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TOWARD THE GREAT OCEAN-3 CREATING CENTRAL EURASIA

The Silk Road Economic Belt and the priorities of the Eurasian states’ joint development

Moscow, June 2015

Valdai Discussion Club Analytical report

(abridged version)

978-5-906757-23-4 TOWARD THE GREAT OCEAN-3 CREATING CENTRAL EURASIA

The Silk Road Economic Belt and the priorities of the Eurasian states’ joint development

Valdai Discussion Club Analytical report

(abridged version)

Moscow, June 2015 The report was prepared by the Valdai Discussion Club Chief Editor and Academic Supervisor of the Report: Acknowledgements Sergey Karaganov Authors express their gratitude for organization support Dean of the Faculty of the World Economy and International Andrey Bystritskiy,

Authors express Chairmantheir appreciation of the Foundation for the valuable for Support comments and Affairs of the National Research University — Higher School of onDevelopment the report oftopic the Valdaito the Discussionparticipant Club.in the situational analysis Economics, Honorary Chairman of the Presidium of the Council Evgeniy Vinokurov, onExecutive Foreign Projectand Defense Director: Policy (CFDP). Director of the Center for Integration Research of the Eurasian Timofey Bordachev which took place Irina Zvyagelskaya, on January 29, 2015: Igor Denisov, Club, Director of the Center for Comprehensive European and Development Bank; Professor of the Oriental Director of the Eurasian Programme of the Valdai Discussion Studies Department of the MGIMO University; Valery Kryukov,Senior Fellow of the Center for the Research of East Asia and International Studies of the National Research University — Shanghai Cooperation Organization of the MGIMO University; HigherAuthors: School of Economics. Professor of theMikhail Blinkin, National Research University — Sergey Karaganov, Dean of the Faculty of the World Economy Higher School of Economics, Corresponding Member of the Vladimir Ryzhkov,Russian Academy of Sciences; Tenured Professor of the National Research University —Dmitry Polyansky, Higher School Deputy of Economics; Director of and International Affairs of the National Research University — Professor of the National Research University — Higher School of Economics; Honorary Chairman of the Presidium Higher School of Economics; Oleg Barabanov, Elena Alexeyenkova, Research Fellow of the Center for Global of the Council on Foreign and Defense Policy (CFDP); the Russian Foreign Ministry FirstEvgenia Makhmutova, Department of the CIS Associate States; Expert of the Valdai Discussion Club, Professor Alexey Bezborodov, General Director of the Research Agency of the MGIMO University; Issues of the MGIMO Konstantin Panin,University; Professor of the Financial UniversityElena Shipilova, under the Government International of the Timofey Bordachev, Russian Federation; ViceAnastasia Pyatachkova, President for Public InfraNews; Valdai Discussion Club, Director of the Center for Comprehensive Tatyana Donich,relations in the Alexander Korolev, Summa Group; Dmitri Novikov, Anna Sokolova, Director of the Eurasian Program of the Ilya Stepanov,Projects Head Alexander Pestich, in the Summa Junior Group; Research Fellows of the

European and International Studies of the National Research Alexander Gabuev, University — Higher School of Economics; CenterAuthors for Comprehensiveexpress their gratitude European for andthe discussionInternational and Studies valuable of Senior Associate and the Chair of the Russia the National Research University — Higher School of Economics. Konstantin Kuzovkov, Member of the Executive Board, Vice remarks on the report topic to participants in the international in the Asia-Pacific Program at the Carnegie Moscow Center; Astana on April 16–18, 2015 and Sultan Akimbekov, Director of President for Investments and Development of the FESCO conference “Creating Eurasia: Silk Road Economic Belt” held in Anastasia Likhacheva, Research Fellow of the Center for Transportation group; the World Economy and Politics Institute under the Foundation of the First President of the Republic of Kazakhstan — the Leader Comprehensive European and International Studies of the Authors express their gratitude for pivotal intellectual Alexander Lukin, of the Nation. National Research University — Higher School of Economics; and organizational contribution into work upon the report Ziyavudin Magomedov, Chairman of the Board of the Directors of International Department Professor of the Faculty of the of World National Economy Research and University — Higher School of Economics, Head of the Igor Makarov, Research Fellow of the Center for Comprehensive theFor Summa preparing Group. the report there were used materials, statistics International Affairs; reports and databases, research works of the Eurasian Development Bank, works of research institutes and centers of European and International Studies of the National Research Ekaterina Makarova, Research Fellow of the Center for University — Higher School of Economics; of the Russian International Affairs Council (RIAC), MGIMO the National Research University — Higher School of Economics, Comprehensive European and International Studies of the Andrey Skriba, Research Fellow of the Center for Comprehensive National Research University — Higher School of Economics; University, Russian Academy of Science (RAC), articles and report prepared by Russian and foreign experts. European and International Studies of the National Research Dmitri Suslov, Expert of the Valdai Discussion Club, Deputy DirectorUniversity — of Higherthe Center School for of Economics;Comprehensive European and

International Studies of the National Research University — Ivan Timofeev, Expert of the Valdai Discussion Club, Associate Higher School of Economics;

Professor of the MGIMO University, Program Director of Russian WorkingInternational Group Affairs Manager: Council. Andrey Skriba Research Fellow of the Center for Comprehensive European and International Studies of the National Research University — Higher School of Economics. CONTENT

4 Introduction. Central Eurasian Moment 6 1. China at the New Stage of Development 11 2. Russia Goes East 14 3. The Transport Component 19 4. Conclusion 4

INTRODUCTION The rise of China led to a re-thinking of its role in the world and the revision of domestic Eurasia is the cradle of many peoples and CENTRALcivilizations, EURASIAN the birthplace MOMENT and triumphant nature of Chinese foreign policy and China’s growingand foreign willingness policy priorities. to promote The its pro-active interests have become more noticeable since 2008, battlegroundof Tamerlane ofand the Alexander, great empires as well —as the though Chinese leaders have repeatedly Chinese, Persian and Mongol, the empires stressed their commitment to “peaceful Eurasia of the twenty-first century is not a Turkish and Russian empires. However, between Europe and Asia, it is seeking to developsame time,ment”­ China and has rightfully frequently pointed found out itself the unitedcreate its politico-economic own identity, and it entity; is often it perceived is “torn” unpreparedabsence of any for expansionist systemic interaction intentions. in Atmulti the­ from the outside as an area of competition for lateral formats and with groups of states in principle, looking for ways to develop

the world’s great powers. tendencies should be pre­vented Russia, China, Kazakhstan, the states frombilateral evolving cooperation. into an inability Such of the former Soviet Central Asia, Iran, Mongolia and other countries face common external and, in some cases, internal challenges of China’s partners as well as to respect the objective interests

international law. among the leading states of the Central Asian countries are becoming an attractive However, none of the known controversies Western China, Kazakhstan and Central primarily due to the large reserves of natural Eurasia is deep, let alone antagonistic. Russia, resources,destination and for aforeign large number investment. of able-bodied This is the China,countries Kazakhstan, face common the states external of the and, former in Soviet Central Asia, Iran, Mongolia and other dollars in 2013) the region has recently citizens. In terms of FDI per capita (2582 US extremism, environmental threats, water managed to outrank even East Asia (1788 deficit,some cases,drug internaltrafficking, challenges: and the religiousnegative impact of policies pursued by certain extra- US dollars) and Southeast Asia (2510 US dollars). These states need to further The undisputed regional leader is Kazakh- improveregional their centers socio-economic of power. stability and maintain the rates of growth they have been able to

a more layered policy aimed at preventingattain. They theall needdestabilization to pursue

consolidate the developmental ofagenda Afghanistan. of the countriesIt is necessary in the to region, and to strengthen their cooperation in the field of

international security. 5

stan with an index of 7880 land and pastures abandoned after the

US dollars per Turkmenistan also demonstrates high rates Cost-effective and safe transport routes capita, which is obviously not the limit. collapse of the USSR. connecting the two colossuses of the modern global economy of growth in this development indicator:

In 2015 we can speak on the birth of the “Central — Europe Eurasian Moment”, which is the unique confluence of and East and South Asia — international political and economic circumstances that offerscould go huge through opportunities Kazakhstan allows for the renewed potential for cooperation and and Central Asia. The region common development within the states of this region in terms of development of

Although it possesses great 4393 potential, Centralcivil airAsia transportation has nevertheless hubs. of more than 4 times for the period of long been distant from the main centers of US dollars per capita, with an increase in 2015 we can speak on the birth of the 2008–2013.potential, including Moreover, the Kazakhstan,vast areas of as arable well the global economy and politics. However, as Russian Siberia, has high agricultural “Central Eurasian Moment”, which is the

SIBERIAN FEDERAL DISTRCT

U R A L F E D E R A L F A R E A S T E R N F E D E R A L

D I S T R I C D I S T R I C T S I B E R I A N

F E D E R A L D I S T R I C T

Tomsk Omsk Krasnoyarsk Tyumen Novosibirsk Kemerovo Barnaul Abakan

Kyzyl Irkutsk Ulan-Ude Gorno-Altaysk KAZAKHSTAN Chita

MONGOLIA C H I N A 6 unique confluence of international political 1. CHINA: AT THE NEW and economic circumstances that allows for STAGE OF DEVELOPMENT the renewed potential for cooperation­ and common development within the states of structural changes turned China into a country1.1. Three with decadesan average of level rapid of growth income, and as the transformation of Central Eurasia into a this region. The main driving forces behind wellthis astransformation the locomotive aimed of the atworld the economy.gradual zone of joint development will be Eurasian Inreorientation subsequent from decades, high therates PRC of growthwill continue to the economic integration, led by Kazakhstan and improvement of the quality of socio-economic Russia, as well as by Belarus and the Silk Road Russia regards the increased attention Economic Belt project. paid in recent years to the southern and the development. The GDP growth rates slowing eastern directions of its external and foreign down from 10.5% (average index in 1991– economic policy as one of the most important reflections of these processes (the low base 2011) to 7.4% in 2014 — is the only one of the indicators of Russia’s comeback as a global effect of the previous decades has certainly

East does not mean that the Russian economy produced an impact, too). willpower. turn The its twist back of on the Europe, economy or that towards the one- the sided Russian dependence on European infrastructure)1.2. This growth and has was led largely to the creation based onof markets will be replaced by a similar one- investmentsa strong construction (especially sector in thein the objects country, of as well as to the emergence of the problem of excess capacity in this field after market sided dependence on China. Therefore, an Beltimportant would part be the of the inclusion program of ofthe future advanced joint Chinese authorities encourage companies to development around the Silk Road Economic saturation. To preserve employment, the

focus on foreign markets. regions of Siberia in the project, and its main competitive advantage has long been openness to European markets. their1.3. cheap The labor PRC exportforce, are enterprises, now experiencing whose

the constant growth of wages, as well as the certain difficulties.increasing This ispressure happening exerted due byto the labor legislation with the intention of protecting working

tamp down growing social peoplecontradictions (Beijing using is trying this tole-

previously used the maritime provincesgislation). The(especially companies Guang that­

production base are reacting todong this andchallenge Fujian) by relocating as their

their production sites. Some of them are moving to South- 7

East Asia (this especially concerns the sectors with a low-skilled labor force, such others are relocating to Central andas thegradually textile to industry).Western China, The where the wages are still much leadershiplower. The in latter an attempt corresponds to solve theto the problem goals pursued of social by instability the PRC in the Western provinces by creating certain preconditions the Central provinces will demonstrate the forhighest the industrialgrowth rates zones’ in the development. upcoming decade, Thus, role of Chongqing). Lanzhou is one of the while by the mid-2020s the Western regions mosta million striking people examples there, inbuild this a res high-speedpect.­ The of the country will become the leaders in this PRC government plans to attract up to a half

railway connecting Lanzhou and Urumqi, respect. and turn the region into a major transport However, solving the PRC’s domestic problems Chineseand logistics experts, hub. shouldBy 2030, reach the invariably remains the priority for the Chinese GDP of the region, according to leadership; foreign policy has become directly related to, and built in accordance with, those “internal” problems 43 billion dollars. place among the developing 1.5. XUAR holds a special of goods from this province makes up to administrative units’ level, one can single out regions. Nowadays, the export ten1.4. potential When analyzing leaders thatthe growth demonstrate rates at high the mainly through the eastern ports, while growth rates, or a tendency to demonstrate 15 billionthe goods dollars turnover a year, carried and isout carried through out the western borders is insignificant (about them in the medium term: Sichuan and portation balance is optimal, and the Chongqing (the South-West of the country), 1.5 billiontotal volume dollars). of transportation So far, the XUAR amounts trans­ Anhui,country), Jiangsu and three and more Hunan regions (the that Yangtze are to 225 million tons, which coincides with Riverstill relatively basin), Hebei undeveloped, and Henan but (center promising of the the standard three-time transshipment of goods and cargo on the way from the — Gansu,development Xinjiang will be Uygur carried (XUAR) out by andcreating the At the same time, automotive transportation Tibetthe appropriate Autonomous transport Regions. infrastructure, The new lands’ as mine/ production site to the final consumer. well as new economic corridors, followed volume of transported cargo in the region isamounts of great to importance669 million tons, in XUAR: of which the totalonly agglomeration hubs, each populated by 73 million tons of cargo are transported 10–15by “tying” million them people up (similar with to large the modern inland

by railway, while 596 million tons are 8

RATE OF GROWTH OF REGIONAL GDP IN 2012

Heilongjiang

Jilin Xinjiang Uygur Autonomous Region Inner Mongolia Liaoning AutonomousBeijing Region Ga ns Tianjin u Hebei Shanxi Ningxia Hui Qinghai Autonomous RegioN Shandong

Shaanxi Henan Jiangsu Tibet Autonomous Over 13,0% Region Anhui Shanghai Sichuan Hubei Chongqing Zhejiang

Hunan Jiangxi Guizhou Fujiang Yunnan TAIWAN Guangxi Zhuang Autonomous Region Guangdong

HAINAN

Taking into account the suitability of the greater transit potential, but due to the lack whole transport system for local production transportedof direct communication by road. The region, channels however, with hasthe (as well as the speed of infrastructure consumer markets, the producers of Western development on the one hand, and industrial development on the other), it becomes clear that the volume of goods and China lose up to 0.5 billion dollars per year. products will be excessive There are at least three vectors of SREB for the region, and hardly in implementation: economic, geopolitical and security

demand in the east of China. the XUAR economic development is to fight is expected to grow in the short-term the extremism 1.7.and Oneseparatism of the objectivesthat are still of perspective,1.6. The productionprompted by of the goods development in XUAR considered to be one of the main threats

of victims of terrorist attacks and clashes of clothing, footwear and plastic production. toassociated the PRC’s with national the Uighur security. faction The exceeded number Thethe implementationproduction of of simple other projectshousehold will 200 people in 2014, and the terrorist attacks beginappliances in 3–5 and years: audio-video the projects equipment, will involve as well as the assembly of low-cost vehicles tookas the place strengthening far beyond of theradical XUAR. forces Given in the turmoil in Hong Kong and Macau, as well for the budget car markets located nearby. 9

Middle East and Central Asia in 2014, it seems that this problem will be particularly acute for the leadership of the country. pursued since the late 1970s has1.8. allowed The policy the that country China hasto increase its impact on the world stage and improve the domestic problemseconomic invariably situation. However,remains thesolving priority the for PRC’s the domesticChinese has become directly related to, and built in while advancing the participants’ national leadership; foreign policy • accordance with, those “internal” problems. interests. in national currencies where the countries 1.9. Therefore, The Silk Road Economic Strengtheningof the region ofalready the system have of successfulpayments Belt — China’s largest foreign trade experience of cooperation, which will Besides,project — its aims implementation to address, willin the allow first for place, the reduce costs and improve the competi­ thestrengthening abovementioned of economic internal ties between problems. China • in the volume of trade with Europe is con­ tiveness of the region in the future. and the Central Asian countries; the increase Strengthening of friendly contacts and mutual understanding. aimssidered to achieveto be less in ofits aimplementation priority. It is possible of The 1.10. The term “Silk Road Economic to single out five main objectives that China Belt” (hereafter referred to as the SREB) was first stated by the PRC’s President • Silk Road Economic Belt project: Xi Jinping in September 2013, during his currently are relatively underdeveloped speech at “Nazarbayev University” (Astana, Strengtheningin comparison of politicalwith how contacts, as they Kazakhstan). In November 2014, the creation developed the economic ties are with the countries of the

• region. connectivity and creation of Strengtheninga transport network of transport “from

the Pacific Ocean to the Baltic Sea”, which is to link • South, East and West Asia. and reducing the barriers Strengtheningfor trade and of investment,trade links 10

of an investment fund was announced, with Iran, thus providing access to the Indian Kyrgyzstan, Uzbekistan, Turkmenistan and the fund capital being 40 billion dollars. These funds are to be invested in the projects Ocean in the Persian Gulf. rapid development of China’s western regions, of the land and sea “Silk Roads” development. by1.13. transferring The SREB there lays thethe foundation production for from the 1.11. According to experts, the SREB, the coastal regions, as well as by developing basisalong of with an economic the “Chinese and Dream”political initiativeprogram the related industries and services (logistics ofannounced work, performed by the President by the of fifth China, generation form the

shows that there are at least three vectors of vectorcenters, helps terminals) China bothto regain in the its PRC status and as in of Chinese leaders. The analysis of the project the Central Asian states. The geopolitical the world by not only the ocean, but also its implementation: economic, geopolitical bythe land “middle routes state”, that form linked a common with the cultural rest of and security. economy, the infrastructure component of 1.12. From the point of view of the theco-developmental most effective spaceresponse around to such them. modern Finally, the SREB is represented by several routes in terms of safetythreats theas extremism, SREB may terrorism become (8.5–11 thousand kilometers long) that and religious fundamentalism

undermine their social base (ISIL,and developHizb ut-Tahrir), the appropriate for it will

security infrastructure. It 1.14.is a Therefore,comprehensive the SREB plan is notfor justthe economic a transit-transport development project. of a number of states, including

development of infrastructure, numerous projects aimed at the This plan will ensure a stable industry,and secure trade environment and services. for the development of not only the western regions go in the direction of the key centers of of China, but also the entire center of Eurasia start in the western areas of the PRC and The Northern route is supposed to go through economic activity in Europe and South Asia. (thus fully revealing its potential). their1.15. territories Let us note arethat aalready number planning of countries to the territory of Kazakhstan and the Trans- that will have the Silk Road going through Siberian Railway. The sea routes will involve thatthe Kazakhprovide portaccess of to Aktau, the Caucasus and the region, ports include the project in the program of their of the Caspian Sea (Makhachkala, Baku) economies’ development. In particular, the hern routes go through the territory of “NurlyNazarbayev, Zhol” Newin November Economic 2014 Policy is declared largely Turkey and the Black Sea basin. The Sout- by the President of Kazakhstan, Nursultan 11 synchronized with and based on the plans for order to achieve this aim the EEU ensures stan declared its readiness to invest about freeof the movement populations of goods, of its services, member capital states. and In 4the billion SREB dollars development. in the Moreover, development Kazakh of­ labor, as well as working on the coordination and synchronization of economic policies in infrastructure in its territory. EEU, there is only one customs The EEU is in many ways a unique association because variousborder between sectors. ThanksChina and to the in addition to the purely economic component, it also includes cooperation in the defense sector — the CSTO customs and tariff space gives Europeanundeniable Union. advantages The common to the center in Eurasia requires the states of the project of Eurasian co-development. region1.16. Theto demonstrate formation of a stronghigh degree economic of association because in addition to the purely2.2. Theeconomic EEU iscomponent, in many waysit also a includes unique states will fill the conceptual framework of theactivity Chinese and initiative involvement with inspecific the SREB. economic The cooperation in the defense sector — the CSTO. Allthe members participants of the of EurasianEEU, as well integration as Tajikistan, with and social projects, and the prospects of these militaryare also CSTO security participants. from external The CSTO threats, provides as projects’ success will increase sharply upon 2. RUSSIA GOES EAST well as enhancing the cooperation between their inclusion in the SREB framework. them on a wide range of issues, such as counteracting internal security challenges, 2.1. Eurasian integration is the flagship overcoming internal contradictions and projectthe most of theimportant Eurasian place strategy among of Russiathem, ensuring protection from external threats implementedand its partners, within with the Kazakhstan next few years, occupying if not and challenges. that began functioning on January 1, 2015, decades.and brings The Eurasiantogether Economic Armenia, Union Belarus, (EEU) 2.3. In the upcoming years, the EEU regulatory framework — pertaining to the Russia, lays the foundation for movement of goods, services and capital — Kazakhstan,a framework of Kyrgyzstan legal conditions and creates an effective tool for the forprevention the joint andbreakthrough resolution and of was created for the purposes of internationalcomprehensive disputes. modernization, The EEU cooperation, and improvement of the national economies’ at creating the conditions for competitiveness;sustainable development it is aimedso as to improve the living standards 12

will continue its growth and efforts aimed at bringing the national legislations to a com­

Code is to be signed by the end mon standard. The Customs one hundred regulations of the of 2015: it will codify more than years will be marked by further Customselimination Union. of Thethe upcomingmutual non-tariff barriers within the Union (which today, in spite of the signed agreements, are

as by the formation of effective mechanismsestimated at employed 15–20%), asto wellpro- tect the domestic market of the EEU countries from external economic challenges, thus dramatically increasing the for the interpenetration and integration of the member countries’ negotiating capacity on 2.5. This creates the necessary conditions From an economic point of view, there is no the creation of a greater Eurasia, especially EEU projects and the Silk Road Economic Belt. variousas this issues.basis isThis largely can pave similar the wayto thetoward EU law (primarily with regard to technical contradiction between these two formats — on• the contrary, they complement each other: the transport sector and consequently The SREB will stimulate cooperation in regulations). encourage the development of general improve the efforts of the Eurasian Economic regulation of the transport and logistics Union2.4. Atmember-states the same time aimed it isat importantharmonizing to international trade, rules of infrastructural indirectly contribute to the unification of regulationssegments ofand the quality market. standards It will of goods also markets regulation, development of environ­ and services as a means of protecting projects implementation, capital and labor the national markets of its Central Eurasia and, later, a Greater Eurasia must become an example of a positive-sum game that that provided their territories members. The EEU countries is beneficial for everyone, as well as an example for the planned implementation of cooperation domineering over competition be able to secure their interests (inof major terms investment of compliance projects with will mental law and employment protection environmental and labor standards) much more effectively, and do it not directly, but tners from cooperating with EEU member- rights. This would discourage external par­ states on a bilateral basis and help them • In the process of the inevitable (and through the all-Union regulation system. understand desirability of interaction with desirable for the region) economic advancement of China into Central Asia, the integration group as a whole. 13

the EEU becomes an effective instrument this may become the key to the growth of of trade protection for the national other sectors of the economy, including market, while maintaining its investment

industry.creation ofFor additional the Central employment, Asian region, which such forattractiveness. the expansion It is and highly strengthening probable that of the willa large-scale improve project the potentiallyeconomic meanssituation, the EEUUnion, — asSREB it will bond strengthen will become the a positions stimulus reduce social tensions and strengthen

So far, the political and economic systems of the politicalthe security stability. challenges faced Central Eurasian countries are not stable enough, by2.6. the It countries is necessary of tothe alleviate region which leaves the possibility of them being “stirred up” in the southern direction and, from the outside in the event of a change of political in some cases, on the internal leadership or some external shocks, expansion of extremism and instability from the Middle East economic systems of the Cen­ level.tral Eurasian So far, countries the political are andnot of the member countries vis-a-vis even stable enough, which leaves the possibility of

• the event of a change of political leadership most powerful external partners. them being “stirred up” from the outside in with an influx of new investment in or some external shocks, expansion of The SREB will provide the EEU countries extremism and instability from the Middle zation/creation will in turn strengthen mutualtransport trade infrastructure. between the EEU Its countries, moderni­ and its regional partners, must take this East. Russia and Kazakhstan, as well as China as well as enhancing their attractiveness threat seriously and do everything possible

to investors. In the long-term perspective, to prevent its realization.

EURASIAN ECONOMIC UNION COUNTRIES

RUSSIA

MOSCOW

MINSK

BELАRUS ASTANA

KAZAKHSTAN

BISHKEK KYRGYZSTAN

ARMENIA

YEREVAN 14

appearance of the Russia vs West model in the region2.7. like It is the equally one that important prevails in to the avoid western the be2.10. carried It might out under be beneficial the auspices to coordinate of the the individual SREB programs (that could logic brought about the attempt of one party institutions that have set themselves similar partto achieve of the a formerdominating Soviet position, Union. There,which first this SCO) with the work of other international not only attract additional resources to the Central Eurasia and, later, a Greater Eurasia initiative’sgoals (e. g. implementation, UNDP and UNESCO). but also This stimulate would mustcaused become zero-sum an example game and, of a next, positive-sum to wars. the economic development of the Central game that is beneficial for everyone, as well Asian states without any political interference as an example of cooperation domineering

Russian elite should also strive to overcome by out-of-region forces. Provided energetic theover automatic competition. suspicion At the (vigorously same time, fueled the development SCO can become the central from the outside) aroused by China’s institute of the potential project of creating 3.community THE TRANSPORT of big Eurasia. COMPONENT Eurasia has unique opportunities Regional elites need to avoid the temptation for the development of transport and strengthening its influence in the region. logistical3.1. corridors and hubs that will connect the production and consumption of playing on third parties’ differences. The Kiev elite’s fiasco must become a lesson for key prerequisite and direction for Central everyone. potential of Europe and Asia. Therefore, the in Central Eurasia can potentially lead Eurasian development is the expansion of its 2.8. Establishing a cooperation zone community (or even a union) of cooperation, transport and logistics infrastructure. The tosustainable another development logical project and —creatingsecurity for a to reduce the cargo transportation distance SREB implementation will make it possible all of Eurasia, which will be open not only to the East, but also to the western extremity The length of the route is 8,400 km, of which compared with the route via the Suez Canal. 3,400 kilometers have already been turned into roads in China, and the parts that are of Eurasia. The project should be put on 2,800 and 2,200 kilometers long are currently the agenda as soon as possible. international cooperation in the territory of 2.9. The most important institution of being built or modernized in Kazakhstan the tools for pursuing a policy Eurasia is the SCO, which creates intensifiesthat meets the common cooperation interests; between the SCO also serves as a factor that platformthe countries for ofthe the development region. Despite of thecooperation importance in Eurasia, of the its SCO role as in a promotion and the Russian Trans- Uralsthe context development of the SREB needs initiatives’ further study. 15

SAINT PETERSBURG SILK ROAD ECONOMIC BELT MAIN POTENTIAL ROUTES

TYUMEN RUSSIA YEKATERINBURG MOSCOW KAZAN OMSK NOVOSIBIRSK N. NOVGOROD L I T H U A N I A MINSK BARNAUL ULYANOVSK UFA CHELYABINSK ILNIUS V RYAZAN BELARUS POLAND WARSAW ORENBURG SAMARA ASTANA GOMEL KARAGANDA LODZ SARATOV LVIV KRAKOW KIEV

SLOVAKIA UKRAINE ATYRAU KAZAKHSTAN BRATISLAVA SAKSAULSKAYA

DESSA O LMA TA ROMANIA NOVOROSSIYSK A -A AKTAU BELGRAD CONSTANTA MAKHACHKALA SERBIA URUMQI BULGARIA GEORGIA BLACK SEA SHYMKENT SOFIA ISTANBUL TBILISI AZERBAIJAN ANKARA BAKU TURKMENISTAN CASPIAN SEA TURKEY CHINA IRAN TEHRAN

RAILWAY HIGHWAY SEAWAY

transport corridor, which runs through the several transit corridors used for delivery of and Russia, respectively. Nowadays, there are of this discussion, all these routes are divided cities of Lianyungang, Zhengzhou, Lanzhou, cargo from China to Europe. For the purposes Urumqi, Khorgos, Alma-Аtа, Kyzylorda, Aktobe, Orenburg, Kazan, Nizhny Novgorod, into three groups. Moscow and St. Petersburg, with further includes the routes that run across the the only one out of all of the aforementioned 3.2. The first group (the Northern Route) routesaccess that to the is already Baltic Sea in operation, ports. This and route most is of the existing transit flows run along this very territories of China, Kazakhstan and Russia: Urumqi — Dostyk — Omsk — Moscow — route is the need to cross only one customs EU countries. The distance from Urumqi to route. Another important advantage of this the western border of Russia is 7.5 thousand border between China and Kazakhstan. kilometersdelivery via this by route railroad, is very and much 6.9 thousand dependent kilometers by motor road. The cost of cargo the3.4. route An has important to be altered problem significantly connected to railroad will cost about 1,300 dollars per with this route is its limited traffic capacity: TEU,on the while type the of delivery transport: by motor the delivery road will by whichachieve 3,400 real km competitiveness. have already been The developed length of estimated capacity of this route is one of the inthe China, completed and roadthe parts should that reach are 8,400 km, 2,800 and of largestcost not among less than all 3,000the presented dollars per routes TEU. Theand 2,200 kilometers long are still being built amounts to 300 thousand TEU. So far, only or modernized in Kazakhstan and Russia, 20% of the route’s capacity has been used. respectively.on the development The idea of ofroads reconstructing along the 3.3. The most advanced version of the route this route is not new. A memorandum is the Western China — Western Europe St. Petersburg — Kazan — Orenburg — 16

destination is in the EU, and

3,200 dollars per TEU if the belongsdestination to this is ingroup the is South slightly of Russia.The second route that the cargo is delivered from different from the first one: If using this method, the cost of Makhachkalathe cargo delivery to Tbilisi from China by road. to Georgia will be 3,700 dollars per

group have less capacity than TEU. The routes of the second example, the theoretical capacity those of the first group: for

Alma -Аtаdue to the route lack wasof funding signed backaimed in at 2007. the ofaccount the Urumqi the capacity — Aktau of ports — and Makhachkala unallocated — However,reconstruction this projectof roads was meeting not implementedinternational Novorossiyskfleet) is 100 thousand— Constanta TEU, route and (takingthat of intothe

route (also keeping in mind the capacity of standards. Now there is another wave of Urumqi — Aktau — Makhachkala — Tbilisi interest in this idea. In July 2014 in Beijing, the Head of the Presidential Administration, ports and unallocated fleet) is 50 thousand S.B. Ivanov, said that connecting the Silk TEU. connection with the possibility of developing Road with the Trans-Siberian Railway was an 3.6. The the first routes problem of the second that arises group inis extremely promising project. The SREB implementation will make it possible to reduce the cargo transportation distance are ready to provide service to that none of the Caspian Sea ports compared with the route via the Suez Canal

portthem. of Serious Olya inmodernization the Astrakhan of port facilities is required. The

that3.5. run The across second the groupterritory (the of Sea Route) includes the routes

Kazakhstan and use the Caspian Sea ports for transit. It is possible to single out two such routes. The first route is Urumqi — Aktaucost of —transportation Makhachkala with— Novorossiyskthe transshipment — Constanta. onto a Thecon­ tainer carrier is currently about 4,000 dollars per TEU if the 17 region (its construction began immediately after the collapse create a base for the Russian tradeof the and Soviet military Union fleet so in as the to cope with the transshipment Caspian Sea) currently cannot kalaof even has 1 million an even tons ofsmaller cargo per year. The port of Makhach- the Olya port is expected to be turnover. The construction of services of duly qualified employees, of which, increase the turnover to the level of 8 million completed in the upcoming years; this will so far, there has been something of a shortage. includes the routes that bypass the territory hastons a turnover per year. of 11 Kazakhstan million tons demonstrates of cargo per 3.7. The third group (the Southern Route) much better progress: the Aktau port already (Aktau, Makhachkala, Baku and Astrakhan) of Russia. The Urumqi — Aktau — Baku — year.work Nevertheless,with containers none or ofwith the anyCaspian consumer ports Poti — Constanta (the second option is: Urumqiroute) route, — Dostyk in addition — Alma-Аtа to being— Shymkent virtually — Tashkentuntested, —is the Ashgabat most expensive, —Tehran while— Istanbul at the goods in general; these ports are adapted problem is the need for additional water same time being one of the aforementioned only for bulk types of cargo. The second ships are needed to ensure the transpor­ cost of 1 TEU is up to 5,000 dollars when transport. Special flat-bottomed container routesdone by with railway the leastand up capacity. to 4,000 The dollars delivery if a tation of the containerized cargo — and capacity of the route (taking into account they are approximately 20% more expensive ment of containers from the railroad onto thetruck capacity and a ferryof ports are and used. unallocated The theoretical fleet) thethan water the usual transport container and ships. back The will transship require­ additional time and, most importantly, the require bigger capital investments, including is only 50 thousandthe completion TEU. This routeof container will also facilities in Baku and the port

roads, and the construction of intunnels Poti, and the container reconstruction logistics of

will require investments of not centers. All planned activities will greatly reduce the cost of lesstransportation than 8 billion and dollars. make Thisthe average delivery cost about

1,500 dollars per TEU. 18

cost about 2,700 dollars

capacity of this route is one perof the largest TEU. among The potentialall of the aforementioned routes, and amounts to 300 thousand

investments is 2 billion dollars, TEU;which the will expected reduce the volume cost of the delivery by railroad and

The prospect of the elongation make it 800 dollars per TEU.

of the SREB transport routes up to India and Pakistan is route, which is currently being launched, is also quite promising. 3.8. The Urumqi — Kazakh­stan — Iran 3.9. There is a high degree of probability Iranian market is very promising, especially that all the described “branches” of the muchconsidering cheaper the and realization has more of capacity. Iran’s high The will develop and be in demand because they SREBare closely transport linked andto the logistics implementation component of The delivery by railroad will cost 1,700 dollars perpotential TEU, afterwhile the the sanctions delivery have by beentruck lifted. will the objective economic potential that the countries of the region possess.

PLANNED AND POTENTIAL MERIDIONAL INFRASTRUCTURE PROJECTS RUSSIA

Novosibirsk Moscow Chelyabinsk Omsk Barnaul Chita Biysk Astana Gorno-Altaysk

Ulan Bator KAZAKHSTANKaraganda MONGOLIA Kyzylorda Alma-Ata

UZBEKISTAN Bishkek Urumqi Tashkent KYRGYZSTAN TURKMENISTAN Ashgabat Dushanbe TADJIKISTAN

CHINA Tehran AFGHANISTAN Kabul IRAN Kandagar Islamabad Chongqing

PAKISTAN

INDIA 19

by a number of advantages brought by the

3.10. These plans need to be reinforced by projectscentral and of western meridional China, transport states of corridors Central Theseexisting tools and can developing create great integration opportunities project for and gas pipelines connecting Siberia to (commoncross-border phyto-sanitary trade within the standards, Union and at etc.). its and South Asia via Mongolia and 4. CONCLUSION develop the common agenda of the EEU’s Kazakhstan. relationsborders. There with China, is a need, creation however, of a permanentto urgently and interregional cooperation in the region 4.1. The potential of the deep interstate the EEU Treaty is the road map of movement forum for China — EEU dialogue. A part of Belt concept lies not so much in the transport closely related to The Silk Road Economic unify the pharmaceutical regulations by 2016, totowards organize a common a common market. electric There power is a marketplan to macro-regionproject per se, has as great it does potential in the associated project of by 2019, to create common financial mega- withco-development the dynamics of of Central the economy, Eurasia. a Thisrich regulators by 2022, and to have a common resource base, investment opportunities market for oil, gas and petroleum products provided by China, and legal and institu- the development of specialized clusters in by 2024–2025. This will already facilitate this sets the scene for the revival of the tional projects — EEU, SCO, and CSTO. All Eurasia. continental belt of trade and economic and Silk Road in its original capacity as the coverage4.3. Especially area, thepromising number is theof prospectgenerating of states, allowing them to achieve wealth thecapacities common and electric their powercontingence market. provide The large for cultural interaction among the adjoining the solution of the problem of winter and and prosperity. a more efficient market. If we also consider through the already established institutional summer energy supply in Central Asia by 4.2 Common projects can be implemented supporting hydropower with nuclear power, frameworks, such as the EEU. The most important EEU achievement at the moment — thenstudy thethe possibility prospect looksof connecting very optimistic. Western the common customs — is complemented Perhaps even at this stage it is necessary to 20

the common threat of Islamism (which, for China, is also fraught with separatist sentiment in

XUAR).states could In this employ respect, the existing Russia, China, and the SREB member-

CSTO and SCO mechanisms morethe clear actively. target They of which could alsowill becreate the reduction cross-border of a particular projects

problem’s severity. co-development lies outside the 4.5. However, the potential of China (with its 22 million of people) to this institutional formats and is at the same time linked to the economic potential of the region possible to raise the issue of creating a circular commonelectric power market. system In the of future, Central it Eurasia, will be that have already developed on their own and its logistical component: the regions be overcome only by implementing large- including Siberia, Kazakhstan, Central Asia oftenscale havetransport-logistic no channels forand trade. economic This could pro- and western regions of China. cooperation focused on the common cross- 4.4. Next in importance is the area of together and provide a link between the jects that will “sew” the macro-region means the volatility in the hydrocarbon markets,border andsanctions extra-regional (as a phenomenon threats. Thisof a resources, production sites and markets. Due new political and economic reality), drug economic development may become ideal in to such projects, the map of Central Eurasian trafficking, environmental migration, as well as those common threats that appear due to 10–15 years. the deteriorating situation in Afghanistan and reserves of natural resources, including 4.6. Central Eurasia is home to enormous oil, natural gas, cerium- and those that are very important: effective and safe transport routesnon-ferrous can metals.run across Most cost-this territory and connect the two

giants of the world economy — Europeparticipate and in East/ Southeastthis regional Asia.cooperation The (Russia, countries China thatand

minant) view Central Eurasia Kazakhstanas the region being of cooperation most do- and complementarity rather 21

tive is to turn Central Eurasia than competition. The strategic objec- not less intensive than the one that intoexists a today zone among of joint the development EU member- in world affairs could be based primarilystates. The on subjectivity the implementation of Eurasia of large-scale economic projects that will link the region together. primary investment (that is made by4.7. states The and main some objects specialized of the

• to initiate the establishment of a Eurasian Roadinstitutions Development — the Fund, Asian Infrathe ­Eurasian council for infrastructural investment structure Investment Bank (AIIB), the Silk whose mandate could include the construction and the resource-exploration development of a friendly legal, regula­ Development Bank etc.) will be infrastructure, tory, and institutional environment in being complemented by the processing the Central Asia in order to implement industryindustry. Theand secondother spheresstage will of involve production them that the active influx of private investments infrastructuralof mechanisms co-development for financing projects infra­ up to high-tech production. It is expected (at the EEU-China level); implementation

In the future, it will be possible to raise the issue structural projects (jointly of creating a circular electric power system of withsearch, the support, AIIB, the and BRICS assistance bank, Central Eurasia, including Siberia, Kazakhstan, forthe particular Silk Road infrastructural foundation; Central Asia and western regions of China will bring about a quick projects; economic effect caused by the high potential and as of yet low competition in the region. to 4.8.discuss In order the new not tostrategy miss thefor “Eurasian moment”, it is necessary the joint development in Eurasia with the key regional partners — Kazakhas a first­stan, approximation, China and include Central Asian states. This strategy could, the following priorities: 22

• to establish a permanent Central Asia Dialogue forum as a political format for systemic dialogue between the institutions of Eurasian integration (both at supra­-

mic Commission, and inter- national — Eurasian Econo-

handstate and— Supremeregional Eurasianpartners (ChinaCouncil and — other levels) states, on the which one are still not members of the

and dialogue between China and the EEU • to ensure the Eurasian Economic Com- EEU), on the other. Interaction member-states should not be allowed to mission initiates the White Book of the

• to develop a long-term program to common position of the participating retreat to bilateral formats; strengthen the other institutions of EEU transport and logistics strategy — a international cooperation, such as the • to develop a long-term “Transport and countries; summarize the existing and planned SCO and the CSTO, in the new context of • to reinvigorate the policy with regard to the logistics map of Eurasia”, that will regional cooperation; nascent Asian Infrastructure Investment the fields of transport and infrastructure Bank in order to make it a really workable projects of cooperation and investment in mechanism to attract investment to the • development as a whole; Chinese strategic document entitled “The and trans-border cooperation, as well as to prepare a joint Russian — Kazakh — regional projects of co-development the long-term priorities of international energy belt of Eurasia” that will determine Russian projects, including in the sphere • to establish an EEU working of transportation and logistics; group on transportation (including air transportation) and logistics infrastructure with possible participation of

Kyrgyzstan; 23

cooperation in the field of energy trade cooperation on the Irtysh river (which is

stan and Russia), based on the “common and take into account the objective trans- shared and actively used by China, Kazakh- • to initiate an international program of formations of this market; co-development, named “Eurasian verti- involvesriver” principle creating byan effective analogy river with basin The Mekongcommission Initiative; and attracting this objective a package also cals”, that will be aimed at strengthening the North-South latitudinal trade and • to research the possibility of creation of 1 • to develop a list of measures for the economic relations; investor; or 2 large air transportation hubs in the participation of Russian companies in the

• to make administrative decisions (at the belt of growth that is concentrated around region; development of the Alatau cluster — the governmental level) in order to resume the implementation of the Greater Altai Alma-Ata and involves three countries — Kazakhstan, Kyrgyzstan and China. project, which was developed in the late 4.9. The joint implementation of the 1990s —early 2000s and united the border Eurasiaaforementioned will allow project Russia, (as China, well asCentral other regions of China, Mongolia, Kazakhstan Asianprojects) countries, of commonMongolia and, development in the future, in • to initiate an expert examination of the and Russia; issue focused on the development of the a number of domestic and international India,challenges Turkey, they Iran are and currently South Korea facing, to tosolve lay “North Kazakhstan — South Siberia” agro- the foundation for the sustainable develop- cluster; to initiate an expert-analytical ment of the region, and to eliminate the study of the project of international possibility of its “internal Central Eurasia must become a safe and reliable home for its peoples, and a steadily developing must become a safe and reli- explosion”. Central Eurasia safe common neighborhood of Russia and China able home for its peoples, and a steadily developing safe common neighborhood of

Russia and China.

TASS images are used in the report.

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