China: A Passage To Pakistan: The China— Pakistan Economic Corridor

Last Updated: 11 April 2017
Article by Nathan Dodd


For the regular visitor, Pakistan appears to have a vibrant economy. Flights are busy and hotels are often nearly at full occupancy. Economic data supports this observation, with the World Bank predicting Pakistan's GDP growth rate is expected to rise to 4.8 percent in 2017 and will accelerate modestly through 2019. What is behind this? To a large extent it is driven by Chinese investment.

The China-Pakistan Economic Corridor (CPEC) is creating opportunities for investment through the advancement of key projects by the Chinese and Pakistani governments along a 3,000 kilometer route between the two countries. A part of the Belt and Road (B&R) initiative, CPEC is one of six economic corridors along the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

The flagship initiative consists of a range of developmental projects connecting Kashgar in Xinjiang, China to Gwadar in Balochistan, Pakistan, including the development of roads, oil and gas pipelines, power stations, cables and airports. It is targeted for completion by 2030. In addition, CPEC also aims to increase cooperation between the two countries in other areas such as science and technology, agriculture, tourism and culture.

With the objective to strengthen economic ties between China and Pakistan, the respective governments hope that the collaboration will also enhance the region's cohesiveness, accessibility and prosperity.

The first proposals for CPEC began in 2014 when the President of Pakistan, Mamnoon Hussain, visited China to discuss plans for an economic corridor in Pakistan. Following further discussions between Pakistan Prime Minister Nawaz Sharif and Chinese Premier Li Keqiang in November 2014, the Chinese government announced its intention to finance Chinese companies as part of a USD 45.6 billion energy and infrastructure projects plan. The CPEC Agreement was signed on 20 April 2015, and the two countries agreed to jointly undertake the development of these projects in Pakistan.


Some of the major projects under CPEC include:

  • Energy. Energy sector projects to tackle an electricity generation shortfall in Pakistan, such as the implementation of the "Early Harvest" scheme to develop over 10,400MW of energy generating capacity, the construction of Quaid-e-Azam Solar Park (the world's largest solar power plant near Bahawalpur) and the USD 2.4 billion 1,320MW coal-fired power project by China Power International Holding and Hub Power Company;
  • Railway. Railway projects to upgrade the Pakistani railway system, including an overhaul of the Main Line 1, Main Line 2 and Main Line 3 Railways respectively;
  • Roads. Road projects financed by China to expand and upgrade the Pakistani transportation infrastructure, such as reconstructing the Pakistani portion of the Karakoram Highway (which is also known as the "China- Pakistan Friendship Highway" connecting Xinjiang and Gilgit-Baltistan across the Karakoram mountain range), expanding and upgrading sections of the Eastern Alignment and the Western Alignment which are corridors for cargo transport;
  • Infrastructure. Infrastructure works to expand the Gwadar Port and to construct a new international airport in Gwadar; and
  • Mining. Pakistan and China have signed financing agreements amounting to approximately USD 1.95 billion for the development of the Thar Block II 3.8 MT/A coal mining project and associated 2x330MW coal-fired power plant to be developed in the Thar region of Pakistan. The project is expected to be commissioned in 2018.

Our Role

Mayer Brown JSM is currently advising the project company on the development and project financing of the 1,320MW coal fired independent power project located at Hub, Balochistan, Pakistan, one of the landmark projects along the China-Pakistan Economic Corridor. Hub, an industrial estate in Balochistan province, is 56-kilometers from Karachi—Pakistan's port city and its financial center. With an estimated project cost of USD 2.4 million, it will be one of the biggest private-sector investments in Pakistan and one of the largest project financing deals along CPEC.

The project sponsors comprise of China Power International Holding Ltd, a wholly-owned subsidiary of State Power Investment Corporation and the Hub Power Company, one of Pakistan's largest independent power producers. State Power Investment Corporation is a newly established entity through the merger of China Power Investment Corporation and State Nuclear Power Technology Corporation, which formed one of China's largest state owned power companies.

This transaction is a key part of CPEC and the broader Belt and Road initiative, and was identified as a priority project on President Xi Jinping's agenda in his last official visit to Pakistan in 2015. The power plant will ease the country's electricity shortages and be a vital part of Pakistan's energy supply chain, which has traditionally been heavily reliant on heavy fuel oil and (now dwindling) domestic gas.


It certainly appears that CPEC is driving the development of infrastructure in Pakistan. Whilst much of the international community is skeptical of investment into the country, China has stepped into the gap, providing much-needed capital, and Chinese companies are profiting from these investments.

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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