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Economy

The Belt and Road Initiative: Updates in Central Asia

Feb 25 , 2020
  • Leonardo Dinic

    NYU Alumnus with a Master’s Degree in International Relations

The Chinese language condenses the Belt and Road Initiative (BRI) into the balanced phrase, yi dai yi lu, which translates to “one belt, one road.” For the western audience, the BRI merges the Far East and Europe with a web of pipelines, roads, railways, and fiber-optic cables.In a recent special report, the Economist compared the BRI to China’s imperial tributary system and stated, “The physical and psychological distance between Europe and East Asia is shrinking.” In creating a more connected Eurasian continent, the BRI elevates the Steppe to a new level of global importance as Asia quite literally comes to Europe. 

The critical ‘dry-port’ city of Khorgos sits on China’s northwest border with Kazakhstan, and the border town extends the Eurasian land bridge necessary for the BRI’s ambitions. The state-owned China COSCO Shipping company financed the construction of the city, and Dubai’s DP World handles its global supply chain solutions and operations. With its 200,000 citizens, Khorgos transmits about 160,000 20-foot containers per year, with goals to manage 400,000 by 2025. Once a point farthest from any ocean on Earth, the BRI places Central Asia at the center of the world. Since 2017, the American computer firm HP moved its factories to China and began shipping products through Khorgos to the Netherlands and west to London. The provincial government in Jiangsu invested $600 million into an industrial and distribution center, which will attract additional business. BMW sends several trains per week to China through Khorgos. 

Even better, Kazakhstan contains hydrocarbons and minerals vital for the Chinese economy. Chinese trade with Kazakhstan was around $12 billion in 2018, and the government of Kazakhstan used renewed financial attention to develop the Astana International Financial Centre (AIFC), a vehicle for economic and diplomatic integration of the Central Asian economies. AIFC launched in 2018, with hopes to mirror Singapore, Dubai, and Hong Kong as a foreign capital magnet. Thus far, 235 companies work with the AIFC, bringing in $2 billion for the first half of 2019. 

The AIFC attracts capital through the Astana International Exchange (AIX), its parallel trading platform that lists government bonds and corporate stock, something uncommon to the other Central Asian countries. The privatization of the uranium ore mega-firm Kazatomprom and KazMunayGas, a national energy company, attracts investment banks and fund managers to Kazakhstan’s emerging market. Additional incentives for foreign investment include the AIFC’s use of English law in its dispute resolution system to root out corruption. Also, a special tax regime, which provides for smart regulations and the free movement of capital. AIFC grants corporate, individual, land, and property tax exemptions until the end of 2065. Also, AIFC offers investors and their families with multiple-entry visas to Kazakhstan. 

AIFC links Europe, Russia, China, the Middle East, the Caucasus, and the Caspian Sea with Central Asia. All in hopes to develop Kazakhstan’s non-banking financial sector, provide a favorable environment for investments, and become a commercial hub for Central Asia, the Eurasian Economic Union, the Caucasus, West China, Mongolia, and Eastern Europe. Further, while US investment remains low in Central Asia and the Trump administration continues to label the BRI a ‘debt trap,’ China increased trade and exported Huawei devices to Samarkand, Bukhara, Tashkent, and other Uzbek cities. Uzbekistan is also committed to the Eurasian rail and road networks so crucial to One Belt, One Road. 

There is an overwhelming need for the BRI. The Asian Development Bank (ADB) claims that Asia requires a total of $26 trillion in the next ten years to maintain economic growth, eradicate poverty, and manage climate change. The World Bank defines the BRI as a Chinese effort to “improve connectivity and regional cooperation on a trans-continental scale through large-scale investments.” However, the Economist argues that the BRI is explicitly pragmatic for economic growth and global trade, but implicitly political and strategic. In other words, Beijing shrouds an expansionist foreign policy with talk of Eurasian networks and ‘win-win’ investment philosophy.  

Implying that ‘political expectations’ are baked into the BRI is not a revelation. If China continues to invest in infrastructure networks, economic corridors, port cities, 5G telecommunications connections, Arctic shipping hubs, and satellite and space-launch capabilities, of course financing will cultivate political and diplomatic capital. The BRI’s influence stretches from Jakarta to Astana (now Nursultan) and west through the Mediterranean to the coasts of the Atlantic Ocean. As of last September, Beijing signed more than 190 cooperation documents with 160 countries and organizations worldwide. 

Efforts to smear the BRI as only a nefarious plan for world domination is cynical and misdirected. After WWII, the US leveraged aid and financing to develop strategic influence in Eurasia through rebuilding its societies. In response to the global financial crisis of 2007-2009, China created its opportunities abroad by lending and investing in much-needed infrastructure, while simultaneously securing markets for Chinese goods and developing political capital. It is a multi-faceted project with ever-expanding benefits for the Chinese, but that does not make it exclusively political. From a strategic perspective, the BRI makes perfect sense. Half of Shanghai’s natural gas now originates in Turkmenistan, which diminishes reliance on seaborne energy supplies that could be controlled or cut off by foreign adversaries in the event of a conflict. Creating valuable footholds across the globe is equally crucial, as China develops infrastructure in many of the world’s most important port cities while expanding its naval power. 

Although America’s National Security Strategy labels the BRI as predatory, estimates guess that $400 billion of financing reached 160+ countries, while the US post-WWII Marshall Plan cost $130 billion in today’s money. However, the recent outbreak of the Wuhan virus is a challenge for the BRI’s continuation. Coronavirus concerns threaten the economies of China and the Far East while slowing down or stopping altogether the transmission of people and products so crucial to the BRI’s global plan. Factories, schools, government offices, and international flights are all restricted by the outbreak. 

In addition to coronavirus concerns, a recent European Union Chamber of Commerce in China suggested that European societies are yet to experience significant benefits from the BRI. A collection of interviews with chamber members,“The Road Less Traveled: European Involvement in China’s Belt and Road Initiative,” concluded that European companies played a “peripheral role” in BRI projects. Even worse, many European agricultural, food, and beverage products have not yet penetrated Chinese markets due to tariffs or other barriers. Should the Belt and Road Initiative link the entire Eurasian continent, it must contain the Wuhan virus and satisfy European partners with transparent and reciprocal projects. Otherwise, the Europeans will lose faith and repeat the American narrative, which suggests that Chinese investment is one-sided and politically driven. During a time of unlimited Central Asian potential, the Chinese should quickly address these concerns for the benefit of all of Eurasia. 

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