar port had been launched with great hopes for its transformative economic impact. Gwadar was a small fishing village located in a deepwater natural harbour, which Pakistan had purchased from Oman for $3 million in 1958 with a view to developing it as a port site. The opportunity to do so was once offered to the United States by Zulfiqar Bhutto in the 1970s.50 The Americans didn’t bite. A formal plan to build Gwadar into a major commercial centre was proposed in 1993,51 with the task handed to a British consortium a couple of years later, but the initiative was stalled by political and financing problems.52 Then in 2001, on the fiftieth anniversary of China-Pakistan relations, Chinese Prime Minister Zhu Rongji announced that China would underwrite the project.53 China agreed to provide $198 million of the $248 million required,54 and China Harbour Engineering Company—the sister company of China Road and Bridge Corporation, which was rebuilding the KKH—took responsibility for its first phase.55 That involved the construction of three multipurpose ship berths and a service berth, and dredging of a deep-water channel, as well as erection of roads, port buildings and facilities.56 At the same time, a $200 million road link to Karachi,57 the Makran Coastal Highway, was given the go-ahead, and built by the Frontier Works Organisation,58 the Pakistani military entity that had been
established to construct the KKH in the first place. Gwadar’s first phase was finished in 2006 and the port was opened to great fanfare at a ceremony in January 2007.59
Given that the port was developed partly in order to reduce the bottleneck at Karachi, the Makran Coastal Highway was of limited use—the real value would only come when Gwadar was connected up to the rest of Pakistan. That was expected to come during the second phase of the port’s development. The contract to run and manage the facility itself was given to the Port of Singapore Authority (PSA). It would involve the construction of four container berths, a bulk cargo terminal, two oil terminals, a roll on/roll off terminal, and a grain terminal.60 An oil refinery—to be built separately by China—was planned,61 along with the crucial high-quality road links to the Balochistan capital, Quetta, and Ratodero in northern Sindh.62 Phase 2, at a cost estimated to run between $600 million and $1 billion, would take Gwadar from an overdeveloped fishing village to a genuine commercial hub.63
Yet very little of “Phase 2” was ever undertaken. The oil refinery was never built.64 The PSA made derisory progress on developing the port. And after General Musharraf ’s departure in 2008, resources due to have been spent on infrastructure connections were diverted from his “pet project”.65 Gwadar stood virtually isolated. Mutual recriminations over the situation went on for years. The PSA and some sections of the Pakistani government blamed the navy, which had refused to hand over 584 acres of land that were earmarked for the port’s operational activities.66 Other sections of the Pakistani government blamed the PSA for failing to fulfil its commitments.67 Following protracted court battles, the Singaporeans pulled out of the contract, which was taken over in February 2013 by China Overseas Port Holdings Company.68 But the difficulties in building the roads, the PSA’s reluctance to develop the port, and the slow-motion legal process that finally saw Chinese companies stepping back in were not just the result of foot-dragging.
The port and associated developments have been a major target for Baloch nationalist groups. While the potential economic benefits of the project are undeniable, even political moderates in Balochistan believe that most of them will be diverted elsewhere in Pakistan, and that the project will be used by the Pakistani military to consolidate its presence in the region.69 Some described their opposition to the port as a “last stand” for the Baloch cause.70 Its success would bring about a huge population influx, with Gwadar expected to become a 2-million-person city, and the Baloch “fear that they will become a minority in their own land”.71 It is the less moderate who have had the most telling impact, though. On 3 May 2004, the Baloch Liberation Army killed three Chinese engineers and injured nine more working on the project, when a remote-controlled car bomb blew up the bus carrying them to the port.72 Subsequent rocket attacks struck Gwadar airport,73 a hotel where Chinese engineers were staying,74 and a Chinese construction company.75 Chinese workers narrowly escaped another bus bombing in 2007, though the Pakistani police protecting them were less fortunate.76 Many other attacks on roads, pipelines and other infrastructure in the province have simply gone unreported.
When it became increasingly clear by 2011 that Chinese companies would be taking over the running of Gwadar port from the Port of Singapore Authority, it raised the question of why they would risk assuming responsibility for a facility that was little more than a white elephant with an enormous target sign painted on it.77 Certainly they had been reassured that the Pakistani navy would be more forthcoming on the land rights issue than it had been with the Singaporeans, and there was the promise of money set aside for the necessary road building work. But the suspicion endured that non-economic motives must also be involved. Like the Karakoram Highway, Gwadar has never entirely convinced as a commercial proposition. The “transport and energy corridor” is not vulnerable only to security threats in Balochistan and to landslides and floods in Gilgit-Baltistan, but also to the cold logic of the market: for all the talk of how a pipeline would cut thousands of miles off the journey of a barrel of oil from the Middle East to China’s interior, the cost of sending it overland via Gwadar and Xinjiang would run at between four and five times that of the sea route through Shanghai.78 There are certainly scenarios in which such a route might be used, though they are rather bleak, featuring either naval blockades or worse, as an article on Chinese strategy in the Indian Ocean suggests: “The wartime experience of the [Republic of China] showed that, if China’s “backdoors” could be kept open, a regime based deep inside the country could be kept alive—even if an enemy had managed to occupy China’s coastal ports.”79 They also stretch credulity, given how straightforward it would be to prevent the functioning of the corridor. One US naval expert observes that “it would be easier for the United States to prevent the unloading of oil at Gwadar than to blockade the Strait of Malacca”.80 But the standing point of curiosity has been whether the port might have utility even if it never became the commercial and energy transit hub that was once intended: instead becoming a permanent Chinese naval facility.
The Pakistani government has flip-flopped on the issue, alternating between touting the port as a potential expansion of its naval capabilities—even publicly claiming that China had agreed to help it establish a base there81—and playing down this possibility as Indian scaremongering.82 The rationale for using Gwadar for this purpose is fairly clear: Karachi, the principal operating base for the Pakistani navy, was subjected to an Indian blockade in 197183 and there was the serious prospect of a repeat in 1999.84 Blockading Gwadar, 645 kilometres further along the coast—“away from Pakistan’s traditional confrontation sea zone”, as a report from the Balochistan government put it—would be a more difficult proposition.85 In 2005, the Pakistani Chief of Naval Staff said that Gwadar would be “the country’s third naval base”, and would “improve the country’s defence in deep sea waters”.86 The port is sufficiently deep to accommodate submarines and aircraft carriers. And from China’s perspective, its proximity to the Persian Gulf may provide a potential location for oil transhipment, but it would also offer something unusual for the Chinese navy: a permanent, reliable facility for ships needing support points close to the Middle East, North Africa or East Africa. This seemed a long way off back in 2001. In my discussions with Chinese experts and officials over the last decade, scepticism about the military value of Gwadar and an emphasis on the economic rationale that underpinned the project was consistent—talk of its being developed as a naval base was dismissed as a myth.87 But in the last few years, a couple of things changed. The security situation in Pakistan deteriorated markedly, making the economic corridor plans look less and less plausible. And the Chinese navy embarked on an increasingly far-flung set of activities.
Since 2008, the PLA Navy has conducted the most extensive set of long-distance operations in its history. While its anti-piracy deployments in the Gulf of Aden provided the most significant ongoing test of the navy’s needs for overseas support locations, they were even more clearly in evidence during the huge evacuation of 35,000 Chinese workers from Libya in 2011.88 It was the first time that the PLA Navy had been deployed to conduct a NEO—non-combatant evacuation operation—to protect its citizens on the other side of the world, and with turmoil in the region continuing, it seemed to Chinese strategists as if it wouldn’t be the last time. While the exercise was a success, a great deal of chaos bubbled below the surface as the numbers of Chinese evacuees proved far greater than expected, requiring boats and planes to be chartered on an emergency basis at great expense.89 It raised the issue of which staging points in the region China could reliably expect to use in a crisis. China’s Sudanese friends allowed it to use Khartoum as the logistics point for air transport,90 but the refuelling location for the frigate, Xuzhou, which was sent to support and protect the evacuation, was the Omani port of Salalah.91 Chinese experts have argued that ports such as Salalah, Aden or Djibouti can be relied on for routine refuelling but that Pakistan is the likeliest country to agree to long-term arrangements for “m
ore comprehensive supplying, replenishment, and large-scale repairs of shipboard weapons”.92 Trust between the two militaries makes it arguably the only plausible candidate for such a facility. The Libya incident also highlighted the value of forward deployed military assets—the only reason the Xuzhou could be used was because she was already operating in the Gulf of Aden as part of an anti-piracy mission. One of the definitive pieces of analysis on the evacuation contends that “from this point forward, there is a strong likelihood that the PLAN will seek to assume a more sustained presence in the Indian Ocean region, perhaps extending toward the Persian Gulf as well”.93
It was after the Libya deployment that the same Chinese experts and officials I had been interviewing started to change their tune. I increasingly heard the argument that even if the economic utility of Gwadar was fundamentally in doubt until the situation in Pakistan changed, its potential as a naval facility might change China’s calculations about the port’s value. When the Pakistani Defence Minister, Chaudhry Ahmed Mukhtar, made his statement about China agreeing to develop a naval base at Gwadar, the Chinese foreign ministry issued an official denial, but as one expert familiar with the discussions put it: “It wouldn’t be a naval base. It would just be a facility to which we had access when we needed it. And we didn’t even agree to that during the visit, so he shouldn’t have made his statement. But that’s exactly what we’re considering.”94 The former Chinese ambassador to India, Pei Yuanying, has directly stated in an interview with the People’s Daily that “Gwadar port will become a logistics support base for supplies and maintenance along the route of large fleet when the Chinese naval fleet goes to the Suez Canal, the Mediterranean, and the Gulf of Aden” [sic].95 Existing plans for the development of the port are purely economic, and some Chinese and Pakistanis continue to see the finger-pointing at Gwadar as a distraction—whatever happens in Balochistan, the Chinese navy, if it wishes, can use Karachi, which is already its main repair facility in the Indian Ocean. “For us, Karachi is fine,” said one Chinese official. “It’s for Pakistan that Gwadar is really useful. They want us to upgrade it to a naval base that can be used by both Pakistani and Chinese ships. The main reason? India.”96 There is little surprise that the stories about Gwadar refuse to disappear, and it is now Chinese naval strategists rather than Indian ones who are talking up the port’s long-term prospects, however dire the short-term economic and security situation there appears. “The Singapore company put more value in the commercial benefits in operating the port, but for China, its strategic value is greater than the commercial significance,” said one Chinese expert. “I do believe China will build the port at the astonishing ‘Chinese speed’ to materialize the port’s strategic values.”97
