Proposed rail link between China and Pakistan: study says project ‘worth it’ at $58bn

Beijing’s proposal to develop a $58-billion railway system that would link Pakistan with Western China should proceed because of its strategic significance, a government-commissioned feasibility study has found, reported the South China Morning Post on Thursday.

The study, prepared by scientists from the state-owned China Railway First Survey and Design Institute Group Co Ltd, says the proposed railway project would connect port-city Gwadar, situated in Balochistan, to China’s Kashgar region.

The feasibility study, led by the institute’s deputy director of capital operations Zhang Ling, said the proposal – China’s largest Belt and Road Initiative transport project – had the potential to reshape trade and geopolitics across the Eurasian continent and should be supported.

“The government and financial institutions [in China] should provide strong support, increase coordination and collaboration among relevant domestic departments, strive for the injection of support funds and provide strong policy support and guarantees for the construction of this project,” the report, quoted South China Morning Post, said.

As per the report, the 3,000km Pakistan-China railway will link China’s western regions with the Arabian Sea, bypassing the Strait of Malacca and reducing dependence on the South China Sea.

China assures Pakistan of continued support

Moreover, “connections with other transport networks i.e. in Iran and Turkey, would also provide a more direct route to Europe for Chinese goods, while Pakistan is forecast to get a much-needed boost from the improved infrastructure and easier trade with China,” said the report.

The scientists pointed out that a majority of BRI transport infrastructure construction projects had received a major proportion of funding from the host countries, and the scale of Chinese investment was much smaller.

However, that is not the case with Pakistan, which is unable to make a similar contribution due to country’s poor economic situation, the report added.

“Due to energy shortages, poor investment environment and fiscal deficits, Pakistan’s economic growth rate has come under pressure,” the team said.

“In terms of railway investment and construction, Pakistan is unable to provide sufficient financial and material support and mainly relies on Chinese enterprises for investment and construction.”

Moreover, the project also requires supporting infrastructure, i.e. ports and logistics facilities, “that might not be immediately available in Pakistan,” the study said.

It added that Pakistan’s unpredictable labour policies could potentially affect the railway’s construction and operating costs.

Moreover, the researchers also raised concerns over the recent security situation in Balochistan.

The report suggested a build and transfer (BT) model as the best investment and financing strategy for the project.

“In the BT model, a contractor would be responsible for designing, building and financing the railway, with payment on completion and ownership transferred to the government or other commissioning entity.

“BT would allow the risks associated with the railway’s construction and operation to be allocated more effectively between China and Pakistan, potentially reducing the financial risks for both parties,” said the report.

Long-term ally China has been among Pakistan’s major financiers, as the South Asian country’s foreign exchange reserves remain at critically low levels.

Pakistan refinanced $1.3 billion from the Industrial and Commercial Bank of China Ltd (ICBC) – in three disbursements – and last month, China rolled over an additional $2-billion loan, providing relief during Pakistan’s acute balance of payments crisis.

Pakistan also received $700 million from China Development Bank towards the end of February.

Months of political and economic turmoil, worsened by crippling floods last year and record inflation, has put Pakistan among countries facing a debt crisis.

Talks with the International Monetary Fund (IMF) for a delayed $1.1 billion loan tranche, part of the bailout agreed in 2019, have dragged on for months.