China-Pakistan Economic Corridor (CPEC) as a connectivity booster to Sri Lanka

Pakistan’s CPEC and Sri Lanka’s maritime connectivity projects are ‘important nodes’ in the BRI. BRI aims at creating win-win partnership between China and the host country, and in the same degree it presents a win-win situation amongst partner countries as well. PM Khan said Sri Lanka could benefit from CPEC through enhanced connectivity “right up to Central Asia”, while trade ties would bring Pakistan and Sri Lanka “closer together”

Sri Lanka is an island nation in the Indian Ocean. Sri Lanka is strategically placed, as equidistant between Europe and Far East on the major East-West shipping lanes and has easy access to lucrative Middle Eastern markets and rising African markets, while the growth engine that is India lies just 20 miles away. Because of that Sri Lanka is seen as one of the vital nodes along the BRI, 21st century maritime Silk Road. 

Given its strategic location, United States, China and India aspires to acquire an influential position in Sri Lanka through various development programs and grants. In partnership with BRI, Sri Lanka commenced a series of developmental projects, leading to a huge overhaul of Sri Lankan infrastructure including maritime connectivity related projects which was dragging for generations. These include the Colombo-Katunayake Expressway, Southern Expressway, Outer Circular Highway, Hambantota Port, Matala Airport, Lakvijaya Power Plant, CICT Colombo Port Terminal, Colombo Lotus Tower – Telecommunication Tower, etc.

China’s Belt and Road Initiative (BRI) development strategy aims to promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road. The Belt and Road run through the continents of Asia, Europe and Africa, connecting the vibrant East Asia economic circle at one end and developed European economic circle at the other, and encompassing countries with huge potential for economic development. 

The CPEC

The China-Pakistan Economic Corridor (CPEC) is also one of the most ambitious components of BRI that aims at linking the Gwadar Port to China’s North Western region Xinjiang through a vast network of highways, railway lines and power projects throughout Pakistan. 

Gwadar Port is situated on the shores of the Arabian Sea in the city of Gwadar, located in the Pakistani province of Balochistan. The Gwadar Port is important to Beijing as it provides direct transport links to the Indian Ocean via CPEC. China needs an alternative trading route to the Middle East and Europe that is short, cost-effective, and safe, and CPEC can offer the shortest connection from China to Middle East and Europe. The CPEC does not only provide an economical trading route to China but also provides the Chinese a substitute for current Strait of Malacca route where 80% of China’s oil imports pass through this significant sea way. 

Pakistan Prime Minister Imran Khan left (24 February) the island after concluding his two-day official visit to Sri Lanka. During the visit, the Pakistani Premier and his delegation met with the Sri Lankan Prime Minister Mahinda Rajapaksa, President Gotabaya Rajapaksa, and other State officials. The visit focused on deepening two countries’ already strong ties by enhancing trade through opportunities presented by CPEC. “Pakistan is part of the Belt and Road initiative of China, and CPEC is one of its flagship programs. And it means connectivity,” PM Khan said

Indubitably Pakistan’s CPEC and Sri Lanka’s maritime connectivity projects are ‘important nodes’ in the BRI. BRI aims at creating win-win partnership between China and the host country, and in the same degree it presents a win-win situation amongst partner countries as well. PM Khan also said while addressing a joint press conference that Sri Lanka could benefit from CPEC through enhanced connectivity “right up to Central Asia”, while trade ties would bring Pakistan and Sri Lanka “closer together”.

Trade with Pakistan

A substantial improvement in trade has been recorded since the Pakistan-Sri Lanka Free Trade Agreement (PSFTA) came into force on 12 June 2005. Sri Lanka has now duty-free market access for more than 4,500 products.

Pakistan’s exports to Sri Lanka grew from $ 97 million in 2004 to $ 355 million in 2018, almost 3.6 times higher over the period of 14 years due to the positive impact of PSFTA on trade. Similarly, Sri Lanka’s exports to Pakistan grew from $ 47 million in 2004 to $ 105 million in 2018, almost double over the same period. However, the exports to Pakistan was less than 1% of Sri Lanka’s total exports to the world in 2019. During the visit, both countries agreed to pursue the opportunities presented within the framework of the PSFTA to increase exports and expand production facilities where there is potential for trade. 

Sri Lanka recorded a total value of $ 16.4 billion of exports during the year of 2019. Sri Lanka’s exports are overly dependent on few leading Western markets and demonstrates limited success in exporting to key Asian markets, and market concentration is seen as one of the critical bottlenecks in this regard. PM Khan’s invitation to join the multi-billion-dollar CPEC could be a gateway to success in enter new geographies and new markets. 

Central Asia, central region of Asia, is bounded on the north by Russia and on the south by Iran, Afghanistan, and China. The region comprises the countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. It is a diverse region with a mix of upper middle- and low-income countries and it has been considered a strategic important countries due to their geographic location and natural resource endowments. 

Central Asia

China and Russia’s rapid economic expansion creates an unprecedented opportunity for Central Asia to emerge as a hub for trade and commerce. With the initiation of the BRI, the Silk Road Economic Belt, a trans-continental land route that links China with South East Asia, South Asia, Central Asia, Russia and Europe has increased the volume of intra-regional international trade and the inflow of foreign investment into Central Asia. Also, the number of China-Europe trains transiting through Central Asia has been witnessing rapid growth over the past few years. 

For trade routes through Afghanistan are the shortest transits from Central Asian countries to Gwadar.  Afghanistan Government also expressed a strong desire in joining the CPEC since October 2016. Pakistan has constructed two roads leading from D.I. Khan to Angoor Adda and Ghulam Khan, linking with the Afghan provinces of Paktika and Khost respectively. 

This will enable easier access to the Afghanistan market as well. Afghanistan Ambassador recently said that they are keen to ink a Free Trade Agreement (FTA) with Sri Lanka. Total export value from Sri Lanka to Afghanistan was $ 709.15 in 2017. Given the geographic centrality for transit trade, Sri Lanka can greatly benefit from Afghan’s virgin markets with a population of over 30 million consumers, while looking northwards to explore similar opportunities in Central Asia with a population of over 70 million consumers.

Therefore, as PM Khan stated, if Sri Lanka can work with Pakistan to connect both country’s nodes of BRI and enhancing the connectivity by actively engaging with Gwadar Port and the CPEC, Sri Lanka has the opportunity to reach Afghanistan and Central Asia new markets. 

(Maya Majueran K, is a Ph.D. candidate at the University of Kelaniya, researching the BRI, and holds MBA in HRM at the Open University of Sri Lanka and BSc at the Wayamba University of Sri Lanka. Maya currently serves as a Director to BRISL.)

(Yasiru Ranaraja is a researcher on Maritime Affairs, graduating from Dalian Maritime University, and in 2016 he was awarded the Chinese Government Scholarship to complete his LLM at Ocean University of China. Yasiru currently serves as a Director to BRISL.)