China and Pakistan’s $46bn superhighway deal a win-win

24 April 2015

A deal to create a $46 billion superhighway between China and Pakistan is a win-win project for both countries says Kamel Mellahi, Professor of Strategic Management.

China’s President Xi Jinping has signed the agreement with the intention of building a China-Pakistan Economic Corridor (CPEC) consisting of an integrated network of roads, rails and also pipelines between the two countries.

Professor Mellahi believes both parties have much to gain from the deal.

He said: “I think the deal is hugely significant for both China and Pakistan. It’s a win–win project for all involved. For China, the massive investment will shorten the energy import route to the country from the Middle East and the rest of the world.

“The CPEC will lower the cost of goods imported into or exported out of China.”

The deal will also be of huge importance to a struggling Pakistani economy and help reduce the burden on its two overloaded ports according to Professor Mellahi.

“For Pakistan, the country has pressing infrastructural needs and the anticipation is that this enormous integrated project involving a network of roads, rails and pipeline links, will help transform the country into a regional economic hub, and help solve the chronic energy shortage in the country,” Professor Mellahi added. “We’ve heard upwards of $30 billion will go into energy investment.”

“Plus Pakistan has two working ports near to capacity and this is creating a logistics nightmare, a bottleneck which is costing Pakistan’s economy significantly.

“Most importantly for Pakistan, it will turn the country into a regional hub.”

Under the CPEC plan, China's Government and banks will lend to Chinese companies, so they can invest in projects as commercial ventures.

Chinese officials say up to $15.5 billion of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to Pakistan's national grid, while a $44 million optical fibre cable between the two countries is also due to be built.

“Of course undertaking this project is going to be challenging from both the Pakistan and Chinese sides,” said Professor Mellahi.

“The project runs through a very volatile region – but, in my mind, the project is of such benefit to both parties they will do what it takes to see it through to fruition.

“You also have to remember, China has previously implemented such projects in volatile regions in Africa, so has gained experience in these situations.

“This is China’s Silk Road Strategy in action. We know there is a pressing need for improving connectivity in the region; it is the main objective of the strategy and I can’t see any other country but China leading such projects.

“This is just a start of the One Belt One Road strategy. There is little doubt that we are going to see similar, albeit not this large, Chinese investment projects in other parts of Asia.”

Kamel Mellahi is part of the Strategy and International Business group at Warwick Business School. Read more about the new MSc International Business course here.

Alternatively, click the following links for more information on the MSc Management and MSc Marketing & Strategy.

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