This is a review of CPEC and CPEC-related news and analysis for the period from May 21 to June 3, 2018. The editions for these two weeks have been combined due to the U.S. Labor Day holiday.
- New special economic zone for Gwadar approved. The federal cabinet of Pakistan has given the green light for the establishment of a new federal special economic zone (SEZ) in Gwadar. There are nine SEZs planned under CPEC that will be under the control of the provincial governments. This is the fourth economic zone planned for Gwadar. Land has not been yet been acquired for the project.
- Balochistan provincial government to attempt cloud seeding to produce rain in drought-hit Gwadar, reportsDAWN. Gwadar suffers from endemic water shortages. Dams have been constructed in the district, but rainfall has been minimal in recent years. There are a number of desalination plants being built in Gwadar, the largest of which is a Pakistan Army initiative funded by the Swiss and UAE governments. The cloud seeding project, which aims to fill local dams, will be conducted by a Russian company that has reportedly performed work in the Persian Gulf region.
- Pakistan and Russia to sign MOU for $10 billion offshore gas pipeline. A feasibility study has not yet been performed for the pipeline, which would run from Russian-developed gas fields in Iran, through Gwadar and Pakistan into India.
Economy and Trade
Pakistan turns to China to avoid foreign currency crisis. Reuters reports that Pakistan expects to obtain $1-2 billion in loans from China to help it avert a balance of payments crisis. Total lending from China to Pakistan will likely exceed $5 billion this fiscal year. According to the Financial Times: Beijing is “happy to lend the money despite Pakistan’s fiscal crunch, in part because it does not want details made public about the loans it has made as part of the China-Pakistan Economic Corridor.” Foreign exchange reserves have plummeted to around $10.3 billion from $16.4 billion in May 2017, despite extensive short-term borrowing by Islamabad to shore up its reserves.
- Pakistan and China scale up currency swap. The previously reported arrangement has been doubled to RMB 20 billion or $3.13 billion, according to Reuters.
- Matiari-Lahore HVDC transmission project delayed, according to DAWN. The high-voltage direct current line, which would transmit electricity from Thar’s mine mouth electric power plants to central Punjab, was originally expected to have been completed by late 2018 or early 2019. The financial close deadline has been pushed back to December 1, 2018 and the commercial operations date has been revised to March 1, 2021.
- New Chinese development arm to oversee Beijing’s disbursement of CPEC funds. Former Planning Minister Ahsan Iqbal claimed that delays to big-ticket CPEC projects, such as the Karachi-Peshawar railway (ML-1) and Karachi Circular Railway, were held up due to the transition of control of Beijing’s concessional lending portfolio from the Ministry of Commerce to the new independent entity, which he referred to as “China Aid,” but is likely referring to the National Development and Cooperation Agency. This is the first time Iqbal attributed the delays to changes in China’s bureaucracy. While this may indeed be a factor, the ML-1 delay is also attributable to a wide gap between Chinese and Pakistani cost estimates for the project.
- In China, Pakistan’s Supreme Court chief justice says judicial arbitration system needs to be streamlined to attract foreign investment. Chief Justice Saqib Nisar reiterated his call for the formation of alternative dispute resolution mechanisms to handle CPEC-related litigation. He also met with his Chinese counterpart, Zhou Qiang, the president of the Supreme Peoples Court of China.
- Pakistan purchases two additional frigates from China. On June 1, the government of Pakistan signed a contract for the purchase of two more Type 054A frigates from the China Shipbuilding Trading Company Ltd. By 2021, the Pakistan Navy fleet will consist of four Type 054A frigates. For additional analysis of Pakistan’s recent naval procurements from China, read this post at Quwa.
- Pakistan, China, and Afghanistan hold strategic dialogue in Beijing. Senior diplomats from the two countries also prepped for the upcoming trilateral meeting of foreign ministers. Beijing appears to once again be playing a constructive role in reconciling Islamabad and Kabul.
- U.S. renames Pacific Command to Indo-Pacific Command.
Secretary James N. Mattis, Secretary for @DeptOfDefense, announces the renaming of U.S. Pacific Command to U.S. Indo-Pacific Command to recognize the increasing connectivity between the Indian & Pacific Oceans and America's commitment to the #IndoPacific! pic.twitter.com/PXk8eeRoWW
— U.S. Indo-Pacific Command (@PacificCommand) May 30, 2018
- More — Shangri-La Dialogue wrap-up:
- Modi sends out a clear message at the Shangri-La Dialogue (Hindustan Times)
- China welcomes PM Narendra Modi’s remarks on bilateral ties at Shangri-La Dialogue (Press Trust of India)
- Mattis takes hard line on China in Singapore speech (CNN)
Mattis praises Modi for warning about dangers of loans that are ‘too good to be true’ (Press Trust of India)
Myanmar reviews $9bn China-backed port project on cost concerns (Financial Times)
Updates on the China-Pakistan Economic Corridor and Belt and Road Initiative.