Introduction to CPEC

China–Pakistan Economic Corridor (CPEC) is a collection of infrastructure projects that are

currently under construction throughout Pakistan. China Pakistan Economic Corridor is making
significant progress as work rapidly continues on the four key areas energy, transport and
logistics infrastructure, industrial cooperation and Gwadar port.
The total committed amount under CPEC of $50 billion is divided into two broad categories:
$35bn is allocated for energy projects while $15bn is for infrastructure, Gwadar development, in
dustrial zones and mass transit schemes. The entire portfolio is to be completed by 2030. A vast
network of highways and railways are to be built under CPEC. Inefficiencies stemming from
Pakistan's mostly dilapidated transportation network are estimated by the government to cause a
loss of 3.55% of the country's annual GDP.
Modern transportation networks built under CPEC will link seaports in Gawadar and Karachi
with northern Pakistan, as well as points further north in western China and Central Asia. A
1,100 kilometer long motorway will be built between the cities of Karachi and Lahore as part of
CPEC while the Karakoram Highway from Hasan Abdal to the Chinese border will be
completely reconstructed and overhauled. The Karachi–Peshawar main railway line will also be
upgraded to allow for train travel at up to 160 km per hour by December 2019. Pakistan's railway
network will also be extended to eventually connect to China's Southern Xinjiang Railway in
Kashgar. The estimated $11 billion required to modernize transportation networks will be
financed by subsidized concessionary loans.
The planning of CPEC follows four stages.
These stages are:
(i) Early Harvest 2015-2019
Most of the projects relate to Energy sector which are already completed or expected to
be completed by 2019thus easing the energy shortages and load shedding that had
crippled the industry and exports.
(ii) Short term projects up to 2022 mainly Roads, Gwadar Development, Optic fiber
network and the Hydel, coal mining and power projects
(iii) Medium projects up to 2025 Railways and Industrial zones
(iv) Long term projects up to 2030 Completion of Industrial zones, Agriculture, Tourism etc.
Financing burden of CPEC
 Energy projects are planned for completion by 2020, but given the usual bureaucratic
delays, itwon’t be before 2023 that all projects are fully operational. Under the early
Harvest programme, 10,000 MW would be added to the national grid by 2018.
Advantages to Pakistan
 An efficient transport system contribute to economic growth by lowering production cost
through timely delivery of raw materials to the market and making timely delivery to
manufacturing sector thus enhancing economies of scale in the production.
 National highways provide easy and efficient means of transportation for moving goods
from place to place and human being.
 On May 24 the central banks of the two countries, the State Bank of Pakistan (SBP) and
the People’s Bank of China said they had agreed to increase the rupee-yuan swap
amount from 10 billion yuan (Rs165bn) to 20bn yuan (Rs351bn) and extended the
currency swap agreement period to three years up to May 2021.
Disadvantages to Pakistan
 Due to increased transportation emission of CO2 will increase and hence the environment
will be polluted.
 Under Free Trade Agreement (FTA) tax exemptions are given. Other than customs duty,
the government charges 17.0 percent sales tax on the duty paid value of a variety of
goods produced in or imported into the country.
 The terms and conditions of financing at which the Chinese companies are participating
in these projects are not fully known and the likely future financing burden on Pakistan’s
balance of payments is not obvious.
Advantages to China
 Gwadar port free zone area is located near the port terminals, reserved for industries or
businesses which would like to benefit from the tax exemption. This area will be duty
free and also customs and all types of taxes exempted.
 23 years tax holiday all federal, provincial and local taxes, charges and levies.
 Under Free Trade Agreement (FTA) Broader exemptions are
corporate income tax for 23 years
Income tax on interest income of loans acquired
Stamp duties on loans acquired
23 years tax holiday: all federal, provincial and local taxes, charges and levies
Import duties and sales tax on all imports for materials/equipment required for
construction expansion and operations of Port for 40 years
Duties on ship bunkers oils.