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China is putting its money where its mouth is on Silk Road initiative

02 december 2014, 16:34
0

 A year ago Chinese President Xi Jinping delivered a key foreign-policy speech at Nazarbayev University in which he proposed creating a new Silk Road connecting China and Europe through Central Asia.

The objective, he said in his September 2013 address, was generating a new wave of prosperity in all of the countries through which the old trade route ran.

I covered the speech, whose central foreign-policy theme was China’s pledge to be a good neighbor to Central Asia. But I confess I stifled a yawn when it got to the Silk Road part.

There were two reasons.

First, a number of leaders in the region, including Kazakhstan’s Nursultan Nazarbayev, had already broached the idea of a modern road and rail network between East and West. Second, Xi’s speech contained no specifics on how to make the new Silk Road a reality – or what China was prepared to do to make it happen.

China's President Xi Jinping. ©REUTERS

I wondered at the time if the speech were simply a warm and fuzzy overture to Kazakhstan’s leaders and people – in other words, a high-profile but hollow public-relations effort.

In the months since then, Xi has erased my doubts. He’s proved he’s willing to put his money where his mouth is to create a modern East-West commercial corridor.

The first indication of that was China’s decision this summer to build an overland port complex at its sleepy city of Khorgos on the Kazakhstan border to accelerate trade with Central Asia and beyond.

The second was Beijing’s initiative in October of this year to create an Asian Infrastructure Bank, a substantial part of whose loans are likely to go to Central Asian nations needing to build roads, rail lines and pipelines.

The third indication was Xi’s announcement this month that China will create a Silk Road Fund to finance infrastructure projects in Eurasia and elsewhere.

The cost of creating a modern Silk Road corridor is “so mind-blowingly big” that “the only country in the world that could ever dream” of trying to achieve it is China, said Henrik Christensen, president of global logistics at the Kazakhstan Railways subsidiary KTZ Express.

The Asian Infrastructure Bank’s initial capitalization will be $50 billion, with the figure reaching $100 billion over time. Although 20 countries have agreed to be partners in the development bank, China is expected to put up most of its funding at first.

The Silk Road Fund’s initial capitalization will also be $50 billion.

Asia’s total infrastructure needs are in the trillions of dollars, experts say. So the tens of billions of dollars that China is committing will not be a cure-all -- but will certainly be a great help.

Khorgos, a city of 85,000 five hours from Almaty by car, has long been the major conduit for trade between China and Kazakhstan.

Kazakhstan's President Nursultan Nazarbayev (R) and his Chinese counterpart Xi Jinping. ©REUTERS

But it’s been inefficient. Kazakhs who make a living importing goods from China say they’ve had to wait hours to cross the border into Khorgos, then endure hours-long customs checks of their newly purchased goods on the way back.

China has built a combined shopping/hotel/customs complex in Khorgos to make Kazakhs’ importing process quicker and easier.

It’s also established what it calls bonded logistics centers at cities further inland to perform customs checks before goods arrive at Khorgos for export.

Kazakhs who buy goods in Khorgos will still have to go through customs checks there, of course -- although China is trying to accelerate the process.

But goods cleared at Chinese customs facilities further inland will be able to whisk their way through Khorgos. The hours saved will be important when the goods are on a train bound for Europe.

China is so intent on speeding its goods into Central Asia and on to Europe that it is even changing the width of its rail lines.

“We will build broad-gauge railways compatible with those in Central Asia and Europe, which will save the time and trouble of having to reload cargo (on the Kazakhstan border) owing to the use of different tracks,” said Fang Hongming.

He is chairman of Gansu Asia-Europe Continental Bridge International Logistics, which operates the bonded logistics center at Wuwei in north-central China.

Photo courtesy of Kazakhstan Temir Zholy©

If all the Eurasian and European countries through which Chinese goods must pass streamline their customs clearing as China is doing, they will be able to reach Western Europe in 10 days to two weeks, Chinese trade officials say.

It takes four times as long for goods made in central or Western China to go by rail to the country’s Pacific ports, then on to Western Europe by sea.

China is spending billions of dollars a year modernizing its own transportation and trade infrastructure, but it knows that if a new Silk Road is to become a reality, Kazakhstan and the rest of Central Asia must have modern infrastructure.

The Asian Infrastructure Bank will help them achieve that.

The name that Beijing chose for the bank indicates it will have a singular purpose.

Other development banks – such as the Asian Development Bank – finance a range of projects, from infrastructure to government modernization, to health care, to poverty reduction.

The Asian Infrastructure Bank will focus solely on infrastructure to start with. It could broaden its scope later, of course, but Asia’s infrastructure needs are so overwhelming that it will likely be decades before it considers blazing other trails.

In addition to financing Silk Road-related infrastructure in Central Asia and the Caucasus, the Asian Infrastructure Bank will finance road, rail and port facilities in other parts of Asia. That will help China with another initiative: creating a maritime Silk Road to speed seaborne trade across and beyond Asia.

The United States has objected to the Asian Infrastructure Bank on grounds that it’s a Chinese effort to bring Asia into its orbit.

Washington has even prodded some of its Pacific allies – such as South Korea – not to participate in the bank.

With apologies to my friends at the U.S. Embassy in Astana, I must say I believe the American position is short-sided.

The World Bank, the Asian Development Bank and the European Bank for Reconstruction and Development have done a great job of financing projects that have helped improve the lives of residents of Central Asia, the Caucasus and Eastern Europe.

World Bank President Jim Yong Kim. ©REUTERS

But there’s so much need that it seems to me there’s always room for another development bank.

I was surprised that China followed up on its Asian Infrastructure Bank initiative with a second infrastructure-financing initiative – the Silk Road Fund -- so quickly.

The signing of the development bank’s charter came in October and the announcement of the fund in November.

News of the fund struck me as additional evidence of how serious Xi is about creating a modern Silk Road.

Old China hands have long contended that Beijing wants a new Silk Road partly to calm its restive western provinces.

The standard of living in the west has lagged that in the booming east and center.

A key reason is that it costs a lot to send goods from the west by rail to Chinese ports for transshipment to world markets. That has meant that many Chinese companies have been reluctant to build factories in the west.

A Silk Road that offered reasonably priced overload transportation to Western Europe would likely lead to more industrialization in the west, giving westerners better lives.

Those who contend that China has both international and domestic political motives for helping to create a modern Silk Road are correct.

It would give many nations along the trade corridor – in Central Asia, the Caucasus, parts of the Middle East and Eastern Europe – a reason to like China.

It also might help Beijing assuage the resentment of its Muslim minorities in western China, many of whom believe they are second-class citizens with second-class standards of living.

A lot of big economic initiatives have political as well as economic dimensions, so the political side of Beijing’s Silk Road initiative doesn’t bother me.

As someone with a lot of Kazakh friends who would benefit from a new Silk Road, I’m glad to see that the initiative isn’t just talk.

Beijing’s creation of an export-speeding infrastructure at Khorgos and two infrastructure financing mechanisms – the Asian Infrastructure Bank and the Silk Road Fund – could help my friends achieve better lives in years to come.

That’s the bottom line for me.

 


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