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Kazakhstan may become Chinese raw materials appendage: expert 29 мая 2014, 01:29

Tengrinews has interviewed experts about benefits and downsides of trade expansion between Kazakhstan and China, in which one expert maintained the possibility of the former becoming a raw materials appendage of the latter.
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Tengrinews has interviewed experts about benefits and downsides of trade expansion between Kazakhstan and China.

Focusing on the fact that Kazakhstan is mainly a producer of raw materials and China is the largest exporter of finished products in the world, the analysts listed several positive aspects of expansion of trade with China.

First of all, according to Victor Neustoyev, an analyst of Wild Bear Capital investment company, Kazakhstan's economic growth is staggering and any available means should be used to prop up the economy, which is exactly what the government is doing when it is increasing its trade turnover with China.

"First of all, we are talking about supplying raw materials (mainly oil, gas and metals) to China and importing consumer goods from China. I believe that at this stage Kazakhstan will benefit from increasing the shipments of raw materials to China. We first need to make sure that our economy is up and running, and only after that we can afford a luxury of engaging in measures to make it healthier. Population has already faced serious problems as a result of devaluation of the tenge (Kazakhstan's currency), so further contraction of the real GDP will hit the citizens even harder,” Naustoyev maintained.

Another expert, Senior Analyst of Alpari firm Anna Bodrova pointed at recent political events. She expects Western sanctions against Russia to negatively affect Kazakhstan that borders on Russia. “Losses from hostility of Western markets can be partly compensated but resorting to the Chinese market. China will not become a full replacement for the western customers, but it is still an option,” Bodrova said. She emphasized that China was able to generate a continuous demand, and it was definitely an upside of partnership with China.

Finam Management analyst Maxim Kliagin also believes in the positive nature of Kazakh-Chinese trade development. According to him, an increase in trade turnover will increase export revenues and contribute to the growth rate of Kazakhstan's economy. Besides, the increase in Chinese imports “will provide access to modern technologies and competencies and improve provision of the population with up-to-date consumer goods", he said.

However, trade relations with China bear potential drawbacks for Kazakhstan, because the Central Asian country still heavily relies on production of raw materials.

Aivar Baikenov, Director of the Analysis Department at Asyl Invest, pointed out the risk of Kazakhstan becoming a “raw materials appendage” to the gargantuas Chinese economy. “When you are a raw materials country with a very limited amount of high value added goods production and located near the world's second largest economy, which may soon become the world's largest surpassing the U.S. economy, then the raw materials appendage scenario looks only natural,” he said. On the other hand, Baikenov considers trade with China quite promising. Paradoxically, many suppliers of raw materials find it increasingly beneficial to trade with rapidly growing China and other Asian countries rather than with the slow growing West.

However, China likes to dictate prices on its imports and likes to buy everything cheap. Prices are a negative aspect in trade relations with China, Bodrova pointed out. "Since Beijing loves to cut down prices, it is impossible for Kazakhstan to sell hydrocarbons to China at European prices. The price will surely be 3-5 percent lower," she explained.

Neustroev also noted that trade expansion with China could lead to a decline in competitiveness of Kazakhstan's domestic goods even at the domestic market. However, he said that even that aspect could be interpreted positively since “unprofitable enterprises will leave the market, while the profitable ones will work to optimize their production, which will have a positive long term impact on the economy of Kazakhstan”.

Kazakhstan is facing a dilemma as a provider of raw materials: expanding its relations with China may lead to an increase in its economic turnover, but will also decrease its ability to maneuver on the global energy market.

The question of whether Kazakhstan has a choice is a different story.
Reporting by Azhar Ashirova, writing by Dinara Urazova, editing by Tatyana Kuzmina

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