The $60 billion China-Pakistan Economic Corridor is a major part of China's Belt and Road Initiative. Image: CPEC/Facebook

PESHAWAR – Pakistan’s army and Chinese companies are in big business lockstep in the China-Pakistan Economic Corridor (CPEC), a US$87 billion plan to build ports, roads, railways and power plants to facilitate trade, spur growth and consolidate power over geopolitically contested lands.

The scheme, designed to span Pakistan’s length and breadth, has been reinvigorated since the Covid-19 pandemic as Beijing doubles down in pursuit of strategic alternatives for its trade and energy flows amid rising tensions with the United States and its allies.

In the past two months, amid the global pandemic’s economic devastation, Beijing has committed an additional $11 billion to the CPEC. Yet many of the projects are situated in geopolitically sensitive areas disputed with India, adding big-money fuel to the Asian giants’ intensifying Himalayan standoff.

China has big designs for Pakistan and the CPEC. The China-backed Gwadar Port in volatile Balochistan province aims specifically to give China access to the Indian Ocean, a presence that will help to protect and facilitate its trade and fuel shipments with the Middle East.

Some local reports have suggested while authorities deny that Pakistan has quietly agreed to provide China’s military with basing rights in Gwadar and Gilgit Baltistan, the latter a territory near its Himalayan standoff with India.  

China is fortifying these strategic investments by working more directly with the powerful military and its affiliated business interests. The army’s construction arm, Frontier Works Organization (FWO), has secured many CPEC-related contracts.

Crucially, those include the reconstruction and upgrading of the Karakoram Highway linking the Chinese city of Kashgar in remote western Xinjiang province with Pakistan’s Punjab at an estimated cost of $2 billion. The road has strategic implications for China and its vision of establishing an alternative trade route.

Map of the CPEC with contested territories with India. Image: Wikimedia

However, critics say many of the deals were cinched without competitive bidding that has boxed out local private builders in favor of military interests.

The government’s Planning and Development Division, which previously had chief responsibility for the CPEC, was sidelined with last year’s nomination of retired Lieutenant General Asim Saleem Bajwa as chairman of the newly created CPEC Authority, established via a presidential ordinance last year.

China’s renewed investment in the scheme marks a significant turn, one that is both contributing to rising regional tensions and giving Pakistan post-pandemic economic hope. The CPEC had been in the doldrums ever since Prime Minister Imran Khan’s Pakistan Tehrik-e-Insaf (PTI) ascended to power in 2018.

Amid concerns that BRI projects represent debt traps, Khan sought a “reset and realignment” of the CPEC to renegotiate its financial and other terms. But that bid at renegotiation has mostly failed as the military and its affiliated interests have taken more direct control of the projects.  

At the beginning of the CPEC’s second phase in late June this year, two hydropower projects – Azad Pattan Hydel power Project and Kohala Hydel Power Project – in Pakistan-administered Kashmir and Gilgit Baltistan were inaugurated with a price tag of $3.9 billion.

China-based power companies, namely China Three Gorges (CTG) Corporation and Power Universal Co Ltd, took 80% stakes in the projects. The remaining 20% stakes have been subcontracted to FWO and Laraib Group, a local renewable energy firm, sources told Asia Times.

At the same time, Prime Minister Khan inaugurated construction of the contentious Diamer-Bhasha Dam in the disputed Gilgit-Baltistan region bordering on India. Although the dam is not a CPEC project, the bulk of the investment is coming from Beijing. 

Pakistan’s Prime Minister Imran Khan (2nd R) attends talks with China’s President Xi Jinping (not pictured) at the Great Hall of the People in Beijing on November 2, 2018. Photo: AFP/Thomas Peter

Touted as the biggest dam in Pakistan’s history, it is being built on the Indus River in northern Pakistan at a cost of $8.5 billion. Chinese state enterprise China Power and FWO are jointly executing the venture, which is expected to add around 4,500 MW of electricity to the national grid.

Earlier, the World Bank declined to finance the project because it is situated in disputed territory.

The Diamer-Bhasa dam, critics and observers say, will give China cause to bring People’s Liberation Army troops near or even in Gilgit-Baltistan, strengthening Pakistan’s military vis-à-vis India. Some analysts claim that Beijing could be one step away from creating a formal military base in Pakistan.

Michael Kugelman, deputy director at the Asia program of the US-based Wilson Center, was quoted in media reports saying that growing Chinese investments in Pakistan-administered Kashmir are a deliberate blow to India.

“These moves will bring one more tension point to an India-China relationship that is already more strained now than it has been for several decades,” he said.

FWO also has a lead role in the construction and rehabilitation of a 1,150 kilometer-long road linking the Gwadar port in Balochistan with other parts of the country, part of a $11 billion government infrastructure-building scheme.

The projects are be financed through concessionary lending from the Exim Bank of China and the China Development Bank. The terms of the agreement, including in regard to long-term upkeep and repairs, have not been made public.

Critics are already raising questions about the road’s toll collection, which is currently handled by FWO. They claim that the national government’s exchequer will receive scant, if any, revenue from the tolls even though FWO has no responsibility to invest in or upkeep the road network.

Pakistani Naval personnel stand guard near a ship carrying containers at the Gwadar port during the opening ceremony of a pilot trade program between Pakistan and China in 2016. Photo: AFP/Aamir Quereshi

FWO also secured a $10.9 billion contract for the Peshawar Model City Township and Khyber Pakhtunkhwa-China Investment Plan (KPCIP), which will facilitate the construction of industrial park networks in the province. The contract includes construction of three hydropower plants in Chitral, a cement plant in Haripur and a state-of-the-art oil refinery at Karak.

A report compiled by the Competition Commission of Pakistan (CCP) on the “Competition Assessment of the Road Construction Sector” shows that FWO is involved in the construction of approximately 13,000 kilometers of road infrastructure around the country, with over 50,000 employees mostly from the armed forces.

Critics say FWO enjoys undue competitive advantages through state-granted preferential tax holidays,  exemptions from providing bid securities and security deposits on won contracts, even though such exemptions are allowed by law for foreign-funded projects.

“From a competition perspective, these exemptions distort the level playing field in the sector by giving SOEs like FWO a significant cost advantage over other private sector competitors in the bidding process,” the report added.

But that’s par for the course under Khan’s military-influenced civilian administration, analysts and observers say.

As Ayesha Siddiqa, a London-based Pakistani researcher puts it: “the present political setup in Pakistan is a hybrid martial law,” with all strategic government functions run by serving or retired generals.

Because the military’s role is discernible across industries and sectors ranging from finance, construction, railways, aviation, industry and telecoms, China arguably had little choice but to engage and pay the armed forces in pursuit of its BRI and other strategic interests in the country.