The Impact of Terrorism on CPEC Trade Corridors and China-Pakistan Bilateral Trade: 2015-2025

The China-Pakistan Economic Corridor (CPEC), a flagship project of China's Belt and Road Initiative (BRI), is an infrastructure and trade framework that will transform the relationship, linking China's Xinjiang region to Pakistan’s Gwadar Port via CPEC. CPEC, which started in 2015, has drawn about $62 billion in investments and offers to revive the economy of Pakistan as well as to provide an extensive market network to China. Meanwhile, there has been an alarming resurgence of terrorist activities in Pakistan, especially in the provinces of Baluchistan and Khyber Pakhtunkhwa from 2015 to 2025. This situation has posed serious challenges not only to CPEC infrastructure and personnel but also to broader China-Pakistan bilateral trade relationship. This study, which uses a detailed mixed-method design involving quantitative econometric analysis supplemented by qualitative security assessment, will investigate the effects of terrorism on CPEC trade corridors and China-Pakistan bilateral trade.  Categorical terrorist attack types including commercial targets, private citizens and property, and security forces are considered in relation to trade efficiency across different CPEC routes from 2015-2025 through a heteroskedasticity-adjusted stochastic frontier gravity model. Results indicate that terrorist attacks lead to trade efficiency loss, with the greatest impact seen on commercial targets and Chinese-linked projects. In addition, the study finds that measures to combat terrorism have some moderating effect, which, however, exhibits non-linear behavior. The report also notes that terrorists’ costs have affected CPEC in terms of project delays, increased security costs, lower investor confidence, and supply chain disruption. Recommendations put forward in the paper include the deepening of Pakistan-China security cooperation, the development of integrated counter-terrorism plans, community initiatives to understand local issues, and government initiatives aimed at enhancing border security and intelligence sharing.