Dr. Mehmood Ul Hassan
Chinese One Belt & One Road Initiative (BRI) has become one of the “biggest” economic stimulators for weakening global economic recovery. It has now become dreams “merchant” in Kyrgyzstan.
Most recently foreign ministers of China Wang Yi and Kyrgyzstan Jeenbek Kulubaev met in Cholpon-Ata and have agreed to further strengthen their comprehensive strategic partnership. Both countries were committed to building China- Kyrgyzstan-Uzbekistan railway projected with a shared community.
It has renewed hopes that an ambitious planned railway linking these central Asian countries may finally become a reality. China’s Ministry of Foreign Affairs said following the meeting with Japarov that “the conditions and time for the construction of the China-Kyrgyzstan-Uzbekistan (CKU) railway are getting ripe, and the first batch of Chinese experts have arrived in Kyrgyzstan recently for a site survey and the construction process of this railway has kicked off. China stands ready to work with Kyrgyzstan and Uzbekistan to speed up the feasibility study.
It is multiplier socio-economic dividends. New jobs will be created and economy will be further sustainable. Uzbek President Shavkat Mirziyoyev said the project is key to reaching global markets.
Precisely it will mega project of greater regional connectivity. It will link Kyrgyzstan to Asia-Pacific countries, paving the way for new economic opportunities. It will be a great addition to the existing East-West railways.
If this route opens, Kyrgyzstan will be able to sell its food products as well as metal and other goods to China. It could also bring more merchandise from China to our local markets which could lower prices, pleasing consumers.
The route would generate transit fees for Kyrgyzstan and Uzbekistan and develop local manufacturing industry.
Undoubtedly, Chinese BRI has effectively strengthened the prospects of greater regional connectivity, immense socio-economic integration, massive industrialization, development of renewables, green energies, social development, and transportation system and last but not least eradication of poverty and digitalization in all the member countries and Kyrgyzstan is not any exception.
It seems that the development of transport, energy and telecommunication infrastructures as well as the establishment of a network of ports has been the main strategic areas of the BRI since its inception. Moreover, other sectors have also been increasingly integrated, such as information and communication technologies (like 5G), e-commerce, green finance, space, tourism, legal, customs, police, education, culture and others. In this connection, BRI has been doing wonders in Kyrgyzstan and is achieving economic miracles. Nevertheless, the Chinese policy makers have identified five constituent pillars: coordination in policymaking, interconnecting infrastructure, trade facilitation, financial integration and human connections.
According to reliable economic data of the Refinitiv, in the first quarter of 2020, the value of the BRI projects exceeded US$4 trillion for the first time. Among these, 1,590 projects valued at US$1.9 trillion while 1,574 other projects with a combined value of US$2.1 trillion were classified as “Projects with Chinese involvement”. Even Kyrgyzstan has received more than 40 small, medium and mega projects under the flagship of the BRI.
Many published reports of the World Bank estimated last year shared that around US$500 billion was invested in the BRI in 50 developing countries between 2013 and 2018. Of that amount, about US$300 billion was estimated to have been financed via public and publicly guaranteed debt. Kyrgyzstan has also surpassed US$5 billion Chinese investments in the flagship of BRI.
With its Maritime Silk Road, it has moved far beyond Eurasia and its original aims of creating a New Silk Road project. Its geographical accessibility and connectivity has expanded to more than 140 countries, including Africa, the Middle East, South Asia, Central Asia and Latin America.
It has now planned to introduce a Digital Silk Road, a Polar Silk Road (for developing arctic shipping routes and offshore arctic fossil fuel production and mineral mining), a Health Silk Road and a 5G-based Internet-of-Things (IoT) project. Hopefully, these projects will further transform the landscape of member countries’ economies in the days to come. In this regard, many projects of ICT, technology advancement and artificial intelligence are being carried out in Kyrgyzstan under the flagship of BRI.
It is estimated that by 2027, total global BRI spending could reach $1.3 trillion. Other economic forecasts predict more than 2,600 projects worldwide valued at $3.7 trillion.
BRI’s flagship project the China Pakistan Economic Corridor (CPEC) has already reduced the distance between China and the Middle East from 12,900 kilometers by insecure sea lanes to a shorter and more secure distance of 3,000 kilometers by land. Between 2008 and 2035, China says it will invest $36 billion in energy connectivity projects and about $41 billion in mineral and petroleum projects to be realized in Central Asia.
It has now become reality not myth that Chinese BRI has been improving business, economic, investment, joint venture and connectivity potential of Kyrgyzstan since 2013.
Kyrgyzstan has an ideal strategic geography between Europe and Asia and its business environment, its global presence, and its trade and investment prospects have enabled it to become a base for larger production, procession, and commodity distribution and transshipment center in the Central Asian Region. Thus BRI investments and projects in this country would play an important role to achieve these desired goals in the days to come.
Since beginning, Kyrgyzstan and China have built strong trade and economic relations. China under the flagship of the BRI carries numerous valuable projects in Kyrgyzstan in road and energy infrastructure rehabilitation, urban development, mining, manufacturing and other sectors of the economy due to which the economic collaboration and bilateral trade between the two countries would be further strengthened in the days to come.
Kyrgyzstan has been among the earliest supporters and participants of BRI and the two countries are expected to further deepen their mutual cooperation in areas like agriculture, infrastructure development and connectivity, and trade and investment facilitation.
China’s interest in Kyrgyzstan was further strengthened with the operationalization of the BRI in 2013. Kyrgyzstan, which is located by China to the east and Uzbekistan to the west, is strategically important to the BRI.
Its location separates China from the rest of Central Asia and further afield to West Asia and the easternmost borders of Europe, and thus is key to opening and securing trade routes to the region. Thus completion of numerous projects of infrastructural development under flagship of BRI in Kyrgyzstan would further diversify trade routes and greater regional connectivity options of China. Moreover, it would provide a win-win proposition for both the countries.
Obviously, Kyrgyzstan’s macro-economy is relatively open, and supportive. It has a competitive corporate tax rate of 10 percent (among the lowest in the region), low labor costs (lowest in the region) and relatively cheap electricity (cheapest in the region) as a result of its abundant hydroelectric resources. Major flows of FDI to Kyrgyzstan started in the 2000s, benefitting mainly the country’s gold industry, and FDI has since concentrated on mining industries.
According to the 2020 World Investment Report released by the United National Trade Conference UNCTAD), in 2019, Kyrgyzstan received US$209 million in FDI flows and by the end of 2019 the country attracted a total of US$5.59 billion of FDI inflows.
Obviously, China is the largest source of investment to Kyrgyzstan, accounting for almost half of the FDI inflows. It is also Kyrgyzstan’s largest creditor, holding more than 40 percent of Kyrgyzstan’s large external public debt.
China is Kyrgyzstan’s largest trading partner for imports as well the fastest growing import market over the past 10 years. For exports, China is Kyrgyzstan’s sixth largest trading partner in 2019. In 2019, the trade volume between China and Kyrgyzstan reached US$6.37 billion, up by 13.15 percent year-on-year, according to the data from the General Administration of China Customs.
China exported US$6.31 billion worth of goods to Kyrgyzstan in 2019. The main categories of China’s exports include apparel and clothing accessories, shoes, boots, leg warmers, and their parts, cotton, chemical fiber filament, machinery tools and parts, etc.
In return, Kyrgyzstan exported US$65.96 million to China, mainly including goods like ore, slag and ash, copper, rawhide and leather, mineral fuels, mineral oil, wool and other animal hair, fruit, etc.
Interestingly, Chinese sponsored 46 projects in Kyrgyzstan. The development of a railway line heading West over the Kyrgyz Tan Shan, to Osh and along the Ferghana Valley through to Uzbekistan and to link up with connections there through to Iran and the International North-South Transportation Corridor (INSTC) is dream project of China under the flagship BRI.
It would provide the first trans-Central Asan railway from East to West and would also link up with Central Asian lines heading North-South, the proposed Trans-Afghan route from Uzbekistan south to Pakistan and the Arabic Sea Ports at Gwadar and Karachi, as well as spurs leading into Tajikistan. Hopefully successful completion of this mega project would bisected Central Asia to the four corners of the world for the first time and has seaport access important for counties like Kyrgyzstan that are completely landlocked.
To conclude, Kyrgyzstan is going to transform as an ideal service hub in the Central Asia. Its exports are estimated to be worth about US$2 billion, and include gold, cotton, wool, garments, meat, mercury, uranium, electricity, machinery, and footwear. It imports about US$4.5 billion worth of goods, including oil and gas, machinery and equipment, chemicals, and foodstuffs. Thus stable and sustainable macro-economy of Kyrgyzstan has further brightened the prospects of the BRI in this country.
Furthermore, the Kyrgyz economy has already been labeled as one of the most liberal and opens among Central Asian countries. It was the first Central Asian country to become a WTO member in 1998 and its trade share in GDP is the highest in the region which shows its economic resilience, diversification and stability.
It inter & intra-regional trade with its large markets at Dordoi and Kara-Su, transshipping large volumes of goods: importing goods through both formal and informal trade systems, mainly from China, and re-exporting to other regional economies are drastically changing the economic landscape of the country.
The Chinese BRI investment has now reached to US$5 billion in Kyrgyzstan mainly in valuable manufacturing and transit projects. In this context, the Bishkek-Naryn-Torugart highway, the Bishkek-Osh highway, while an alternative road connecting the country’s north, and south is currently under construction providing road links between Kazakhstan and Tajikistan. These are already the largest construction infrastructure projects in Kyrgyz history.
Sensible and constant structural reforms of fiscal tax, custom incentives, more business and investment friendly integrated policies would further increase Kyrgyzstan’s economic status of trans-shipment and trans-trade
Moreover, complete overhauling of its central policy of the strategy of Special Economic Zones (SEZs), further diversification of economic & financial resources, further inflows of FDIs in diverse sectors of economy, befitting proposition of joint ventures, valid mechanism of transfer of technologies, rigorous commercial diplomacy, persuasion of green development, vast network of SMEs, micro-financing, e-commerce, e-government, digitalization and last but not least development of qualitative human capital would revolutionize the economy, state, society and lives of common people alike in Kyrgyzstan.
Further streamlining, systemization and strengthening of the supply chains and transit, as well as the development of transport sector would further consolidate the healthy and productive channels of the country.
Sincere efforts should be realized to enhance its potential of becoming the transit and logistics hub in the region, a connecting bridge between Europe and Asia. In addition to this the development of transport and logistics as the main factors of accelerating industrial growth and the development of the competitive economic system should be initiated as soon as possible.
Last but not least, further connectivity with the regional transport systems and the development of the multimodal transport and efficient supply chains should be further transformed by adopting an integrated approach to the development of transport services, infrastructure and logistics of Kyrgyzstan.
Thus role of Chinese One Belt & One Road Initiative (BRI) is immense for the rapid socio-economic development and economic sustainability of this country. Political irritants and governance faulty lines must be removed as soon as possible to achieve the desired goals of socio-economic prosperity, massive industrialization, social development and eradication of poverty and generation of new jobs in the country. Simply, social modernization and economic stimulation requires paramount role of the Chinese BRI in Kyrgyzstan.
(The author is Executive Director: The Center for South Asia & International Studies (CSAIS) IslamabadRegional Expert: China, CPEC & BRI)