Why Modi government should not completely ignore China’s newfound love for Pakistan


The China-Pakistan Economic Corridor (CPEC) is the game-changing package of Chinese capital and engineering worth $54 billion in investment and lending. But the ultimate aim is to bring together China, India and Pakistan as part of a Eurasian market forged by Chinese President Xi Jinping’s ‘One Belt, One Road’ policy.

Indians hear nefarious military overtones in this initiative’s inaptly chosen name. Already, uneasy about any joint endeavour by Pakistan and China, the name gives the exclusive impression of a communication line to bridge the Indian Ocean and China from Baluchistan’s Gwadar port up through the Karakorum highway into Xinjiang, the mini-continent-sized northwest province of China.

Perceiving the CPEC to be a threat and objecting to projects in Indian-claimed areas, India has stayed away from ‘Belt and Road’. In his 2016 Independence Day speech, Prime Minister Narendra Modi voiced support for movements in Baluchistan, Pakistan-administered Kashmir and Gilgit-Baltistan, end-points of the headline CPEC route that would be disrupted by insurgency. Modi has pushed ahead with the Chabahar port refurbishment and railway construction in Iran, a proposal that is called an ‘answer’ to the CPEC.

In conceiving support for another infrastructure project like Chabahar to be a competitor, Delhi’s strategic thinking narrowly construes the CPEC, exaggerates the standing gained from geopolitical trophies, and lacks appreciation for the tangibles and breadth of an initiative that holds the power to transform Pakistan.

Multiple Spinoffs
Far more than a transit route, $27 billion worth of CPEC resources are, in fact, allocated to undertake 18 power projects. The other half of the total $54 billion goes far beyond support for the Gwadar port complex and will include the engineering of four national trunk highways, overhaul or construction of three mainline railways, the start of a metro system in Lahore and a cross-country pipeline.

The ultimate vision dwarfs the inordinate attention on just the port and road. The end goal is stable electricity and logistics for an export-manufacturing economy in Pakistan.

Unbeknown to strategists in Delhi, the CPEC’s real competitor is ‘Make in India’. The long-term economic calculation for India and Pakistan is the same. Due to the doubling of blue-collar wages every seven years in China, factories will either move to other Asian countries or stay in China in highly automated factories.

For India, Pakistan and other Asian countries aiming for middle income status, capturing relocated manufacturing is pivotal. In textiles alone, China has a giant lead, shipping $274 billion in exports annually compared to $40 billion by India, the second-largest exporter. If ‘Make in India’ takes the lion’s share of textile exports, that alone creates more direct jobs than the 3.7 million current jobs in the Indian IT and BPO industries.

However, despite continued revenue growth for IT companies, delivery centres and factories alike are adopting rapid automation, a phenomenon that will, in the next five years, shrink the already small BPO and IT workforce in India by 500,000 jobs. India has 1 million people reaching working age every month and needs to see through ‘Make in India’, just as the CPEC is critical to Pakistan’s stable future.

The CPEC is on track with the ongoing construction of early harvest projects, largely made up of 12 fast-tracked electricity-related projects slated for completion in 2018. The naysayers of the CPEC were wrong in their pessimism about the compatibility of Pakistan for a Chinese plan. The pace of Chinese infrastructure development and profitability for Chinese state-owned companies can be transplanted to another host country when backed by receptive policy and generous China-backed financing.

On the other hand, India isn’t making as much progress as it has sought. While the NDA government has paved more kilometres of roads per day than its predecessor and reached coal production targets made from the outset, inadequacies are clear in the momentum of this government’s infrastructure ambitions.

Due to fiscal exhaustion, a short-lived railway construction boom will likely peter out and frequent power cuts will persist even with a power production surplus unless inefficient transmission is overhauled. ‘Make in India’ can’t go far with Modi’s infrastructure predicament. But Pakistani manufacturing growth will be powered by Chinese logistical performance.

The True Competition
The Delhi strategic community doesn’t see the true competition, the basis for a blunder in turning away from an opportunity. The actual daunting challenge for India is in the CPEC’s commercial success enabling Pakistan to pull ahead of India as a successor in labour-intensive export manufacturing.

It’s doubly off base to see Indian security threatened and consider sabotage through proxy conflict. The CPEC fosters restraint and discourages provocation by Pakistan due to the gain in national ego from greater achievement than its rival and having then something to lose in the material benefits of a climbing standard of living. But there’s something India is already losing in its posture to ‘Belt and Road’. If proportionately scaled, India is missing out on $400-500 billion in financing and investment with rail and electricity likely benefiting most.

Perhaps, the inaptly named CPEC should have been called ‘Make in Pakistan’. That would make clear the opportunity and challenge from China for ‘Make in India’.