Wednesday, 11 December 2013

Massive East-West Transit Corridor Nears Crucial Phase

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By Richard Weitz (the 11/12/2013 issue of the CACI Analyst)

The Western Europe-Western China International Transit Corridor aims to improve the efficiency and safety of the main roads between China and Europe that pass through Kazakhstan. Despite the international focus on promoting rail traffic through Eurasia, it is also important to build better roads since Central Asian countries can more easily input their goods through them than through railways. The roads also promote short-distance trading within and among Central Asian countries. Otherwise, extra-regional actors will simply see and treat Central Asia as a transit zone for their transcontinental railways, which would not provide additional incentives to invest in Central Asian economies.

 

BACKGROUND: The goal of the corridor is to increase east-west commerce by accelerating the movement of goods between Europe and Asia while reducing transportation costs. At present, businesses seeking to send goods from China to Europe face a dilemma. They can send items by the existing trans-Siberian railway, which normally requires 14 days, but this mode is costly, or they can send goods by sea, through the Suez Canal, which costs less but takes three times longer. Thus far, some 80 percent of China’s manufactured goods reach Europe through this latter sea route. The proposed Eurasian corridor aims to allow shippers to send goods even faster by land (10-day travel times from China to Europe) and at considerably lower cost, resulting in more businesses using the land route. Construction and other project-related activities occur along the 8,445-km route running from St. Petersburg in Russia to China’s eastern port of Lianyungang.

Some 2,787 kilometers of these roads traverse Kazakhstan, running from the Zhaisan Border Checkpoint with Russia to the Horgos Border Checkpoint on the border with China, through the cities of Aktobe, Kyzylorda, Shymkent, Taraz, Kordai and Almaty. The route encompasses some of the least developed areas of Kazakhstan, with decaying rural roads built in Soviet times that now see many accidents. The new roads will be safer, more durable, capable of carrying heavier vehicles, and allow for faster driving speeds. They will also make their regions better able to trade with other parts of Kazakhstan as well as abroad, making them more attractive to investors. The construction process itself will generate investment, manufacturing, and many jobs. The total cost of Kazakhstan’s portion of the corridor will amount to approximately US$ 5.6 billion, but international organizations are loaning Kazakhstan most of the funds.

Yet, the main focus of international efforts so far has been on developing a longer fast rail link between China and Germany. This “Silk Road” China-Europe railway, which began limited operations in 2011, is still under construction. The annual volume of freight turnover totaled about two million metric tons in 2013 and is planned to increase to some 15 million metric tons annually in coming years. Thanks to strong government support, Kazakhstan still expects to finish its portion of this track by 2015, the original deadline. In October 2013, the Kazakhstan Minister of Transport announced in 2013 that 915 kilometers were already opened and 1,721 should be opened by the end of this year. Kazakhstan is eager to benefit from China’s growing exports to Europe. Kazakhstan’s container rail freight traffic with China had risen by 62 percent during the first nine months of 2013, compared to the same period in 2012.  

IMPLICATIONS: Kazakhstan’s President Nursultan Nazarbayev has called the Western Europe-Western China corridor the “construction of the century.” The Western Europe-Western China Corridor project will provide many economic benefits to Kazakhstan. Living in the largest landlocked country in the world, Kazakhstanis are very interested in deepening its foreign trade and transportation links. In his December 2012 State of the Nation address, Nazarbayev said the corridor should double the transit capacity across Kazakhstan by 2020. He set a new goal of increasing this capacity tenfold by 2050.

Besides providing Kazakhstan with major economic gains, the project will help advance Nazarbayev’s vision of his country as a nexus of international commerce and his goal of promoting greater regional integration within Central Asia and beyond. For example, in 2005, Nazarbayev told the attendees of an international conference entitled Strategy Kazakhstan-2030, that, “I see Kazakhstan as a junction country in the Central Asian region, an integrator of intra-regional economic ties, a center of gravity of capital and investments, and a location of regional production or the subsidiaries of the world’s major companies aimed at the Central Asian market and international services.” In time, he added, “Kazakhstan might perform the function of an important link, a transcontinental economic bridge, for interactions between European, Asia-Pacific and the South Asian economic regions.” 

The project also aligns well with Kazakhstan’s multi-vector foreign policy of developing strong ties with all the major powers in order to avoid becoming overly dependent on any one of them. The Nazarbayev administration has encouraged Kazakhstanis to engage in regional commerce as well as wider economic intercourse in order to limit Kazakhstan’s dependence on any single supplier, customer, investor, or market. Nazarbayev has warned that, “the destiny of all Central Asian peoples depends on this most important factor—whether we can become a transportation route of global significance or will be pushed off to the side of the road again.” 

The Western Europe-Western China international transit corridor also harmonizes with the “New Silk Road” vision of other countries. The project will enable goods to exit and enter China much more quickly and cheaply. Since its Chinese nexus is Xinjiang, the project promotes Beijing’s goal of deepening trade ties between Central Asia and Xinjiang, a region that has experienced ethnic unrest between its growing Han community and the native Uyghurs. Both the U.S. and the EU have supported various projects designed to revive the old Silk Road trade route to China through Eurasia. For example, the U.S.-Central Asia Trade and Investment Framework Agreement (TIFA) process focuses on identifying means to overcome impediments to intra-regional trade, economic development, and foreign investment. 

Yet, Russian enthusiasm for the Europe-China road corridor has been slow to materialize. In March 2013, Russian Minister of Transport Maksim Sokolov announced that the Russian portion would not be built until 2020. But an article that month in Rossiyskaya Gazeta noted that the “final route of the corridor [is] still not precisely defined.” At a meeting with his Russian counterpart in September 2013, the Kazakhstani foreign minister simply expressed his “hopes for Russian support for the ‘Western Europe-Western China’ transcontinental project.”

Russia may also be reluctant to pursue broader regional transit integration, with accompanying single tariffs and simplified customs procedures, because of concern about its market being flooded with cheap Chinese goods. While officials are certainly aware of the need to reduce border delays to attract transit and are making some attempts to do so, “lobbying interests” prevented a projected law on transit policy, submitted in the Duma in 2008, from becoming legislation until the spring of 2013. Furthermore, a southern China-Europe route (through Kazakhstan) may undercut Russia’s efforts to harness East Asian dynamism for its own underdeveloped Far East territory by linking the Trans-Siberian Railway to rail systems on the Korean peninsula.

CONCLUSION: Looking ahead, the participating national governments and international institutions need to surmount some challenges. For example, excessive customs duties, the absence of a free trade zone or common Central Asian membership in the World Trade Organization, and Eurasia’s undeveloped transportation, communication, and other essential commercial infrastructure still impede regional commerce. Some additional initiatives would help the project realize its full potential. In addition to the large, state-driven, top-down economic integration projects, care must be taken to ensure that the private sector is allowed to make its contribution. Many Central Asian businesses have strong commercial incentives to engage in multinational operations; some have already developed cross-national ties and conduct business in more than one country, though these activities are not fully reflected in official statistics since the managers can use family members and informal contacts to circumvent customs fees, foreign trade controls, and other obstacles to trade. Foreign governments should offer these private actors more support since they can sometimes make the case for regional integration more persuasively with their national governments than can international actors.

AUTHOR’S BIO: Dr. Richard Weitz is a Senior Fellow and Director of the Center for Political-Military Analysis at the Hudson Institute.

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