In 2005, Gwadar, a small port city on the coast of Balochistan in Southwestern Pakistan, was hailed by some optimists as the next Dubai. 20 years later, despite huge Chinese investment as part of the Chinese-Pakistan Economic Corridor, it has not manifested as such. What Pakistan hoped would be a new urban and economic hub, and what China hoped would be a strategic port and symbol of influence, has experienced only tepid growth and significant local opposition. What happened?
Gwadar, historically a fishing village, was first identified as a potential deep-water port in the 1950s. Pakistan initially approved plans for a port in Gwadar in the early 1990s, hoping to capitalize on their coast for trade, but did not have the money to carry out the project. It wasn’t until 2001 that construction began. Chinese firms covered about 80% of the $248 million USD the five-year first phase cost via a combination of grants and low-interest loans.
China’s investment move was not unprecedented. In the last quarter of the 20th century, China had rapidly been gaining global prominence. That being said, the 2000s did mark the beginning of a more intensive era of foreign investment by China. Having experienced huge growth in the 1980s and 1990s, China was now in a position to provide aid to others (and receive in return cooperation and allyship). Gwadar in particular was located in a key spot with access to the Middle Eastern oil trade, avoiding the contentious South China Sea; China had been a net importer of oil since 1993.
The early period of Gwadar’s history was perhaps when excitement was highest. By 2005, property prices had surged 30-fold, and foreign investors began taking interest. Pakistan abolished duties on machinery and equipment imports to the city in an effort to coax industrial investment. Chinese premier Hu Jintao himself visited to sign a memorandum of understanding to construct a petrochemical terminal. However, there were signs of trouble—some of the city’s 60,000 residents protested the perceived Chinese intrusion, with ethnic Baloch militants bombing a car, killing three Chinese engineers, and delaying the inauguration of the port—but hopes for the project remained strong.
In 2006, Phase I was completed. In 2007, Singaporean port operator PSA International won the bid to operate the port. Their involvement alleviated some Indian and Western fears that China’s involvement in Gwadar, and Pakistan broadly, were motivated primarily by a desire to establish a naval presence in the region via a “string of pearls,” i.e. friendly port cities.
The port opened in 2008. PSA International was to run the port for 40 years, with an exemption on corporate taxes, during which they predicted port operations would generate $4-8 billion USD in investment and $17-31 billion in revenue. China did not receive the control they had expected. Simultaneously, a second phase of port construction was planned to quintuple the port’s capacity, as well as expand industrial production in the area. At the time, the second phase was to be completed in 2010.
PSA International struggled. How much of that can be attributed to the port’s performance (it was underused) and how much can be attributed to bureaucratic turmoil is unclear. In 2010, a small group which included the Balochistan provincial governor filed petitions against the allotment of land to PSA, being a foreign company. A stay order was granted for a year and a half. Also, political instability in the region—the now-defunct The Herald, a Karachi-based magazine, called the selling of property in Gwadar to non-Balochs “the great land robbery,” turning the project into a target for nationalist conflict—made infrastructure development difficult.
The foreign land rights case was to head to the Pakistani Supreme Court, but after a year and a half of delay, PSA ultimately gave up and abandoned the agreement to operate the port.
This was good news for China, as China Overseas Port Holding Company acquired the right to port operations in 2013. Gwadar would be COPHC’s first experience operating a port terminal; the company itself had only been incorporated the previous year. They would later become more involved in many other port projects around the globe (Gwadar Port Authority retains ownership of the port, not COPHC, which differs from some projects), but Gwadar was the first. Their operations would be relatively opaque to outsiders and interested journalists.
Western and Indian skepticism returned. This suspicion was in part fueled by the official launch of the Belt and Road Initiative, China’s massive foreign aid and investment scheme. What qualifies as a Belt and Road project is unclear, sometimes even within Chinese state media, but, regardless, it represented a new emphasis of the Chinese government. In 2015, the China-Pakistan Economic Corridor (CPEC), an infrastructure project running from the Pakistani coast to Western China, was announced. Earlier projects, like the Karakoram Highway connecting Chinese Xinjiang with Pakistani Gilgit-Baltistan provinces constructed in the mid-2000s, were set for expansion. Gwadar Port was folded into CPEC.
By this time, however, Gwadar’s star had dimmed. Interviewees and journalists from this period no longer hail Gwadar as the next great city but as something “once called” the next Dubai. In 2016, a decade after its first phase had been completed, and while construction of its second phase continued, Gwadar Port became formally operational. At this point, the port was relatively small—three berths, handling 137,000 shipping containers a year; the port in Karachi handles 4.2 million, for comparison.
Regardless, work continued. CPEC was emerging as the premier infrastructure project under the broader Belt and Road umbrella, so Gwadar received renewed interest. In 2015, Zhuhai Port Holdings Group, based in coastal Guangdong province, acquired the contract for construction of the second phase of Gwadar Port (five years after this phase of construction had initially been slated for completion).
This follows a general pattern of Belt and Road projects, in which Chinese construction firms are hired using money loaned from Chinese banks to complete infrastructure projects in non-Chinese countries.
Despite this, early in the port’s development, the positive spillover effects were often discussed as a boon to Pakistan. Under the Chinese agreement, the port company would receive 91% of the revenue from operations, with the Balochistani government receiving the remaining 9%. The Pakistani government received nothing, similar to the earlier agreement with PSA. The agreement followed the build, operate, and transfer model for infrastructure projects popular in Pakistan. Chinese media labeled business revenue as their main gain from investment projects.
Locals might have been content with 9% of the revenue had the local economy benefited as anticipated. 80% of Gwadar’s residents were fishermen. Under COPHC’s deal with the Pakistani government, COPHC-affiliated companies would be granted 40 years without state taxes within the newly-established Gwadar Free Zone, and any other investors for 29 years; these industrial groups would hopefully employ and train local Pakistani workers. They did not.
Chinese engineers were sequestered away from locals, exacerbating local resentment. Local fishermen complained of new security measures limiting their access to Gwadar Bay, and the news of plans for the construction of commercial fishing infrastructure stoked fears of competition from new Chinese sellers. Some were asked to leave the city altogether. Under CPEC, Chinese firms pledged $800 million USD to improve the local environment via the construction of schools and infrastructure, but electricity outages continued to plague the city.
In 2018, the Pakistani government held a senate hearing on the sluggish pace of construction. More specifically, the Pakistani government was concerned with establishing a clean water supply, something that had been promised by Chinese developers but had yet to materialize in a fully functional way. The extant desalination plant was insufficient for the population.
China, for its part, began investing in Pakistan’s two largest ports in Karachi and Qasim around this time; previously, Chinese developers touted Gwadar as the answer to the lack of space in those cities. Plans still claim the port will be able to hold 400 million tonnes of cargo—it is still 50,000 tonnes today—but progress is still slow. The port, despite being fully operational, receives little traffic, not helped by the lack of specialized coal, oil, or gas berths. To date, it has not become a stop for any regularly-scheduled deep sea shipping lines.
Continued Baloch hostility did not help, nor did Pakistani budget cuts or the COVID-19 pandemic. It would be unfair to place the blame for Pakistan’s debt crisis on Gwadar, or even on CPEC broadly, but it is true that Pakistan owes $70 billion USD to China, about 30% of its total external debt. The implementation of tax exemptions in the Gwadar Free Zone in 2019 was expected to bring more industry, but two years later only 24 of 9200 hectares were considered operational. Gwadar is still poorly connected to other major cities and has low port activity, providing little reason to invest. Recent terrorist attacks by Baloch separatists are also deterrents.
Gwadar remains a key project of CPEC. The corridor, although incomplete, will still terminate at the port. It has come to represent, however, the struggles of completing projects in states like Pakistan. Gwadar was amongst China’s first BRI projects, constructed by firms used to deal with the authoritarian stability of Chinese cities.
On paper, a port in a developing nation on the Arabian Sea with easy access to the oil trade was an easy success. China’s own special economic zones, like Shenzhen, have blossomed in large part due to their strategic locations near major cities like Hong Kong. And yet, in practice, politics are hard, and economic transformations can’t be forced.
