Table of Contents

iii Preface Johannes F. Linn, Distinguished Resident Fellow, Emerging Markets Forum, Washington, USA Leo Zucker, Project & Research Associate, Emerging Markets Forum, Washington, USA

1 The Belt and Road Initiative: The Case of Aktoty Aitzhanova, Chairperson, NAC Analytica; Deputy Chairperson, Board of Trustees, Nazarbayev Uni- versity, Astana, Kazakhstan

1 1. Overview 2 2. Bilateral Trade in the Post-Soviet Period 4 3. Kazakhstan’s Decisive Policy Initiative: Large-scale Infrastructure Program Nurly Zhol 6 4. Collaboration in the Field of Production Capacities: A BRI Priority 7 5. Financial Integration 8 6. People-to-People Exchanges and Perceptions of by Kazakhstanis 9 7. Perceptions of China in Kazakhstan: Results of a Population Survey 11 8. Conclusion 12 References 14 Annex: “51 Projects”

17 The Kyrgyz Republic and the Belt and Road Initiative Roman Mogilevskii, Senior Research Fellow, Institute of Public Policy and Administration, University of Cen- tral Asia, , Kyrgyz Republic

17 1. Introduction 17 2. Key BRI-related Ongoing Activities in the Kyrgyz Republic 21 3. Effects of BRI Projects 26 4. Potential Future BRI Activities and Impact 29 5. Recommendations 30 6. Topics for Future Research 31 References

33 The Belt and Road Initiative in the South Caucasus Region Giorgi Khishtovani, Research Director, PMC Research Center, Tbilisi, Georgia Mariam Zabakhidze, Affiliated Researcher, PMC Research Center, Tbilisi, Georgia Irakli Gabriadze, Affiliated Researcher, PMC Research Center, Tbilisi, Georgia Rezo Beradze, Affiliated Researcher, PMC Research Center, Tbilisi, Georgia

33 1. Executive Summary 34 2. South Caucasus Region: Overview

i  TABLE OF CONTENTS ii 81 78 References 77 73 68 67 67 64 References 63 58 56 55 55 51 References 51 49 47 46 37

Matin Kholmatov Rustam Aminjonov, Annex: ’s DevelopmentPrioritiesandBRICooperation 4. ConcludingRemarks 3. RisksPosedbytheBRI 2. BRIProjects andtheirBenefits 1. Introduction Bahodir Ganiev The BeltandRoadInitiativeinUzbekistan 4. AnOverallAssessmentoftheImpactBRIonTajikistan andRecommendations 3. BenefitsandRisksoftheBRIfor Tajikistan 2. KeyCharacteristicsofBRIEngagementinTajikistan 1. Introduction The BeltandRoadInitiativeinCentralAsiatheSouthCaucasus:AViewfrom 7. Conclusion 6. Recommendations 5. RisksalongtheBRI 4. TheBRIandtheSouthCaucasus:Future Outcomes/PotentialImpacts 3. TheBRIintheSouthCaucasusRegion:Current Involvement , SeniorAdvisor, Center forEconomicDevelopment, , SeniorExpert,AnalyticalCenter“Navo,” DeputyDirector, AnalyticalCenter“Navo,” Dushanbe,Tajikistan Dushanbe,Tajikistan , Uzbekistan Preface

Johannes F. Linn and Leo Zucker

The Belt and Road Initiative (BRI) is a development of information across countries. They do, however, show program undertaken by China, beginning in 2013, with the great variation of the extent of engagement with the a global reach and potentially far-reaching economic and BRI in the CASC region to date and shed new light on the geopolitical implications. Much has been written about scope of the BRI and on its potential benefits and risks. various aspects of the BRI since its inception, with a lot The Emerging Markets Forum has also commissioned of speculation on China’s motives in launching the initia- a set of five background notes on the perspectives of five tive, its current and expected future scale, and its possible outside powers (China, , the European Union, impact on participant countries. Most of the on and the United States of America) on the BRI in the CASC this topic has been contributed by experts and journalists region. These background notes have been compiled in a from industrialized countries and based on the limited infor- separate Emerging Markets Forum Working Paper. mation available on the BRI at a global level. Little has been Based on these ten background notes and on addi- written by experts from the participating countries based tional research, we have prepared an overview paper which on country- and region-specific information; an “inside-out” provides an assessment of what we know about the BRI in view of the BRI is needed.1 the CASC region, including its potential benefits and risks The Emerging Markets Forum, with financial support (as seen from the perspectives of participating countries), from the Swiss National Bank, has undertaken a study of how outside partner countries are likely to engage with it, the BRI’s impact on the eight countries of the what policy responses are appropriate, and what issues and South Caucasus (CASC) region with the goal of fill- could be usefully addressed by future research. ing this gap. It has commissioned country notes prepared by five experts in the region. Each author was asked to respond to a structured set of questions about the scope of the BRI activities in her or his country (or countries, in the case of the South Caucasus), their terms of financing, the potential benefits and risks associated with the initia- tive, and relevant issues that warrant future research. All countries in the region, except ,2 are covered by the five notes: four notes cover Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan, respectively, in Central Asia, and one note covers Armenia, and Geor- gia in the South Caucasus. These notes are compiled in this Working Paper. We are very grateful to the authors of these notes for contributing their expert insights to this study. The papers differ in the extent to which they provide in-depth data on BRI activities given considerable differences in availability

1. See the comprehensive annotated bibliography compiled for this current study: http://www.emergingmarketsforum.org/wp-content/up- loads/2018/10/BRI-Annotated-Bibliography-2018-10-19.pdf 2. We did not commission a note on Turkmenistan since we could not readily identify an independent local expert and also judged the likelihood of accessing usable information as very low.

iii

The Belt and Road Initiative: The Case of Kazakhstan

Aktoty Aitzhanova

1. Overview industry, finance, services, transport and logistics. Many The Belt and Road Initiative (BRI) was announced in projects in these areas are still being negotiated, and cer- Astana only five years ago, in September 2013, and it is tainly the amount of financing required is not comparable hardly possible to assess the economic effects of the Initia- with that of projects in the oil and gas industry, so they tive on individual countries, and even more so in the case have not affected the decline in mutual trade over the past of Kazakhstan. Many of the activities announced under the few years. Initiative are just completing the stages of preparation and Third, after the announcement of the BRI in 2013, the appraisal and only now are moving to the implementation first formal agreement on an investment in production phase. Others are still at the bilateral discussion and explo- capacities was established only in 2015 in the form of set- ration stage. ting up a working group. Ever since, the two states have The BRI has predictably drawn different opinions. A been negotiating, and only by the summer of 2018 was wide range of issues are associated with BRI projects, a document signed that sets forth the intent for cooper- particularly with respect to the lending terms that Chinese ation over the next five years in the sphere of production public sector financial institutions offer to participating capacities. The available list of projects reflects Kazakh- governments (high interest rates); the turn-key character stan’s desire to attract high-quality and clean production of the projects, i.e. construction by Chinese companies to its territory, to modernize existing industries, and thereby employing mostly Chinese workers; relocation of pollu- accelerate industrial development with the involvement of tion-intensive production from Chinese territory to other Chinese investors. states; and the resulting increase in social tension in the Fourth, in infrastructure, Kazakhstani experience with a respective host states. Against this backdrop there is a programmatic approach stands out. In 2014, Kazakhstan growing perception that the BRI brings substantial risks to initiated its own program of infrastructure modernization the development of the participating states, and that it is (“Nurly Zhol” Program) and invited international financial focused just on strengthening China’s position. organizations such as the World Bank, the Islamic Devel- When discussing Kazakhstan’s case, perhaps the obvi- opment Bank, the Asian Development Bank, and the ous assumption is that these same issues listed above European Bank for Reconstruction and Development to apply to Kazakhstan as well in its interaction with China participate. A year later, the Governments of Kazakhstan over the BRI. However, in the author’s view, the case of and China signed an agreement tying together Nurly Zhol Kazakhstan is different. and the BRI, which allowed China to become one of the First, Kazakhstan and China had established close participants in Kazakhstan’s infrastructure modernization. economic relations long before the BRI. Among the CIS Some preliminary results are now visible. Over these four countries, Kazakhstan has been and remains the largest years, Kazakhstan has built several international logistics recipient of Chinese foreign direct investment. This is pri- centers from scratch and built pipelines and railways link- marily due to China’s interest in Kazakhstan’s oil and gas ing the country’s oil and gas resources in the West with the industry. Accordingly, with the fall in energy prices over East across the border with China. In parallel, Kazakhstan the past four years, trade between Kazakhstan and China also intensified its physical connectivity with and . decreased as well. Thus, Kazakhstan is starting to establish a diversified trans- Second, with the BRI, economic cooperation between port network with its neighbors and other markets beyond. Kazakhstan and China has become much more diversified, Fifth, cooperation is also intensifying in finance. The considering the expansion of collaboration in agriculture, most common form of funding projects takes the form of

1  AKTOTY AITZHANOVA 2 document. Section2provides abriefoverviewofbilateral gas sector(Shibutov2018). erence topeople-to-peoplecooperationinSection6,the called “51 projects” in Kazakhstan, followed in Section 5 by current US-Chinatradewarandmanagementof claims onChina’s financial resources asittriestobalance voice skepticism about the prospects of actual BRI imple capital investmentbycreating ajointventure. Financial author presents theresults ofa2017surveyconducted an assessment of recent innovations in the financial sector also reviews thekeyinfrastructure projects andconnectivity addition, otheracutechallenges,suchastheimpactof as welltheDevelopmentBankofKazakhstan(KDB). since the1990s.Amongcountries oftheformerSoviet 2. BilateralTrade inthePost-SovietPeriod to promote closerbilateralties.Finally, followingabriefref trade andinvestment,(iv)finance,(v)people-to-peo that hasshapedKazakhstan’s BRIapproach. Reminding trade relations asa“place-setter,” asitexplainsthecontext tain growth whilealsoslowingtheaccumulationofdebt true partnership.Oneshouldhowevernotethatexperts foreign investmentfrom China.Since1991, China has Union, Kazakhstanremains thelargestrecipient ofdirect perception ofChinainSection7.8concludes. ple exchanges,Section3describesthepolicyframework readers ofthefivepillarsBRI,i.e.(i) policy coordi region’s economicprospects. relations overall, as well as geopolitical uncertainties involv mentation, firstofall,becauseincreasing competing mainly basedinEurope andtheUnitedStatestendto ments willbedeveloped,financedandimplementedin promise, atleastforKazakhstan,provided theinvest ment BankandtheExport-ImportofChina(CHEXIM), nation, (ii)infrastructure andlogisticsforconnectivity, (iii) Kazakhstan hasembarkedon—withorwithoutBRI—and Kazakhstan-China relations inthefollowingsectionsof invested US$16billioninKazakhstan, mostlyintheoiland investments intheproductive sectorsoftheeconomy, initiatives. Section4examinesthecurrent state-of-the-art ing mostbigneighborsofKazakhstan,castapalloverthe institutions providing fundingincludetheChinaDevelop by theNationalAnalyticalCenteronKazakhstanicitizens’ by allactorsandtryingtotightenfinancialsupervision.In between pushingoutmore credit totheeconomy main has only a history of 5 years, this initiative shows great The author will address all these questions pertaining to In this context, and of course keeping in mind that BRI Kazakhstan andChinahavebeenstrategicpartners ------Tenge, thenationalcurrency, wentthrough a significant 1. Basedoninformationeconomic cooperationwithChinapublished According totheStatisticalCommittee,inKazakhstanas Atasu-Alashankou depreciation thatledtohigherinflation.In response to GDP growth, whichwasstuck at lessthan2percent in China fellfrom US$6billiontoUS$1billion. FDIdropped dramatically (Table 1). Kazakhstan’s trade surplus with 2014-2016 (Figure 2).As a result oftheoilpricecollapse certain regions with mature oil fields where production of July2018,there were 846Chinesecompaniesand 422 other companiesare represented togetherwithothermulti years tradebetweenKazakhstanandChinahasdropped of oilisexportedthrough theCaspianPipelineConsor as uranium and radioactive elements, copper, copper ore, about half of which come inthe form of crude oil, as well and stagnationinGDPgrowth, taxrevenues fell,andthe as well(Figure 1). second (Shibutov2018). sand typesofgoods.Asforimports,Chinaagainranks stan’s tradeisapproximately external 15-18percent. China stan, publishedonthe website to China,whereas Chinaoverallimportsaboutfivethou types ofproducts, combinedinto66groups, are exported tercyclical large-scale (close to US$1 billion) infrastructure shocks,Kazakhstanannouncedacoun these external trade partners of Kazakhstan.Thefallin exports affected tium, and the rest divided between Atyrau-Samara and founder ofwhichisthe“Great Wall” ranks secondoverallafterRussia.China’s share ofKazakh primarily atmitigatingtheconsequencesoffallingoilprices. national companies in virtually all key oil fields of Kazakhstan. national companies in virtually all key oil fields of Kazakhstan. 2. BasedonaReportoftheMinister EnergyoftheRepublicKazakh However, Chinese firms are the dominant developers in Russia (8,900companies)andTurkey (1,900companies). is expectedtogodown.Chinapresent in thedrilling iron ore, ferroalloys, zinc,andpetroleum products. 253 is amongthelargestrecipients ofKazakhstan’s exports, investment program calledNurlyZhol(“BrightPath”)aimed industry viathe“Kazakhstan-ChinaDrillingCompany,” the joint companies;onthisvariable,Chinacomesthird after by theCommitteeonStatisticsofMinistry ofNationalEconomyin2016. The biggest Chinese companies such as SINOPEC and The biggestChinesecompaniessuchasSINOPECand This drop inforeign tradewasobservedinrelation toall In termsofKazakhstan’s foreign traderelations, China Reflecting thecollapseofoilpricesin2014, recent 2 . http://kz.energo.gov.kz/index.php?id=2 1 . Yet, still71 percent

------THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  3 2017 11.95 15.99 5,777.70 4,692.20 7 1 0 8 2 1 9 0 3 2 6 4

1 r e 0 t 2 r 2 a 8 2016 u 6 11.46 14.56 , 5 q 6

1 4,214.90 3,665.70 1 0 2 4 1 0 2 3 9 1 2015 11.93 16.64 9 0 9 2 5,480.10 5,087.80 7 1 0 5 2 2 6 1 7 , 0 0 2 2 1 1 0 2 2014 12.33 17.82 9,799.40 7,357.20 0 1 0 2 2 6 9 6 9 a 1 0 n i 0 0 9 h 2 2 4 9 C , 0 2013 8 16.97 17.14 2 0 l 8,364.50 0 14,373.70 a 2 t To 7 0 0 2 8 6 3 0 8 0 5 2 1 0 0 2 7 5 1 0 , 0 5 2 1 4 0 0 2 3 0 1 0 6 2 8 , 4 1 1 2 0 0 6 2 0 2 2 7 , 3 2 1 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 , , , , , 5 5 0 5 0 2 2 1 1 0 0 0 0 0 0 0 0 0 ...... 0 2 4 6 8 0 2 4 6 1 1 1 1 National Bank Kazakhstan of Committee Statistics Economy on Ministry National the of of Shibutov (2018) Shibutov Source: Source: Table 1: Kazakhstan and China, Foreign Trade Indicators (US$ millions) Indicators Trade China, Foreign Kazakhstan and 1: Table Figure 1: FDI Flows to Kazakhstan (US$ millions) 1: FDI Flows to Kazakhstan Figure China’s share in exports, % share China’s China Imports from in imports, % share China’s Exports to China Exports to Figure 2: Kazakhstan’s GDP Growth since 2000 (%) Growth GDP 2: Kazakhstan’s Figure Source:  AKTOTY AITZHANOVA 4 2016b). After this, China became one of the partners of the gram for2015-2018isestimatedataroundUS$16 billion, economic corridors.Inotherwords, theprogram aimed approved thePlanfor theIntegrationofNurlyZholwith at almostUS$9billion. World Bank,AsianDevelopmentIslamicDevelop a solidfoundationforfurtherindustrializationbyfostering air transport,aswellinportandterminallogistics.This structure constraintsandbottlenecksinroad, railroad and 3. Kazakhstan’s DecisivePolicyInitiative: was toallowKazakhstannotonlyfullyintegrateinto with co-fundingfrom organizationsestimated international financialinstitutions(IFIs)suchasthe with international the implementation of the BRI (Government of Kazakhstan the implementation of the BRI (Government the future, SouthandEastAsiawithEurope. This transport corridorlinkingEastAsiawithEurope and,in to developKazakhstanasaoverlandwellairtrans ment Bank and the European Bank for Reconstruction and program wasfinancedbytheNationalFundofKazakhstan. port hubandthusmakethecountryareal transcontinental program NurlyZhol,designedtoremove existinginfra Development (OPM2018).The total budget of this pro Nurly Zholwascomplementedbypartnershipagreements international transportflowsandnetworks,butalsotolay international Large-scale Infrastructure Program NurlyZhol Figure 3:NurlyZholProjects Source: A year later, of Kazakhstan in 2015, the Government In 2014Kazakhstaninitiatedthemajorinfrastructure Bnews.kz (2018) - - - - 1,376 kmofrailwayswere built,whichincreased the Astana-Kostanay–Chelyabinsk—underwent modernization Astana-Kostanay–Chelyabinsk—underwent modernization 2017, 4,400 km of roads were built, and by 2020, 7,400 2018). OnJune26,2018,theopeningceremony ofthe (from 350thousandtonsto1milliontons)(OPM2018). (1) Western -Western China, (2) Omsk-Pav capacity andspeedofgoodstransporttonewdomestic of thecountrywithDostyk(East)andKhorgos(Southeast), and construction(OPM2018)(Figure 3).From 2015to stan andtheWorld Bank,IDB,ADB,andEBRD. Shalkar andZhezkazgan-Saksaulskaya,connecttheWest within Kazakhstanincreased 2.5times(from 12to30 two keyborder checkpointswithChina(OPM2018).In markets. Two railwaylinesinparticular, namelyBeineu- million tons), and transit road transportincreased 3 times multimodal transportcorridorChina-Kazakhstan-Irantook necting Kazakhstan with China and Russia—such as During 2015-2017,thefreight betweenregions turnover February 2017 another alternative routeFebruary 2017anotheralternative wasopened,link infrastructure developmentinitiative,alongwithKazakh ing ChinaandIranviaTurkmenistan (MinistryofRailways km ofnewroads are plannedtohavebeenbuiltintotal. border of the Russian Federation-Uralsk-Aktobe, (6) and border, (4)Shchuchinsk-Kokshetau-Petropavlovsk, (5)the lodar-Maykapshagai, (3)Astrakhan-Atyrau-Aktau-Turkmen Within this framework, multiple transit routes con Within In addition to roads, under Nurly Zhol an additional - - - - THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  5 ------MCPS Khorgos , It was built under Nurly Zhol. In Decem Kuryk Port , DP World The World Bank suggests that infrastructure projects projects infrastructure that suggests Bank World The Source: Source: The port of Kuryk. per year. In 2018, the Government of Kazakhstan and Dubai per year. and manage on the purchase signed an agreement DP World of Dubai DP economic zone. The share ment of the Aktau free economic zone is 49 percent. in the Aktau free World a Chinese state-owned transportation company, owns 49 per a Chinese state-owned transportation company, a total of US$1.6 billion has been invested, of cent. So far, Kazakhstan private sources. from has come percent which 91 development. infrastructure for million US$115 allocated has KEG is expected to handle 10 million tons of goods by 2020. ber 2016, a railway ferry complex with a capacity of 4 million tons was launched, and in 2017 construction of an automobile component of the ferry complex with a capacity of 2 million cargo handling exceeds 6 million tons tons was started. Total have already contributed to a reduction in shipping costs in shipping to a reduction contributed have already however, there is no open source information available on is no open source there however, in Kazakhstan, which has led to an improvement in mutual in Kazakhstan, which has led to an improvement Kazakhstan by 4 percent (Ruta 2018). Based on the World (Ruta 2018). Based on the World Kazakhstan by 4 percent CGE model, facilitation of trade between countries Bank’s BRI can potentially decrease trade cost between 2 and 7 BRI can potentially decrease na’s participation in the construction and modernization in the construction participation of na’s medium and long term, it is expected that there will be a be will there that expected is it term, long and medium of Kazakh those regions of on the growth positive effect and employment. A recent markets for local producers by regions income in these which is to increase percent, 9 of them are financed by the Government of Kazakh 9 of them are 5-10 percent (Lall 2018). What is noteworthy is that Chi (Lall 2018). What 5-10 percent the amount of investment provided by China and terms by China and terms the amount of investment provided the case oftrade between the countries of the Initiative—in than Russia, Belarus and other Central Asian countries, as Central Asian countries, Belarus and other than Russia, has been modest; Kazakhstan continues these projects at its own expense. For to implement most of the projects well as many other upper middle-income countries. In the countries. other upper middle-income well as many Shymkent, Kokshetau as regions of Kazakhstan where the where of Kazakhstan Kokshetau as regions Shymkent, stan located along trade routes due to better access to due to better access to routes stan located along trade 2 financed in cooperation with IFIs, and only stan, 5 are World Bank study identifies Almaty, Astana, Atyrau, Aktau, Almaty, Bank study identifies World DP World CHEXIM (OPM 2018). Dubai’s funded by are centers; logistics manage the COSCO jointly China’s and of financing. of 13 percent in waiting time at the border and of 5 percent example, construction of 16 highways was started in 2017;example, construction of 16 highways was 71st in 2018 (World Bank 2018). Kazakhstan ranks higher Kazakhstan ranks 2018). Bank (World 71st in 2018 . ------3 The Govern Covering 4,591 hectares, KEG consists of a logistics logistics of a KEG consists hectares, Covering 4,591 The special economic zone “Khorgos-Eastern Gate” The InternationalKhorgos (ICK). Center Lastly, with Nurly Zhol, Kazakhstan could construct four construct could Kazakhstan Zhol, Nurly with Lastly, With all these projects implemented, Kazakhstan With implemented, Kazakhstan all these projects ences as for ICK are offered here. In 2014 an agreement was In 2014 an agreement here. offered ences as for ICK are railway Zholy (Kazakhstan’s signed between Kazakhstan Temir of to manage KEG. The share company) and Dubai DP World and COSCO, dry port is 51 percent, in KEG’s Dubai DP World up to 30 days, and businesses located on the territory of the land tax, estate real tax, corporate from exempt are Center tax and VAT. (KEG). zone, a dry port, and an industrial zone. The same tax prefer ment of Kazakhstan invested only US$143 million; US$2.5 ment of Kazakhstan invested only US$143 million; US$2.5 ICK covers a total private sources. billion have come from A city called Nurkent was built from of 329.16 hectares. area scratch. The population of the city is 1,200 people but is a offers This Center future. 100,000 in the to reach expected for countries foreign and China of citizens for regime visa-free Box 1: About Logistics Centers logistics centers (Box 1): Lianlungan International 1): Lianlungan (Box centers logistics Logis launched in 2001. kazgan-Beyneu railway and leads to the seaport of Aktau, to the seaport of railway and leads kazgan-Beyneu itinerary started to be quoted in trade publications, and and itinerary started to be quoted in trade publications, reached already in 2017 the number of containers had 3. One should note that the first corridor cited and parts of the other 3. One should note that the first corridor cited two had already been identified as CAREC Corridors (CAREC standing for standing (CAREC CAREC Corridors as been identified already two had Logistics Index moved up from 88th position in 2013 to 88th position in 2013 to Logistics Index moved up from Central Asia Economic Cooperation Program, an international partnership Central Asia Economic Cooperation Program, place. This corridor begins as the East China-Dostyk-Zhez corridor begins as the place. This Improvement of infrastructure had a positive impact on on impact positive a had infrastructure of Improvement International on Khorgos, and the Kuryk Sea Port Center the country, as Kazakhstan’s ranking in the World Bank’s Bank’s in the World ranking as Kazakhstan’s the country, the BRI framework: China-Kazakhstan-West Asia, Asia, the BRI framework: China-Kazakhstan-West transit potential of the country. Whereas in 2010 no con in 2010 Whereas country. transit potential of the to of Kazakhstan the territory China crossed tainers from the fees for this Kazakhstan. By 2014, transported through tics Park, the dry port of the FEZ Khorgos-EasternFEZ the of port dry the Park, tics Gate, Sea. The opening of the Caspian the Kazakhstani shore with access to the port of Anzali (Bnews 2016). to the port of Anzali with access stan-Turkey-Europe (Government 2016b) Kazakhstan of stan-Turkey-Europe annually (Duparq 2018). annually (Duparq could integrate into three transport corridors within transport corridors within could integrate into three ers, growing to 2 million containers by 2020 (KTZ 2018). containers by 2020 (KTZ 2018). to 2 million ers, growing of these logistics centers has significantly improved the the has significantly improved of these logistics centers 200,000. Projections for 2019 indicate 800,000 contain 200,000. Projections China-Kazakhstan-Russia-Europe, and China-Kazakh China-Kazakhstan-Russia-Europe, deliver cargo to Europe, in 2011, 1,200 containers were 1,200 containers were in 2011, deliver cargo to Europe, This alone should generate US$5 billion in transit revenue in transit revenue This alone should generate US$5 billion  AKTOTY AITZHANOVA 6 4. CollaborationintheFieldofProduction Agreement onStrengthening Production Capacitiesand 4. BasedonInformationfrom MinistryofinvestmenttheRepublic China-Kazakhstan Coordination Committeefor Production Chinese participation (as mentioned above), as well as 2019-2023 Capacities: ABRIPriority can increase the inflow of foreign direct investment to Cen and as yet have to be finalized in the form of a Coopera the China-Kazakhstan Cooperation Plan in the field of tion Planinthefieldofproduction capacitiesforthenext the firstcountrytowhichChinaoffered cooperation in the the format of cooperation in the field of production capac term) and theexpected production drop inoilfields with tral Asiancountriesby12percent. for Development and Reform of China signed a Framework for DevelopmentandReformofChinasignedaFramework 5 years. Understanding wassignedonthejointdevelopment of Investment Cooperation Investment and Development and the State Committee production capacities,whichistolaythefoundationfor production sphere, the negotiations have taken three years may havebecomethemainstartingpointsindetermining Kazakhstan-led implementationofinfrastructure projects, ities. Therefore, anddespitethefactthatKazakhstan was bilateral cooperationinthefieldof production capacities heads of state on June 7, 2018, a Memorandum of 5. BasedonInformationfrom MinistryofinvestmenttheRepublic Kazakhstan dated1stofAugust2018,No.13-43600/20. Kazakhstan dated1stofAugust2018,No.13-43600/20. Box 2:SomeOngoingBRIProjects intheOilandGasIndustry on averagefrom 63to83percent, andproduction ofclass domestic petroleum products: processing depthhasincreased pleted. Asaresult, Kazakhstan’s marketisnowsuppliedwith of the Shymkent oil refinerythe modernization was com projects of two oil refineries (Pavlodar and Atyrau). In 2018, was thecompletionofreconstruction andmodernization refining andpetrochemical production. Akeyeventin2017 manufacturing andtransmissionoperations,aswelloil of theoilindustry:exploration,drilling,production, pipeline ments with Chinese participation. With the commissioning ments with Chinese participation. With Sino-Kazakhstan partnership. K4 andK5fuelshasstarted;these are positivesignsofthe The decline in oil exports to China (not only in the short During the recent meeting of the two countries’ In thegassector, oneequallynotespositivedevelop China participatesinpracticallyalllevelsofthevaluechain 4 . InAugust2015,Kazakhstan’s Ministryfor 5 . Basedonthisdocument,the - - - - - hydro-carbon exports. Kazakhstan hasgaineddirect accesstoamajormarketforits per yearare underway. Thus,forthe first timein history, tiations toincrease gassuppliesto10billioncubicmeters supplies toChinaup5billioncubicmetersperyear. Nego Currently Kazakhstanisbuildingcapacitytoincrease gas exporting gastoChinaatavolumeof1billioncubicmeters. China became feasible. Thus in 2017, Kazakhstan began “C” oftheKazakhstan-Chinagaspipeline,exportingto namely the“Beineu-Bozoy-Shymkent”gaspipelineandline of additionalcapacitiesthegaspipelinesystemin2017, Capacities andInvestmentCooperationwasestablished (Box 2),chemicals,engineering,automobiles,andagricul ofKazakhstan2016a). (Government omy andallregions ofthe country are covered. equipment forunderground mining,ore processing and of engineering,projects related toconstructionequipment, copper andproducing seamlesssteelpipes;inthefield opposed tolending).There were official announcements opted jointPlanwillcoverexclusivelylargeprojects, give the impression of a well thought-out and sensible opment, perhapswithalikelyspilloverorcombinationof at strengthening capacityforprocessing aluminumand attract US$27billionworthofinvestmentstoKazakhstan. and themainformoffinancingisequityinvestment(as approach tobilateralcooperation andjointimplementa activities betweenthesepriorityareas. appears thatindustrialdevelopment,digitalizationand will create opportunitiesfor thedevelopmentofacompet ture/agro-inputs andprocessing. Forexample,projects tion phase, like oil and gas sector projects, and projects that implementationoftheseso-called“51projects” will tion of projects. If successfully implemented the projects metallurgy are cited. All key sectors of Kazakhstan’s econ However, some projects are already in the implementa in the fields of non-ferrous and ferrous metals are aimed in non-ferrous metallurgy, ferrous metallurgy, oilandgas in thisfieldwere initiatedevenbefore theBRI.Projects are industry, andchemical andmetallurgicalsectors. itive agro-industrial complex,constructionandengineering infrastructure willconstitute thekeydirections ofdevel Source: Bukhina(2018),Enelane(2018) The above directions of Kazakh-Sino cooperation Based onauthor’s understanding,thisto-be-ad From official documentsconsultedbytheauthor, it ------THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  7 ------Finally, settlement in national currencies: In 2012, In 2012, settlement in national currencies: Finally, financial engagement of Kazakh Despite the growing Fourth, Chinese investments in Kazakhstani finan Fourth, Chinese investments Still, most long-term contracts are denominated in US Still, most long-term contracts are jiang province, offered a similar product (Ak Zhaik 2014). product a similar offered jiang province, Kazakhstan and China signed a Yuan/Tenge swap agree Kazakhstan and China signed a Yuan/Tenge Xin of China’s Exchange of China in Urumqi, the capital PetroKazakhstan for the modernization PetroKazakhstan of the Shymkent were buyers The 2018. April in completed was Bank, the partnership with China group, For the Halyk Banking by lending BRI projects Halyk will be able to benefit from of Tenge- settlement direct on provide now Bank will from Fund—specifically set up Exchange and China’s new Astana International Financial Center (AIFC)’s stock stock new Astana International Financial Center (AIFC)’s ment in the amount of US$1 billion (CIS News 2011). In News 2011). In ment in the amount of US$1 billion (CIS are of all trades 4), and 99 percent small (Figure remains made in US dollars. A number of obstacles weigh heavily: continue citizens Kazakhstan’s currency. of this popularity practically no demand for bank deposits in Yuan. refinery plant, which in turn plant, a Chinese contrac refinery hired for instance, international payments in RMB can take up to Kazakhstan’s total external debt—less than 10 percent total external debt—less than 10 percent to Kazakhstan’s of GDP). GDP (9.5 percent to Kazakhstan’s the regional market of the Interbank Center for Foreign market of the Interbank Center for Foreign the regional (t+7), which explains the low to seven days to be effected is and there to place their savings in US dollars and Tenge, tor (CPECC). The total cost is estimated at US$2 billion billion estimated at US$2 The total cost is tor (CPECC). of Altyn Bank, a minority shareholder tors. Although now Altyn to Chinese companies in Kazakhstan. Furthermore, of the 49 percent a combined to finance BRI projects—are stani organizations with Chinese financial institutions, the subsidiary of Kazakhstan’s biggest bank, the Halyk biggest bank, the Halyk subsidiary of Kazakhstan’s amount of debt outstanding remains relatively small relative small relative relatively amount of debt outstanding remains at the Kazakhstan Stock Exchange in Almaty. In parallel, In parallel, at the Kazakhstan Stock Exchange in Almaty. and China Shuangwei Investment Co. Ltd. (9.9 percent). Investment Co. Ltd. (9.9 percent). and China Shuangwei of 2018. risks. The trading volume on the stock exchange currency cial institutions: The sale of 60 percent of Altyn Bank, a a Bank, Altyn of percent 60 of sale The institutions: cial by the end exchange that is expected to start operations (Figure 5)—which in turn remains manageable in relation 5)—which in turn manageable in relation (Figure remains (PetroKazakhstan 2017). (PetroKazakhstan 2014, trading of Tenge/Yuan paired currencies started started currencies paired 2014, trading of Tenge/Yuan dollars, reflecting the desire of counterparties to minimize the desire dollars, reflecting China CITIC Bank (which bought a 50.1 percent stake) stake) bought a 50.1 percent China CITIC Bank (which access Chinese inves the potential to CITIC Bank offers Yuan transactions (Vidyanova 2018). The Shanghai Stock Yuan ------. 6 Kazakh (Aitzhanova (Aitzhanova : So far these loans are : So far these loans are 7 First, joint investment funds: Since 2009, Kazakh First, joint investment funds: Since 2009, Infrastructure project implementation modalities and modalities and implementation project Infrastructure Interestingly, all these directions have been repeatedly been repeatedly have all these directions Interestingly, Second, China Development Bank and Export-Import Second, China Development Bank and Export-Import Third, the constructive role of the Development Bank the Development Bank of the constructive role Third, Kazakhstan dated 1st of August 2018, No. 13-43600/20. Kazakhstan dated 1st of August 2018, No. 13-43600/20. backed by Kazakhstan state guarantees; however, dis backed by Kazakhstan state guarantees; however, 6. Based on Information from Ministry of investment of the Republic of Ministry of investment of the 6. Based on Information from ing loans to Kazakhstani parastatals and private firms. As is general practice at development banks, DBK does not ing (a parastatal financial holding) established the joint the joint ing (a parastatal financial holding) established 5. Financial Integration Bank of China (CHEXIM) lending Kazakhstan-China Fund, Eurasian Nurly (Bright) Invest Kazakhstan-China Fund, Eurasian Nurly Co. Ltd.Kazakhstan-China Fund for Industrial Cooperation Kazakhstan Infrastructure Fund with a target capitalization Kazakhstan Infrastructure up to US$, 500 million (Exclusive 2018). And finally, the the And finally, up to US$, 500 million (Exclusive 2018). munaygas, Kazakhstan’s main state-owned oil company, main state-owned oil company, munaygas, Kazakhstan’s and deep oil refining hydrocarbons of aromatic production ment Fund, was announced in July 2018 with a target of ment Fund, was announced in July 2018 million (KCM 2018a). In 2015, CITIC and Baiterek Hold Baiterek million (KCM 2018a). In 2015, CITIC and mine the types of financial interaction. Below the author interaction. Below the author mine the types of financial for additional capitalization of its subsidiary to invest in the ture and agricultural investments (KCM 2018b). Another agricultural investments (KCM 2018b). Another and ture to finance a number of major projects. For example, in in example, For projects. major of number a finance to was established with a capitalization of US$2 billion was established with a capitalization of US$2 stan 2050: toward a modern society for all toward a modern stan 2050: sectors. For example, CHEXIM lent US$1.1 billion to Kaz stan and China have established joint investment funds funds stan and China have established joint investment summarizes the various forms that have emerged in the forms that have emerged in the summarizes the various sified under the BRI. advocated by international experts as priority areas for for international by areas advocated priority as experts cover 100 percent of the financing needs. DBK has lent to cover 100 percent of Kazakhstan: The DBK is also active in the BRI, provid BRI, the in active also is DBK The Kazakhstan: of ereign) guarantees. These two policy banks finance not not finance banks policy two These guarantees. ereign) in other undertakings, but also projects only infrastructure cussions are underway regarding the establishment of risk establishment the regarding underway are cussions compensation funds as an alternative to state (i.e. sov ects outside of the oil sector. Capitalization was US$200 Capitalization was US$200 ects outside of the oil sector. infrastruc of US$600 million to finance manufacturing, cooperation in the sphere of production capacities deter of production cooperation in the sphere cooperation, which has inten course of Kazakhstan-China economic diversification, including in the book diversification, including economic et al. 2014). (Enelane 2018). 2009 CITIC Corporation and Samruk-Kazyna created the created 2009 CITIC Corporation and Samruk-Kazyna CITIC KAZYNA Investment Fund to jointly invest in proj CITIC KAZYNA Investment Fund to jointly 7. Based on Information from Ministry of investment of the Republic of Ministry of investment of the 7. Based on Information from  AKTOTY AITZHANOVA 8 6. People-to-PeopleExchangesand very beginningoftheirbilateralcooperationandthere has period, whichisexplainedbythefollowingreasons. been a notable people-to-people exchange since that Perceptions ofChinabyKazakhstanis Figure DebtofKazakhstan(US$billions) 5:External Figure 4:Trade inYuan attheKazakhstanStockExchange Source: Source: Kazakhstan andChinaestablishedculturaltiesatthe National Bank of Kazakhstan Bank National https://www.kase.kz

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- 1 2 3 4 5 6 0 0 0 0 0 0 - - THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  9 ------to assess the perception of China by the pop of China to assess the perception Despite the almost unanimous choice of Russia as Despite the almost unanimous choice of Russia as In order In order Speaking about economic relations with China, it with China, it Speaking about economic relations The perceptions of China by is inextricably inextricably is Kazakhs by China of perceptions The The survey results showed that Kazakhstan’s society society Kazakhstan’s that showed results survey The of the survey showed that China is repre The results linked with their attitudes toward the Chinese people the Chinese people linked with their attitudes toward importance of cooperation with China was noted by only in Kazakhstan on the topic of China. For example, the land For example, the on the topic of China. in Kazakhstan the media and social networks. from information received Kazakhstan. And this perception increases with the level with the level increases Kazakhstan. And this perception never be returned. never be returned. NAC conducted in 2017 a one-timeulation of Kazakhstan, all 18 years of age from over urban and rural respondents people (with incomes over 100 thousand tenge), 53.9 53.9 tenge), thousand over 100 (with incomes people percent. model (6.4 percent), an unstable state (5.1 percent), and an unstable state (5.1 percent), model (6.4 percent), primary the and Russia, with cooperate to important most region as well as globally, periodic social tensions flare up flare periodic social tensions as well as globally, region rumors unfounded started by were 2016 in May protests (NAC 2017). regions but rather under the influence of personal impressions, postgradu with Respondents Kazakhstanis. of percent) this share was 37 percent, and among the more wealthy and among the more was 37 percent, this share those who find it difficult to give a definite answer (4.1 per those who find it difficult many citizens the most important economic partner, that the planned agricultural land lease reforms were meant were lease reforms agricultural land that the planned leaseholds that would long-term to allow China to acquire based on not formed China are time, attitudes towards 6.3 percent of citizens (Figure 7). of citizens (Figure 6.3 percent should be noted that, according to 61.7 percent of Kazakh to 61.7 percent should be noted that, according is it country, the of development economic the for stanis, survey of 3,000 households across the country, including the country, across survey of 3,000 households vis-a-vis China. Citizens’ opinions still has no clear vision a plurality (43.3 sented primarily as an economic leader by ate education (62.9 percent) were more likely to represent likely to represent more were ate education (62.9 percent) age group, and income and education levels. At the same age group, of the respondents indicated an indifferent position (52.0 position (52.0 indicated an indifferent of the respondents communist power. Those who consider China as a role Those who consider China as a role communist power. of the Every sixth resident in the minority. cent) remained to peace and security country considers China as a threat of education and income: among people with higher edu among the poor, is 45.6 percent; cation this proportion (Figure 8). The survey results showed that more than half than more that showed results survey The 8). (Figure (17.3 percent) (Figure 6). (Figure (17.3 percent) consider friendship with China beneficial for (44 percent) China this way. 14.4 percent of respondents perceive perceive of respondents 14.4 percent China this way. as a percent China as an ancient civilization, while 9.3 differ depending on their region of residence, nationality, nationality, residence, of on their region depending differ ------Between 2015 and 2017 there were about 100,000 100,000 about were 2017 there Between 2015 and In terms of university-to-university collaboration, in in collaboration, university-to-university of terms In Secondly, economic collaboration with China supports collaboration with economic Secondly, Given the differences in mentality and long-held cul in mentality Given the differences A few Confucius Centers operate within Kazakhstan’s Kazakhstan’s within operate Centers Confucius few A labor migration on both sides. According to Sadovskaya Sadovskaya to According sides. both on migration labor hov 2018). between 1995 and 2014, about 100 thousand ethnic ethnic thousand 100 about 2014, and 1995 between Ministry of Education of China, in 2018 there were 17,600 were Ministry of Education of China, in 2018 there Kazakhs migrated from China to Kazakhstan for perma China to Kazakhs migrated from networks such as the Silk Road Universities Alliance, these universities as a founding member of the Asian Universi Asian the of member a founding as universities national universities, but their activities are mostly limited mostly limited national universities, but their activities are nent stay (Sadovskaya 2015). nent stay (Sadovskaya ple-to-people initiatives. put these top Asian universities on the map so that they put these top Asian universities on the map so that they rized by official work permits, movement of businesspeople work permits, movement rized by official from of ethnic Kazakhs to the repatriation migration related faculty and staff exchanges, support knowledge sharing exchanges, support knowledge sharing faculty and staff tural and spiritual perceptions between Kazakhstani and between Kazakhstani and tural and spiritual perceptions ties Alliance (AUA), a network created to conduct student, ties Alliance (AUA), a network created to the organization of cultural events, translation works andto the organization of cultural events, translation while labor visas appear not to exceed 10,000 per year year per 10,000 exceed to not appear visas labor while sities. Together with other recently established university university established recently other with Together sities. students from Kazakhstan in China (according to Embassy Embassy to (according China in Kazakhstan from students seems that two-thirds of visas are given to ethnic Kazakhs, given to ethnic Kazakhs, of visas are seems that two-thirds academic initiatives are among the most tangible BRI peo academic initiatives are and conduct joint research. The long-term objective is to is objective long-term The research. joint conduct and and business visas hover around 15,000-20,000 per year and business visas hover around and retail traders, educational travel, and permanent stay traders, educational and retail growing economic and political influence of China in the economic and political influence of China in the growing can hold their own against better-known Western univer Western can hold their own against better-known versities (Tsinghua and Peking) and 12 other top Asian Asian top other 12 and Peking) and (Tsinghua versities of China in Kazakhstan, there were 14,000 in 2018) (Astak were of China in Kazakhstan, there visas issued annually for citizens of China. However, it it However, China. of citizens for annually issued visas of migration between Kazakhstan and China: travel autho and China: travel between Kazakhstan of migration (Kiselyova 2017). China is an increasingly popular study popular study (Kiselyova 2017). China is an increasingly (2016), in Kazakhstan we can observe the following types observe the following we can (2016), in Kazakhstan 2017, Nazarbayev University joined two Chinese uni 2017, Nazarbayev University joined two Chinese people, but also against the background of the of the Chinese people, but also against the background tests. destination for students from Kazakhstan. According to the to Kazakhstan. According students from destination for China. According to the Ministry of Interior of Kazakhstan, to the Ministry China. According , , etc.). According to official data, over 25 years (from data, over 25 years (from to official Afghanistan, Pakistan, etc.). According gyz Republic), as well as a number of other Asian countries (, Iran, of a Population Survey 7. Perceptions of China in Kazakhstan: Results 7. Perceptions 1991 as of January 1, 2016), 957,764 oralmans arrived in Kazakhstan.  AKTOTY AITZHANOVA 10 (16.5 percent), while 14.7 percent expressed interest in tional attitude:8.7percent feelfearoftheChinese,and8.1 them. Theremaining respondents expressed amore emo percent admire them. percent). Everysixthreferred totheChinesenegatively Figure 7:DistributionofCountriesbyImportanceCooperationwithKazakhstan(%) Figure 6:SurveyResults fortheQuestion“Inyouropinion,whatisChinalikeprimarily?” S N W E o o u e a r t t s s h h t t

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A - 8 s 0 i a n of respondents hadnegativeexperienceswithrep experiences ofcommunicationwiththem.Only6.5percent the Chinese in general is not based on personal negative resentatives ofChina.Themajority(54.9percent) explain

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e e a d r t h a m ' I I Th I I Perhaps the future of this Initiative is also in question of this Initiative is also in question Perhaps the future At the same time, it is rather difficult to credit only the to credit At the same time, it is rather difficult level. Questions also arose as to which projects were com were as to which projects level. Questions also arose language in schools at the primary level; the transition to language in schools at the primary level; banks. However, due to the tightening of credit conditions due to the tightening of credit banks. However, in China and the low profitability of infrastructure projects, projects, of infrastructure in China and the low profitability Kazakhstan. eco Belt and Road Initiative, given that Kazakhstan’s and hence of information Bank. This lack of transparency Kazakhstan with China, Europe, and the Middle East. In and the Middle East. In Kazakhstan with China, Europe, nomic cooperation with China has been developing at an nomic cooperation with China has been pleted and which were not completed. The same issue not completed. The same issue pleted and which were the interest of Chinese banks in the BRI seems to be be to seems BRI the in banks Chinese of interest the that issue Another 15 percent. by has decreased tiative tives can become the key drivers of economic growth for growth tives can become the key drivers of economic currently projects tive was announced in 2013, but many the Latin alphabet; and infrastructure investments linking investments linking the Latin alphabet; and infrastructure implementation, the above initia the event of effective with difficulties in gathering information even at the top in gathering information even at the top with difficulties Kazakhstan and the World was raised by experts from started before then. Information about projects is limited. limited. is then. Information about projects started before faced stan, when contacting several institutions, we were accelerated pace since the beginning of 2000. The Initia accelerated pace since the beginning of of the BRI in Kazakhstan announced under the umbrella expected financing of projects by Chinese state-owned by Chinese state-owned expected financing of projects of investments in 55 countries in the framework of the Ini One cannot but agree with the report of Jonathan Hillman with the report One cannot but agree on the economy of Kazakhstan. (2018) that the projects are non-transparent. In Kazakh In non-transparent. are projects the that (2018) was built on the project et al. 2018). The entire (Yusuf decreasing. Already in the first quarter of 2018, the volume Already decreasing. does not allow for assessment of the impact of the Initiativethe of impact the of assessment for allow not does - - - % 0 . 2 5 % 1 . 8 % 7 . % 8 5 . 6 1 % 7 . 4 1 Kazakhstan is a key member of the Belt and Road Ini Road and Belt the of member key a is Kazakhstan So, overall, one can conclude that perceptions of of So, overall, one can conclude that perceptions A clear trend among the young generation of Kazakh A clear trend The author believes many factors facilitate the pursuit Figure 8: “How do you personally feel about Chinese people?” feel about Chinese you personally 8: “How do Figure interest in its people and willingness to conduct business and willingness to conduct in its people interest urban population. understanding of Chinese people. In general, respondents respondents understanding of Chinese people. In general, provide an additional boost to economic growth through through an additional boost to economic growth provide products supplied from China. Almost a third (28.8 per China. Almost a third supplied from products 8.5 percent among the older generations. This indicates indicates generations. This older among the 8.5 percent the belt.” The BRI presents an opportunity for the country the belt.” The BRI presents diversify trade, and geographic restrictions, to overcome tiative; some refer to Kazakhstan jokingly as the “buckle in tiative; some refer they show a more positive attitude toward China, showing positive attitude toward they show a more their dissatisfaction with the poor quality of goods and and goods of quality poor the with their dissatisfaction with them. Visits to China (actual or planned) are more more with them. Visits to China (actual or planned) are who had experience communicating with them much more them much more who had experience communicating with who work and/or live in Kazakhstan. 8. Conclusion stanis is emerging: in comparison with the older generation generation older the with comparison in emerging: is stanis of this integration goal: the Astana International Astana the goal: integration this of Financial of the English transactions; the introduction commercial closer integration with the global economy within the closer integration with the global economy within the of this undertaking. groundwork generation, and there in particular among the educated in particular among the educated generation, and there often mentioned by youth (24.4 percent), decreasing to to decreasing youth (24.4 percent), by often mentioned in and popularity of China as a destination. interest growing cent) respondents pointed out the strangeness and lack of cent) respondents the Chinese towards attitude a positive indicated often Center with its introduction of English law to adjudicate all Center with its introduction China are rapidly shifting among Kazakhstan’s younger younger rapidly shifting among Kazakhstan’s China are  AKTOTY AITZHANOVA 12 Government ofKazakhstanrathercarefullyGovernment formsitspolicy value chains. Another area of research interest might be country caseisdifferent from another. Inthissense,Iam collaboration with China at this stage of implementation, ects that are important for the country, and in most cases of economicinteractionwithChina,choosingthoseproj get theportofGwadarinPakistan.Kazakhstan-Chinarela exchange foraterritorythathadbeenthesubjectof example, in 2011,China wrote off a debt to Tajikistan in academic world.EveninChinaitself,there isnocommon all countries,andthere isno standardized approach. Each any detailedinformationondistributionofprojects across announcement oftheBRI. and participateasneeded;otherBRIactivitieshavebeen state guarantees.Overthepastfewyears,China,inreturn sis ofallproduction capacityprojects inKazakhstantosee worked outatadeliberatepacetoensure thattheysup to developaframeworkforcomparative analysisamong the BeltandRoad.Lastly, Ibelievethatthere isaneed trying toattractownfundstheprojects orinvolvinginter the otherhand,atmoment,oneshouldnotethat the Belt and Road Initiative is only starting, so one might be tions seemtobedevelopingonadifferent approach. for debt,hastakenstrategicsitesfrom severalstates.For format ofresolving debtcrisesrelated toChineseloans on reminded ofacommentbyChinaexpertthattheBRI port Kazakhstan’s economicdevelopment. program andsubsequently invitedChinatocomplement ment developeditsowninfrastructure andconnectivity port ofHambantotainSriLanka;thefuture, Chinacould multi-year dispute; in 2017, China gained control of the understanding ofthisInitiative,andthat’s “theChinaway.” national financial organizations or third-country parties like negatively affects thedevelopmentofInitiativeis Kazakhstan canbeviewedasamodelforotherdevelop Dubai’s DPWorld. Importantly, inKazakhstanthegovern Financial Centerinsupporting financialintegrationalong in understanding the potential of the Astana International in understandingthepotential oftheAstanaInternational if theyare facilitatingthecountry’s integrationintoglobal is more amarketing“idea”supportedprimarilybythe ing countriesandemergingmarketsastheydeveloptheir bearing inmindthatonlyfiveyearshavepassedsincethe better off to study the BRI over the course of 2-3 years. On between KazakhstanandChinawithintheframeworkof As a next step, one should conduct value chain analy As canbeseenfrom theabovesections,cooperation In general,itshouldbenotedthattheInitiativelacks In sum,theauthorbelievesthatinsomerespects, ------The Economist(2016). Astakhov, Ilya (2018). “ Ak Zhaik(2014). Aitzhanova, Aktoty, ShigeoKatsu,JohannesLinn,and CIS News(2011). Government oftheRepublicKazakhstan(2016b).The Government of the Republic of Kazakhstan (2016a).Government countries withpositiveexperiences, for exampleKazakh stan vs.Indonesia. Dollar, David (2015).“ Bukhina, Sarah (2018). “ Bnews (2016). (2018). Presentation about Hillman, Jonathan (2018). “ Higgins, Andrew (2018).“ Feng, Emily(2017).“ Exclusive (2018). Enelane, Nikolay (2018). “ Duparq, Patrick(2018).Presentation onBRIfortheSwiss References “Economic belt Silk Road” between the Government “Economic beltSilkRoad”betweentheGovernment Vladislav Yezhov, eds.(2014).Kazakhstan2050: China –7billionyuan/200 delegation toKazakhstan year transfertotenge-yuan exports toChina of August2016. of the People’s Republic of China approved by the of theRepublic of KazakhstanandtheGovernment cooperation planontheconjugationofNewEco abroad and constructionofthefourthplantwillnotsolve Silk Roadambitions through Kazakhstan toward society for all. New Delhi: Oxford a modern University Press. Investment Fund power: TheAIIBandthe‘onebelt,oneroad’ problem ofgasolineshortage nomic Policy“NurlyZhol”andtheconstructionof Brookings Institution. Five Landlocked Kazakhstan Decree ofKazakhstanN518on31st ofGovernment Framework Agreement on strengthening cooperation in thefieldofindustrializationandinvestment. logistics centers. Years Later .” Today. New containertrainChina–Iranfollowing Currency swapbetweenKazakhstanand Kazakh-Chinese EurasianNurly(Bright) Kazakhstan andChinasinceJulyofthis .” China-Kazakhstan border woes dent .” AtamekenBusiness. . China’s riseasaregional andglobal How manyKazakhstudents study Our bulldozers, .” FinancialTimes. is started Modernization ofold refineriesModernization China’s Belt and Road Initiative: Kazakhstan to increase gas China’s AmbitiousNewPort: .” TheNewYork Times. . swap operations billion tenge .” Informburo. . our rules . . . .” The - - THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  13 Presentations at Nazarbayev University. at Nazarbayev Presentations Oakes (2018). “Brainstorming sessions on China.” on China.” sessions “Brainstorming Oakes (2018). World Bank (2018). Country Score Card: Kazakhstan 2018. Kazakhstan Card: (2018). Country Score Bank World Yusuf, Shahid, Andrew Collier, Richard Pearson, and Tim Pearson, and Richard Collier, Shahid, Andrew Yusuf, ------. From Turk From Kazakhstan Kazakhstan CITIC KAZYNA . Shymkent refinery .” 365 Info. .” Kapital. Kazakhstan can become a Kazakhstan can become a Infrastructure, raw materials materials raw Infrastructure, Resettlement of Chinese to to Chinese of Resettlement . DBK opens financing for a $1.9 Pairing the EEU and China: Is It Pairing the EEU and China: Is It Halyk Bank closed a deal on sale has proceeded

. .” Rhythm. Fund CV ” Power. NPN ” Regnum. billion project to modernize the billion project impact of the BRI on the Central Asian Economies Economies Asian Central the on BRI the of impact in Astana. in June 2017. in Astana. Possible? Demiscrop Weekly (629-630). Weekly Demiscrop Kazakhstan? BRI for regional economic development.” Presen economic development.” BRI for regional Kazakhstan is not expected, the forecasts of Russians the forecasts Kazakhstan is not expected, udices and myths?” Presentation at ALMAU, Almaty. udices and myths?” Presentation regional leader in creating the infrastructure of the the of infrastructure the creating in leader regional menistan to Iran the Chinese container train making train making menistan to Iran the Chinese container Infrastructure Infrastructure Investment Fund Investment tral Asian Economies and Implementation of the 2030 tive.” UN-ESCAP Workshop on “Understanding and on “Understanding and Workshop tive.” UN-ESCAP tation at a roundtable organized by the World Bank Bank organized by the World tation at a roundtable test flight in tation at a roundtable organized by the World Bank Bank by the World organized tation at a roundtable shop on “Understanding and Assessing the potential and Implementation of the 2030 Agenda,” Almaty. along Silk Way of cooperation or thorny of cooperation or path of prej along Silk Way and metallurgy: where and why does China invest in and why and metallurgy: where are only forecasts – Sultanov only forecasts are of 60% of Altyn Bank shares of economic benefits of the Belt and Road Initia Road and Belt the of benefits economic of of Kazakhstan (2018). Information about Nurly Nurly about Information (2018). Kazakhstan of Assessing the potential impact of the BRI on the Cen Agenda,” Almaty. Zhol program. “New Silk Road” Ministry of Railways of Turkmenistan (2018). (2018). Turkmenistan of Railways of Ministry Mazorenko, Dmitry (2018). “ (2018). Dmitry Mazorenko, National Analytic Center (NAC 2017). Household survey survey National Analytic Center (NAC 2017). Household Prohatilov, Vladimir (2018). “ Prohatilov, of BRI.” Presen Ruta, Michele (2018). “Economic aspects PetroKazakhstan (2017). PetroKazakhstan Kazyna Capital Management (KCM 2018b). Management Kazyna Capital “ (2017). Tatyana Kiselyova, of implementation of “Consequences (2018). Somik Lall, Kazyna Capital Management (KCM 2018a). Management (KCM Kazyna Capital Shibutov, Marat (2018). “ Shibutov, ability the “Estimating (2017). Vatcharin Sirimaneetham, Sadovskaya, E. (2015). “Chinese migration in Kazakhstan.” Sadovskaya, E. (2016). “Chinese migration in Kazakhstan: Office of the Prime Minister (OPM) of the Republic Prime Minister (OPM) of the Republic of the Office Vidyanova, Anna (2018). “ Timmer, Hans (2017). “Presentation.” UN-ESCAP Work Hans (2017). “Presentation.” Timmer,  AKTOTY AITZHANOVA 14 Annex: “51Projects” Services Manufacturing Figure A1:InstitutionalArrangements 51 projects are identifiedinthefollowingspheres: • • • • • • • • • • • • • • Tourism Transport logistics Textiles, wools,etc. Agricultural processing Chemicals Oil andgasrefining glass, etc. Fast-moving consumergoods Food manufacturing Road, railwayandairinfrastructure construction Power generation Ferrous metallurgy Production ofconstructionmaterials,cement, Non-ferrous metallurgy Mechanical engineering THE BELT AND ROAD INITIATIVE: THE CASE OF KAZAKHSTAN  15 Figure A3: Financing Mechanisms Figure Figure A2: Implemented Projects A2: Implemented Figure

The Kyrgyz Republic and the Belt and Road Initiative

Roman Mogilevskii

1. Introduction cooperation results so far, including BRI-related changes in The Kyrgyz Republic is one of western neighbors of the production, employment, foreign trade, government exter- People’s Republic of China (PRC). As such, it already has nal debt, governance, and regional cooperation. Section strong ties with the Chinese economy and could become 4 provides an overview of potential future activities in the one the major beneficiaries of the Chinese Belt and Road BRI framework and their impact on social and economic Initiative (BRI). This note provides an analysis of the current development in the Kyrgyz Republic. Section 5 formulates state of the economic relationships between China and some recommendations to the BRI process stakeholders, the Kyrgyz Republic and discusses the potential of these and Section 6 summarizes research questions which seem relations’ further development in the BRI context. Eco- to deserve more detailed study in the future. nomic relationships under consideration include trade in goods and services, foreign direct investment (FDI), major 2. Key BRI-related Ongoing Activities in the infrastructure projects implemented in the Kyrgyz Republic Kyrgyz Republic with support from China and other activities. The paper covers the period from 2006 to 2018 in order to trace the 2.1. Public Infrastructure Projects evolution of Chinese-Kyrgyz economic relationships from a In recent years the government of China has supported relatively low and fragmented level to the current situation, the implementation of several major infrastructure projects in which China is one of the key (if not the largest) eco- in the Kyrgyz Republic. Table 1 provides a summary of the nomic partners of the Kyrgyz Republic. most important infrastructure projects financed by the gov- In this paper, all Chinese-Kyrgyz economic relationships ernment of China and implemented by Chinese companies. are considered to be a part of the BRI agenda, whether or Almost all projects in this list have been financed through not these activities have been explicitly labeled as ‘BRI’ concessional loans. The total amount of loans in the table projects. Implementation of some Chinese projects in the is US$2.1 billion; if one adds to this amount the grants and Kyrgyz Republic started before the BRI had been officially the costs of “resources in exchange for investment” proj- announced by the leadership of China in 2013. Some other ects, the total cost of infrastructure projects financed by projects are implemented by the Chinese private sector China in the Kyrgyz Republic go as high as US$2.2 billion. and it is not known whether or not these companies Conditions of the loans have been somewhat chang- receive direct support from the Government of the PRC ing with time towards longer loan repayment and grace in the framework of the BRI. Still, all these activities and periods and lower interest rates. Funding for the last two projects are considered here as direct contributions to the (smaller) projects listed in Table 1 has been provided in the BRI’s goal of improving connectivity and enhancing hard form of grants. These projects concentrate on automobile and soft infrastructure to boost economic and human ties road rehabilitation (Figure 1), energy system rehabilitation/ in the big region of Eurasia and beyond it. development and urban development. The paper is structured in the following way. Section 2 The road projects, with a total cost of US$1,128 million, discusses key forms of cooperation between China and the aim to improve connectivity inside the Kyrgyz Republic in Kyrgyz Republic which are broadly attributable to the BRI the North-South and East-West directions. Simultaneously, agenda. These include implementation of large infrastruc- these projects are parts of the so-called CAREC corridors, ture projects, Chinese FDI projects in the Kyrgyz Republic, which have been designed to improve transportation links and development of trade relations between these two in Central Asia and connect the region with China, South countries. Section 3 provides an assessment of achieved and West Asia, and Europe. The Bishkek-Naryn-Torugart

17  ROMAN MOGILEVSKII 18 1. Utilizationofexistingroads crossing territoriesoftheseenclavesis China; the alternative North-South roadChina; the alternative is to become the (province) andotherpartsoftheKyrgyzRepublic. ensure theenergy independence of the Kyrgyz Republic electricity transmissionlineandDatkasubstationthe of bypassingUzbekandTajik enclavesandto allowfor of theKyrgyzRepublic,whichare separatedbymountain considered to have a strategic importance for the coun associated project to modernize electricitytransmissionassociated project tomodernize are the main roads connecting the Kyrgyz Republic with second road connecting the northern and southern parts second road and southern connecting the northern try. Bishkek-Naryn-Torugart and -Sarytash-Irkeshtam from thesingle energysystemofCentralAsiainheritedfrom yan/2014/04/02/the-post-imperial-chessboard not alwayspossibleoreasy(seee.g. million, ridges; the Osh-Batken- road is built for the purpose road is a part of the CAREC Corridor 1c, the alternative uninterruptable traffic Batkenoblast betweenthewestern Road, andtheOsh-Sarytash-IrkeshtamOsh-Bat North-South road is intheCorridors1and3Connector ken-Isfana roads are partofCorridor2.Theroads are lines intheSouthofKyrgyzRepublic,whichaimto(a) Figure 1:BRI-related AutomobileRoadProjects intheKyrgyzRepublic (c) Osh-Sarytash-Irkeshtam (blue line) (c) Osh-Sarytash-Irkeshtam line) (blue (a) Bishkek-Naryn-Torugart Source: The http://piumotc.kg/en/main/, Maps Google includeconstruction of the Datka-Kemin strategic energy projects, withatotalcostof https://www.economist.com/ban ). US$984 1 - - - The HPPisbasedonusageofcoal,sootherdonorsmight Asia. Anotherenergyproject—Bishkek HeatandPower (d) Osh-Batken-Isfana (pink line)(d) Osh-Batken-Isfana line) (red Road North-South (b) Alternative China intheKyrgyzRepublic.Work onthisproject inthe equity ofthepipeline,sopipelineisanFDIproject of gas pipelinenetwork.TheKyrgyzRepublicwouldplayonly development a transitrole, withnotechnicalpossibilityofreceiving gas also going to build a gas pipeline in the south of the Kyrgyz Soviet times,and(b)becomeapartoftheCASA-1000 the KyrgyzRepublicisnotgoingtohaveastakein from of orsupplyinggastothepipeline.Thegovernment million torehabilitate anddevelopthestreet network megaproject, allowing energysupplies from the Kyrgyz Kyrgyz Republicisplannedtobeginin2019. Republic, which is a part of line D of the Central Asia-China Plant (HPP)—hasbeendesignedtoimprove electricityand Republic andTajikistan topowerthecountriesofSouth in Bishkek. infrastructure activitiesintheKyrgyz Republic to hesitate tosupportsucha“non-green” project. heat supplyinBishkek,thecapitalofKyrgyzRepublic. In additiontotheseloansforenergyprojects, Chinais Recently, of Chinahasexpandedits the government by providing two grants worth of US$121 urban THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  19 Notes project financial financial financial institutions institutions institutions multilateral multilateral multilateral the project the project of this road of this road Other parts Other parts Other parts financed by financed by financed by Segment of the 4th (‘D’) CASA-1000 Approx. 62% Approx. 38% Approx. Central Asia – China pipeline Part of regional Part of regional of total costs of of total costs of - - - 0.50% 0.50% 0.43% 0.43% 0.50% 0.36% 0.36% 0.50% 0.50% legal information portal) information legal ment fee and mange Commission Toktom - 2% 2% 2% 2% 2% 2% 2% 2% est rate Inter 1.50% Grant Grant Terms 7 9 5 5 11 11 11 11 11 years Grace period, 20 20 20 20 20 20 25 20 20 years in case of energy projects), which use almost exclusively exclusively almost use which projects), energy of case in period, FDI, no Kyrgyz government equity participation Repayment This project was based on the “resources in in “resources was based on the This project scheme – Chinese exchange for investment” Bank and a consor party (China Development fully financed the China) tium of companies from gov in exchange, the Kyrgyz rehabilitation; road Gold ernment “Full company Chinese allowed Mining” to develop the gold deposit Ishtamberdy. - mil. CNY 489.5 286.0 697.6 Amount * ** *** 386 400 200 208 mil. US$ 25.3 75.3 185.3 1,200 129.8 389.8 1,000- - 2015 2015 2015 2017 2013 2013 2013 2015 2009 2011 2012 2008 2009 ment agree Year of of Year - - - - China-Kyrgyz Republic intergovernmental agreements (as provided in the legislation of the Kyrgyz Republic available at All these infrastructure projects have been implemented have been projects All these infrastructure Table 1: Key Infrastructure Projects in the Kyrgyz Republic Supported by the Government in the Kyrgyz Republic Supported of China Projects Infrastructure 1: Key Table Source: * Equivalent to US$112.0 million at 2015 CNY/US$ average exchange rate of 6.227 (WDI) Equivalent** to US$78.6 million Equivalent*** to US$42.3 million CNY/US$ at 2017 average exchange rate of (WDI) 6.759 Development of street network Development of street in Bishkek city (phase 2) Alternative North-South road Alternative North-South road (part Aral-Kazarman) network Development of street in Bishkek city (phase 1) Rehabilitation of Osh-Batken- 220 (sections from lsfana road 248 to 360 to 232 km and from km) and Bishkek-Balykchi road 147 to 172 km) (section from (sections Kazarman-Jalal- Abad and Balykchi-Aral) Gas pipeline the Kyrgyz Republic-China Datka-Kemin electricity trans mission line and 500 kV Datka substation Modernization of Heat and Power Plant in Bishkek city Alternative North-South road kek-Naryn-Torugart road road kek-Naryn-Torugart 9 to 272 km) (section from Modernization of electricity transmission lines in the South of the Kyrgyz Republic Construction of 500 kV Rehabilitation of Osh-Sary (section tash-Irkeshtam road 123 to 190 km) from Rehabilitation of Bish Rehabilitation of Osh-Sary (section tash-Irkeshtam road 190 to 240 km) from by Chinese companies (e.g. China Road and Bridge Cor Road and Bridge companies (e.g. China by Chinese poration [CRBC] in case of road projects; TBEA Co. Ltd. Ltd. Co. TBEA projects; road of in case poration [CRBC]  ROMAN MOGILEVSKII 20 Chinese labor. Mostmachinery, equipmentandmaterials foreign direct investmentintotheeconomy oftheKyrgyz 2.2. ForeignDirectInvestment have alsobeenimportedfrom China. Figure 3:ChineseFDIbySector Figure 2:Gross InflowsofFDIfrom ChinaandOtherCountries Source: Source: Since 2012,Chinahasbecomethelargestsource of National Statistical Committee of the Republic Committee Kyrgyz National Statistical National Statistical Committee of the Republic Committee Kyrgyz National Statistical US$ millions US$ millions 1 1 1 1 ,0 ,2 ,4 ,6 1 1 2 2 3 3 4 4 5 2 4 6 8 0 5 0 5 0 5 0 5 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 0 0 0 0 6 6 2 0 2 0 0 7 0 7 2 0 0 2 8 0 0 8 2 0 0 9 2 0 2 0 0 9 1 0 C 2 h 2 0 i 0 n 1 1 0 a 1 2 0 2 O 1 0 2 1 t h 1 e Chinese FDIinflowwasequaltoUS$2.3billion.Forthis country’s GDP. to theKyrgyzRepublic,equivalent2-7percent ofthe period, ChineseFDIconstituted25-50percent oftotalFDI Republic (Figure 2);for2006-2017thecumulativegross r 2

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l 1 o e 7 u f m THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  21 - - - - - This is a very significant contribution to the This is a very significant contribution to the 3 For 2011-2017—the period of the most active imple For 2011-2017—the period of the most Chinese FDI in other sectors of the Kyrgyz economy sectors of the Kyrgyz economy Chinese FDI in other Assessment of the contribution of BRI-related infra Assessment of the contribution of BRI-related billion and US$7.5 billion (at current exchange rate). exchange billion and US$7.5 billion (at current least Euro-5 level. least Euro-5 large cement plant in the southern Kyrgyz Republic. Later, however, this plant was sold to Kazakh investors. however, be possible. in the Kyrgyz Republic. This inflow been invested already in infrastructure projects and another US$1.9 billion in FDI in billion US$1.9 another and projects infrastructure in 3. Annual GDP of the Kyrgyz Republic in 2011-2017 was between US$6.2 Republic is complicated by the fact that no direct disaggre no direct Republic is complicated by the fact that Kyrgyz Republic—the total amount of money committed to Eurasian Economic Union (EAEU). Based on environmen Union (EAEU). Eurasian Economic a construction of Bank of China (CHEXIM) financed the Kyrgyz economy. However, the contribution to aggregate the contribution to aggregate However, Kyrgyz economy. new technical regulations for oil products adopted by the adopted for oil products regulations new technical at to years of couple next the in products their upgrade mines, etc.). Some of these projects are still under con are mines, etc.). Some of these projects mentation of Chinese infrastructure and FDI projects in the and FDI projects mentation of Chinese infrastructure not be may money this of Some 2). Section see projects, per annum. processing) are relatively minor. In 2009, the Export-Import minor. relatively are processing) Exports, and Imports the accumulated stock of fixed capital (improved roads, roads, the accumulated stock of fixed capital (improved these projects was equal to US$4.1 billion (US$2.2 billion these projects tal considerations, these regulations require the cessation require these regulations tal considerations, were spent on imports of goods and services from China. from services and goods of imports on spent were So, the main impact on the Kyrgyz GDP should be through So, the main impact on the Kyrgyz GDP should be through So, to continue their operations, these enterprises should So, to continue their 3.1. Output, Employment, Government Revenue, Revenue, 3.1. Output, Employment, Government 3. Effects of BRI Projects 3. Effects structure and FDI projects to the economy of the Kyrgyz of the Kyrgyz to the economy and FDI projects structure stopped. This directly affects the Chinese refineries as they refineries the Chinese affects stopped. This directly fuels. type Euro-4 and Euro-3, Euro-2, produce specifically struction; other projects have been completed recently, so have been completed recently, struction; other projects and Euro-4 types for the EAEU market by 2019; by 2021, types for the EAEU and Euro-4 gated data on economic activities of Chinese enterprises gated data on economic activities of Chinese estimates seem to exists. So, only some (rather rough) of GDP is equivalent to some 7-8 percent of resources of production of gasoline and diesel fuel of Euro-2, Euro-3, Euro-3, of Euro-2, and diesel fuel of gasoline of production should also be oil products exports of these low-quality electricity transmission lines and substations, oil refineries, electricity transmission lines and substations, oil refineries, one could not expect any major impact on the economy’s (e.g. retail trade, construction materials production, food food production, materials construction trade, retail (e.g. disbursed yet, but about 80-90 percent of this amount has has amount this of percent 80-90 about but yet, disbursed these resources as most of demand was much smaller, ------. Chinese . Chinese of their capacity and mostly export their 2 Production of refined petroleum products petroleum of refined Production Key Chinese FDI sectors are geological exploration, exploration, geological FDI sectors are Key Chinese At least some of the Chinese investors are state-owned At least some of the Chinese investors are lished by the state corporation Linbao Gold); they operate lished by the state corporation Linbao Gold); below one-third is charged on Russian oil products exported to the Kyrgyz exported oil products is charged on Russian is imports of crude oil and semi-processed oil products oil products is imports of crude oil and semi-processed in the Kyrgyz Republic. Chinese companies operate some in the Kyrgyz Republic. Republic). As a result, the refineries are reported to operate are the refineries Republic). As a result, Republic (railroad connection to the refineries is possible is possible connection to the refineries Republic (railroad FDI projects as foreign enterprises or as joint ventures with enterprises or as joint ventures as foreign FDI projects 2. 2017 estimate based on information from the State Committee on In on Committee State the from information on based estimate 2017 2. no oil deposits nearby (either in the Kyrgyz Republic or in no oil deposits nearby (either in the Kyrgyz through neighboring countries) to supply these refineries products to Tajikistan and Afghanistan, where prices for oil prices and Afghanistan, where to Tajikistan products than in the Kyrgyz Republic. The refin higher are products petitive advantages on the domestic market in comparison part of the Kyrgyz Republic near Bishkek; one of these one of these part of the Kyrgyz Republic near Bishkek; mining) concentrate on the development of gold deposits of gold deposits on the development mining) concentrate mining and production of refined petroleum products products petroleum of refined production mining and feed both for the domestic market and for export to China. feed both for the domestic to the refineries by rail. Due to relatively high raw material by rail. Due to to the refineries imported to the Kyrgyz Republic to Russian oil products tyn) and private companies with majority shares owned by shares tyn) and private companies with majority the Chinese party. the Kyrgyz state (e.g. state-owned gold producer Kyrgyzal the Kyrgyz state (e.g. state-owned gold producer tural investment projects in the Kyrgyz Republic, though though Republic, Kyrgyz the in projects investment tural is a plan announced by the governments of China there animal and fish meat, produce to Bishkek near park trial trate, which is exported for refining in China. According to in China. According for refining trate, which is exported dustry, Energy and Subsoils of the Kyrgyz Republic. dustry, sian-Kyrgyz intergovernmental no export duty agreement, stan). Another (more important) source of raw materials of raw materials important) source stan). Another (more as in the nearest future the Kyrgyz Republic should enact future as in the nearest and transportation costs, the refineries seem to lack com lack to seem refineries the costs, transportation and a pipeline. One rather scarce source of raw materials is is materials raw of source scarce rather One pipeline. a and the Kyrgyz Republic to build the Iskra Asia agro-indus build the Iskra Kyrgyz Republic to and the eries seem to face the necessity of additional investments, additional of necessity the face to seem eries on beneficial terms (in accordance with the bilateral Rus on beneficial terms (in accordance only through the territories of Uzbekistan and Kazakh only through enterprise in this sector in the Kyrgyz Republic. There are are There enterprise in this sector in the Kyrgyz Republic. companies have built two oil refineries in the northern companies have built two oil refineries Company) is the largest enterprises (Zhongda China Petrol enterprises (e.g. gold producer Full Gold Mining was estab enterprises (e.g. gold producer official statistics, there are not any major Chinese agricul not any major are statistics, there official (black oil) from Kazakhstan. These raw materials also come (black oil) from (Figure 3). Mining-related FDI (geological exploration and and FDI (geological exploration 3). Mining-related (Figure domestic crude oil produced in the south of the Kyrgyz in the south of the Kyrgyz domestic crude oil produced 10 medium-sized mines producing gold-copper concen gold-copper producing mines medium-sized 10  ROMAN MOGILEVSKII 22 100 and 500 Kyrgyz workers (and a comparable number 4. According toNational Statistical Committee of theKyrgyzRepublic, 567 government budgets. government Chinese FDI. GDP growth inthelatestperiodoftime,including(i)a GDP growth ratesin2011-2017and2000-2010shows 2010 revolution; and(iii)aninflowof resources associated 2.5 percent oftotalstatebudget (e.g. establishmentoftheRussian-KyrgyzDevelopment (ii) increased confidenceofdomesticandforeign consum exchange rateof68.87KGS/USD).Thisamountmadeup of employeesfrom China),sothe totalnumberofnewjobs ers andinvestorsafterpoliticalstabilizationfollowingthe above, theinfrastructure projects are implementedbyChi an increase in the share of gross value added in GDP has some increase, from 4.2percent perannum(2000-2010) enterprises with full or partial participation of citizens of China in equity had small oridle. with theaccessionofKyrgyzRepublictoEAEU were otherfactorscontributingtosomewhatelevated workers. There are 10-15enterpriseswithconsiderable these data, in 2017 these enterprises paid KGS3.66 billion the countrydoesnotseemtobesignificant.Asmentioned to 4.8percent perannum(2011-2017).Ofcourse,there for Kyrgyzworkersshouldbeaboutseveralthousand,or 0.1-0.3 percent oftotalemploymentinthecountry(2.4 million peoplein2016). production capacity. Acomparisonoftheaverageannual nese participation to the government budgetoftheKyrgyz nese participationtothegovernment nese companiesusingaverylimitednumberoftheKyrgyz Republic, enterprise-leveldataare availablefrom the Russia). Inmostsectorsaffected byChineseinvestments, Fund managingUS$500millionprovided asFDIfrom Republic (aboutorabove30percent ofGDPperannum); Ministry ofFinancetheKyrgyzRepublic.According to in taxes(equivalentofUS$53.2millionat2017average been observedbetween2010and2016(Table 2). historically highlevelofremittance inflowtotheKyrgyz 5. Statebudgetconsolidatestherepublicanandlocal (centralgovernment) been registered in2016.However, mostoftheseenterpriseswere either Transport andlogistics Production, transmissionanddistributionofelectricity Production ofoilproducts andotherchemicals Extraction ofmetalores Sector Source: Table 2:Growth ofKey SectorsReceivingChineseInvestments The contributionoftheseprojects to Regarding thecontributionofenterprises withChi National Statistical Committee of the Republic Committee Kyrgyz National Statistical 4 Eachoftheseenterprisesemploysbetween 5 revenue inthatyear. Of employment in in - - - This component of trade is run mostly by individuals and 7. TheKyrgyzdataonthiscomponentofbilateraltradeare knowntobe Asian markets.Anyway, there seemstobenoevidence of re-export tradeinChineseconsumergoodsforalargeregion encom 2018, Mogilevskiietal.2015). etc.)—started in1990sandachieveditspeak2008. effects ontheKyrgyzRepublic’s tradewiththird countries. eral tradebetweentheKyrgyzRepublicandChina oil refinery Zhongda. All mining enterprises with Chinese value ofthistradeflowdependnotonly/notsomuchon early/mid-2010s. The Chinese data able estimatesindicatethatthetaxburden forgoldmines according toUNComtrade. Ofcourse,theweightand age annualweightoflightindustryproducts in2016-2017 SMEs anddoesnotseemtobeapartoftheBRIagenda. was reported to be16percent lowerthanin2011-2013, the KyrgyzRepublic,operatedbyCanadiancompany)is this total,two-thirds hadbeenpaidbyoneenterprise—the to supporttheclaimthatrehabilitation oftheroads the transportationcostsonKyrgyzpartofroute, for ChinesetextilesandfootwearinRussianCentral It, however, couldbeaffected bytheimprovements previous footnote). passing CentralAsiaandlargepartofRussia;seedetailsinKaminski port makes sensetoconsiderthedataonthistradefrom both much lighterthaninothercountriesoftheworld(Manley participation paidKGS1.18billion(US$17.1million).Avail not show any ascending trend; on the contrary, the aver Kyrgyz andChinesesources (Figure 4). Due tomajordiscrepancies inbilateraltradestatistics,it Republic seemstobetwo-pronged: theeffects onbilat Rehabilitation of these roads was mostly completed in the in the Kyrgyz Republic (except Kumtor, the largest mine in industry products exported totheKyrgyzRepublicdoes in maintransportarteriesservingthistrade:theBish 6. Sincetheearly2000s,KyrgyzRepublichasbeenknowntobeahub but alsoonmanyotherfactors,especiallythedemand kek-Naryn-Torugart andOsh-Sarytash-Irkeshtamroads. Mitra (2011)andMogilevskii(2012). heavily downward-biased (seethepaperonre-exports mentionedinthe 2010 4.73 1.56 0.47 0.01 The maincomponentofthistrade—importandre-ex The BRI’s effect on the 6 ofChineselightindustryproducts (textiles,footwear Gross valueadded,%ofGDP 2016 3.92 1.84 0.75 0.39 Increase between2010and2016 foreign trade 7 on the weight of light -0.81 0.28 0.28 0.38 of the Kyrgyz ------THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  23 - 7 1 7 0 1 2 0 2 6 6 1 1 0 0 2 2 5 5 1 1 0 0 2 2 s l s a t t c 4 e 4 1 u 1 0 d M 0 2 o 2 r p

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o t f 0 2 i 2 h r 0 0 0 0 0 0 0 0 0 0 0 g g i 0 0 0 0 0 0 0 0 0 0 L A 6 UN Comtrade, State Customs Service of the Kyrgyz Republic ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 0 9 8 7 6 5 0 4 3 2 1 0 1 2 0 5 0 5 5 0 7 5 2 2 0 The only traceable effect of BRI projects on trade with of BRI projects The only traceable effect The components of bilateral trade which seem to be be which seem to of bilateral trade The components 1 1 Source: (c) Imports(c) to the Kyrgyz Republic from China, Kyrgyz data, cif prices (a) Exports(a) from the Kyrgyz Republic to China, Kyrgyz data, fob prices Figure 4: Trade in Goods between the Kyrgyz Republic and China (US$ millions) in Goods between 4: Trade Figure 8. This figure even reaches US$650 million for some years, according to reaches US$650 million for some years, according even 8. This figure high level of US$300-500 million high level of US$300-500 products to Tajikistan and Afghanistan from Zhongda oil Zhongda oil and Afghanistan from to Tajikistan products section 2.2). In 2015-2017, these exports fluc (see refinery Chinese data. recently started; in 2016-2017, these were on the level of these were started; in 2016-2017, recently US$30-40 million per annum, which is about 2 percent annum, which is about 2 percent US$30-40 million per tuated in the range of US$2-16 million, or 0.2-1.1 percent 0.2-1.1 percent tuated in the range of US$2-16 million, or to the Kyrgyz Republic. countries seems to be the emerging exports of oil third and equipment or 6-10 percent of total imports of goods and equipment or 6-10 percent and equipment (Figures 4c and 4d) stayed at the rather rather at the stayed 4d) and 4c (Figures equipment and and imports of machinery and equipment for infrastructure and equipment for infrastructure and imports of machinery Republic. The China to the Kyrgyz from and FDI projects of total merchandize exports from the Kyrgyz Republic. exports from of total merchandize equivalent to 25-50 percent of total imports of machinery equivalent to 25-50 percent of total Kyrgyz exports of goods. Imports of machinery of goods. Imports of machinery of total Kyrgyz exports of gold concentrate from the Kyrgyz Republic to China Republic to China the Kyrgyz from of gold concentrate 4a and 4b) have just (Figures exports of gold concentrate connecting China and the Kyrgyz Republic has positively Republic has positively China and the Kyrgyz connecting industry products. to this trade in light contributed directly associated with BRI-related projects are exports exports are projects with BRI-related associated directly  ROMAN MOGILEVSKII 24 debt distress, butthedebtsituationisstillvulnerableto ods of5-11years.Therefore, thedebtserviceburden may concessional oneswitheffective interest ratesof1.86-2.5 against thebackground ofmanyongoingregional eco and IDA,theKyrgyzRepublicremains atmoderateriskof start tobefeltonlyaftertheexpirationofgraceperiods structure loansprovided ofChinaare bythegovernment 3.3. RegionalCooperation that Chineseinfrastructure development projects are well transport andenergy projects inCentralAsia.It seems the EurasianEconomicUnion(EAEU). for mostloansreceived sofar(sometimeinthe2020s). percent, repayment periodsof20-25yearsandgrace peri nomic cooperationinitiatives, includingtheCentral Asia Regional EconomicCooperation(CAREC)Program and large external shocks. large external Figure 6: Evolution of the External Government DebtoftheKyrgyzRepublic Figure Government 6:EvolutionoftheExternal Figure 5:Trade inServicesbetweentheKyrgyzRepublicandChina (a) Nominal value at the year-end (US$ millions) (US$ year-end the at value (a) Nominal Source: Source: 2016 millions), (US$ Republic Kyrgyz the from services of (a) Exports 1 1 2 2 3 3 4 4 ,0 ,5 ,0 ,5 ,0 ,5 ,0 ,5 5 0 0 0 0 0 0 0 0 0 The implementationofBRI-related projects takesplace Among otherthings,CARECcoordinates multiple According to the joint assessment of the IMF (2018) As followsfrom thedataprovided inTable 1,allinfra 0 0 0 0 0 0 0 0 0 0 2 0 0 6 Ministry of Finance of the Kyrgyz Republic Kyrgyz the of Finance of Ministry National Statistical Committee of the Kyrgyz Republic, National Bank of the Kyrgyz Republic Kyrgyz the of Bank National Republic, Kyrgyz the of Committee Statistical National O 2 0 t 0 h 7 e r

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2 0 1 7 - - - Agency, ArabCoordination Group). Similarly, the energy Asian DevelopmentBank,World Bank,European Bankfor (b) Relative to the size of the economy (% of GDP) of (% economy the of size the to (b) Relative (b) Imports of services to the Kyrgyz Republic (US$ millions), 2016 millions), (US$ Republic Kyrgyz the to services of (b) Imports design andCARECenergysectorplans.Someofthe 2018). Possiblythisdialoguetakesplaceintheheadquar governments keepindicatingalackofdialoguewiththe governments companies (e.g.CRBCforADBprojects) servingascon other donors’projects are implementedbyChinese corridors (seesection2.1).Typically, Chineseloanscover are supported by other development partners (i.e. the struction contractors. While the coordination of Chinese some partsoftherehabilitated roads whileotherparts with Chineseconcessionalloansare partsofCAREC ters of international developmentorganizationsratherthan ters ofinternational transmission lineandsubstationprojects ofChinainthe representatives ofChinaintheKyrgyzRepublic(Wolters place, manyrepresentatives ofotherdonororganizations/ Kyrgyz Republic are consistent with theCASA-1000 Bank, European Cooperation Union,JapanInternational Reconstruction andDevelopment,IslamicDevelopment infrastructure projects withdifferent donorsdoestake integrated intotheCARECagenda.Allroads rehabilitated 7 1 2 3 4 5 6 0 0 0 0 0 0 0 0 % % % % % % % % 2 0 0 6 O t 2 h 0 e 0 7 r

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e 6 5 6 s , 8 2 0 1 7 - - THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  25 - - - - Available evidence suggests that people of the Kyrgyz Available The relationships of Chinese FDI projects with local com local with projects FDI Chinese of relationships The The massive inflow of resources in the framework the framework in resources inflow of The massive located near gold mines or oil refineries keep complaining located near gold mines or oil refineries loans received from CHEXIM and many details of Chinese of details many and CHEXIM from received loans by Canadian, Kazakh and Russian investors; even Kyrgyz investors from Bishkek are not fully immune from these these not fully immune from Bishkek are investors from in such situations. However, Chinese companies are not not companies are Chinese in such situations. However, Republic have mixed feelings about their country’s relation Republic have mixed feelings about their country’s FDI projects are open to public. The political competi open are FDI projects unique in finding themselves in such situations. In the past, need to seize the opportunities provided by this initiative. by provided the opportunities need to seize risks when implementing projects in rural/remote areas. in rural/remote risks when implementing projects munities are not simple either. People in the communities in People either. simple not are munities by central government while the local elites reaped officials dialogue with the communities is another risk factor proper rent-seeking behavior by government officials put pressure put pressure behavior by government officials rent-seeking for a setup of the country provides political and social or resources of use inefficient of cases many of revelation violations in the imple and other procedural procurement associated which are projects mentation of BRI-related the communities from these projects. Sometimes these these Sometimes these projects. the communities from the Chinese management of the companies to establish tion and availability of influential forces in Jogoku Kenesh influential forces tion and availability of Cabinets’ deals lead to the previous themselves from with Chinese participation. with allegations of corruption (see Box 1). A large share share A large 1). with allegations of corruption (see Box ships with China. According to the 2017 public opinion poll ships with China. According similar protests and conflicts took place around projects projects and conflicts took place around similar protests substantial degree of transparency for all BRI-related BRI-related all for transparency of degree substantial projects of implementation the with associated scandals about environmental damage and insufficient benefits for benefits for insufficient damage and about environmental be to going are benefits all that so Bishkek in authorities While costs. projects’ the to bear going are population and activities. Texts of key agreements related to government related of key agreements activities. Texts complaints take a form of open protests and even looting complaints take a form of open protests (Kudryavtseva 2018, of the Chinese companies’ property usually try to swiftly central government representatives not always successful in their cool passions down, they are of BRI-related projects and the associated potential for for the associated potential and projects of BRI-related The post-2010 on the governance system of the country. to distance of new officials of Cabinets and the desire different changes in government from of recent resulted (grounded or not) that Chinese investors made a deal with (grounded (parliament) opposing the government,(parliament) opposing changes frequent 2018) also includes multiple references to the BRI and the to the BRI includes multiple references 2018) also data, people of the Kyrgyz Republic positively assess the assess positively Republic of the Kyrgyz people data, dialogue with communities. The unwillingness or inability of Trilling 2014). These protests are based on a perception perception a on based are protests These 2014). Trilling - - - - National National (adopted in 2013) included all projects sup (adopted in 2013) included all projects (likely to be formally approved by the end of (likely to be formally approved National Development Strategy of the Kyrgyz Republic BRI-related projects appeared to be well-integrated well-integrated be to appeared projects BRI-related It is also worth mentioning that the relationships relationships It is also worth mentioning that the Some of the BRI-related projects, especially ener projects, Some of the BRI-related Some of the BRI-related projects mentioned above are mentioned above are projects Some of the BRI-related There are ambitious plans of relevant governments to ambitious plans of relevant are There locally produced coal instead of imported varieties of coal locally produced between the Kyrgyz Republic and its neighbors have the bilitation, among other things, was to allow utilization of utilization of bilitation, among other things, was to allow between China and the EAEU member countries. between China and by the government which tries to the Kyrgyz Republic, of into the national development framework. The is reported to be non-preferential, but it includes different different includes it but non-preferential, to be reported is infrastructure projects. infrastructure in-country. The coordination could also be partially driven partially be also could coordination The in-country. for 2013-2017 for 2018-2040 Russian gasoline and diesel fuel on the Kyrgyz domestic Russian gasoline and diesel fuel on the Kyrgyz domestic FDI project in the Kyrgyz Republic, Zhongda oil refinery, refinery, oil Zhongda Republic, Kyrgyz the in project FDI BRI. A practical step in this direction was the signing of the was the signing direction step in this BRI. A practical ported by the government of China. The near-final draft of ported by the government The near-final of China. market and created an unfavorable price situation for the market and created potential to affect the efficiency of some of the Chinese Chinese the of some of efficiency the affect to potential of the main Chinese For example, the profitability projects. measures to foster mutual investments, simplify trade pro to foster mutual investments, measures pool the resources of different donors for the country’s key donors for the country’s of different pool the resources the the Kyrgyz Republic from regional energy markets. For For markets. energy regional from Republic Kyrgyz the the dependence of the national energy system to reduce the EAEU and the PRC (17 May 2018). The agreement The agreement 2018). May (17 PRC the and EAEU the South Asia. South road is also considered to be a section in the road to be a section in the road is also considered South road 3.4. Governance suffers due to the decision of the governmentthe of decision the to due to Russia of suffers simultaneously included in the EAEU’s broad infrastructure infrastructure broad simultaneously included in the EAEU’s and Uzbekistan. The purpose of the Bishkek HPP reha HPP Bishkek the of purpose The Uzbekistan. and and black oil. exempt exports of oil products to the Kyrgyz Republic from from Republic Kyrgyz the to products oil of exports exempt in lower prices for export duties. This decision resulted at Zhongda (see section 2.2 above). produced oil products on electricity transit via the energy systems of Kazakhstan on electricity transit via the energy systems gy-related ones, aim to increase the independence of the independence of aim to increase ones, gy-related line is reported example, the Datka-Kemin transmission connecting Russia and Kazakhstan with Tajikistan and and Tajikistan connecting Russia and Kazakhstan with cedures and reduce or remove non-tariff barriers in trade barriers in trade non-tariff or remove and reduce cedures coordinate activities in the frameworks of the EAEU and the activities in coordinate Sustainable Development Strategy of the Kyrgyz Republic Kyrgyz the of Strategy Development Sustainable development plans. For example, the alternativedevelopment plans. For example, the North- Agreement on Trade and Economic Cooperation between and Economic on Trade Agreement  ROMAN MOGILEVSKII 26 4.1. Investments 4. PotentialFuture BRIActivities andImpact directions. Of course,there are afewmore road projects do you consider to be the most important economic dents considertheserelationships tobegood, with18 crossing pointtoJalal-Abad.Thisisexpectedbeavery via ashortcut road toAlmaty),butit remains tobeseen if connected to Kazakhstan from portion and also its eastern create aroad networksuitablefortransitfrom Chinavia economic relationships with China. ever, in answering the question “Which of these countries assessments ofthepublicattitudestowards Chinaandthe sidered Chinaas a threat. Other surveys and qualitative some 20yearsistheChina-Kyrgyz Republic-Uzbekistan these projects are ofinterest forChina.Inanycase,these oftheKyrgyz Republicwouldliketo that thegovernment the territoryofKyrgyzRepublicinalmostallpossible railroad, withtheKyrgyzsegmentfrom theTorugart border roads are notgoingto betransitroutes. partners andgreatest economicthreats totheKyrgyz percent ofrespondents assessingthemasnegative.How relationships withChina(IRI2017).60 percent ofrespon BRI provide asimilarmixofoptimismandfearregarding Republic?” 32percent ofrespondents choseChinaasan implement (e.g.theIssyk-Kulringroad, whichwouldbe important partnerwhile35percent of respondents con Bishkek in2018 Box 1:DomesticPoliticalDynamicsaround ChineseParticipationinInfrastructure Projects in the companyTBEAofartificialinflatingcostsandcorruption. and enterprise. Oppositionpoliticiansaccusedthegovernment amount ofmoneywasnotsufficient to rehabilitate theentire ciency oftheHPPrehabilitation project whensuchasignificant had notbeenfixed.Thisraisedmanyquestionsabouttheeffi of theHPPwhileotherparts(thosethatcollapsedinwinter) gation revealed thatthisloanaimedatrehabilitating onlyapart just recently reported tobesuccessfullycompleted.Aninvesti company TBEA(seeSection2.1).Thisrehabilitation hadbeen million loanfrom CHEXIMandimplementedbytheChinese society, as rehabilitation of the HPP was supported by US$386 parliament and very acute political debate in the government, ment andmismanagementoftheenterprise.Thissparkeda revealed manymajortechnicalissueswiththeHPP’s equip unusually coldweather(below-20 which leftalargepartofthecityalmostwithoutheatingamid The ongoingroad projects, whencompleted,would A majorproject whichhasbeenunderdiscussionfor In January2018,there wasanaccidentatBishkekHPP o C). Analysisoftheaccident ------direct fundingfrombudget(necessary thegovernment development isaccompaniedbyappropriate allocations domestic flows. Whatever route of the railroad is chosen (two options are being considered: North 472 km long expensive project withcostsaround US$5 billion(accord or adjustinginfrastructure userfees. This isofparticular routecheaper southern couldbepreferable. endpoint ofthecurrent railway systeminthenorthof on exactroute has been takenyet),itisgoingtopass are knowntobesetatanunsustainably lowlevel(World allocations tobecarefully assessedbefore initiationofany another connectingrailroad shouldbebuilttoBalykchi(the and South276kmlong;asfaritisknown,nodecision of corruptionallegations(Baktybaev2018). when anotherChinesecompany, TBEA,wasunderabarrage stay awayfrom thispotentiallycontroversial project atatime Huawei. There isanopinionthatthecompanyjustdecidedto and provision oflowqualitydocumentationontheproject” by the agreement dueto“inobservanceoftheagreement terms announcedthatithadbrokenmonths latertheGovernment Osh andselectedhighwaysinthecountry).However, justtwo eo-control toenforce road rulesonthestreets ofBishkekand Technologies forimplementationoftheSmartCityproject (vid investment agreement withtheChinesecompanyHuawei placed inprison. officials, aswellone representative ofTBEA,havebeen while twoformerPrimeMinistersandsomeothergovernment end-August 2018,acriminalinvestigationwasstillongoing, The then-PrimeMinisterandhisCabinethadtoresign. Asof through mostly uninhabited parts of the Kyrgyz Repub this railwaymaybeusefulfortransitpurposes(seebelow), for operationsandmaintenanceofnewlybuiltreha purpose tobuildtheroad istransit,thentheshorterand reducing thecostofdevelopingthem.However, ifthemain road wouldcomeclosertosomemineraldeposits,thus new infrastructure investmentproject), orbyintroducing useful forthedomesticeconomyofKyrgyzRepublic, Bank 2017). routeKyrgyz Republic).Ifthenorthern ischosen,therail ing totheRailwayStrategyforCAREC,2017-2030).While importance for theenergy sector, in which energy tariffs it isnotgoingtoimmediatelyservemuchofthecurrent bilitated infrastructure. Thismaybedoneeitherthrough lic withvirtuallynocurrent economic activities.To makeit Around concluded an the same time, the Government It seems to be important to ensure that infrastructure - - - - - THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  27 - - - - - Technology Technology 10 95.6 683* 8,565 either the origin or the desti Kyrgyz Republic , and (ii) trade in transport services in which , and (ii) trade in transport services in which 77.1 1,745 of goods between China and other countries. China 27,153 BRI-induced trade flows in the Kyrgyz Republic may beBRI-induced trade flows in the Kyrgyz Republic For the Kyrgyz Republic, environmental considerations For the Kyrgyz Republic, environmental It also seems important for the Kyrgyz Republic to for the Kyrgyz Republic to It also seems important A major part of the justification for mega transport infra lesser extent) back, and the speed and timeliness gains lesser extent) back, and the speed and timeliness gains between the Kyrgyz Republic and China/third countries in countries China/third and Republic Kyrgyz the between barriers), then the Kyrgyz Republic would be an advanta would be Republic the Kyrgyz barriers), then improvements. On trade barriers, the Kyrgyz Republic has trade barriers, the Kyrgyz On improvements. pro highly are which export those products is going to both countries. is needed to decide on their feasibility for nation country technologies as these enterprises need a serious upgrade just two or three technologies as these enterprises need a serious upgrade just two or three Republic, are based on modern technologies rather than Republic, are produced by using surface (automobile road and railroad) and railroad) by using surface (automobile road produced preferential access to the EAEU market, so if an enterprise market, so if an access to the EAEU preferential to the Kyrgyz enterprises, if relocated that these make sure government.may need to be prioritized by the Kyrgyz transit years after their launch. the Kyrgyz Republic would just offer its infrastructure for for infrastructure its offer just would Republic Kyrgyz the Asia. transit of goods between China and Europe/West tected in the EAEU by tariff barriers (EAEU membership membership barriers (EAEU EAEU by tariff tected in the of the key advantages of foreign transfer may be one analysis of industrial investment projects that a very careful which the Kyrgyz Republic is structure projects implemented in the Kyrgyz Republic and projects structure by BRI is the possibility of some other countries covered seems to make little/no difference with regards to non-tariff non-tariff to regards with little/no difference make seems to country has seri seem to be of high importance, too. The agriculture/food production. Thus, any harmful industrial harmful industrial Thus, any production. agriculture/food grouped into two categories: (i) trade in goods and services grouped a and (to West the China to from transported goods of geous country of origin. geous country of origin. and equipment. on outdated technologies and organic ous ambitions for the development of tourism This means going to be counterproductive. emissions are (including Chinese) FDI, and this type of considerations FDI, and this type of considerations (including Chinese) 4.2. Trade 10. The oil refineries mentioned in Section 2.2 seem to rely on outdated mentioned in Section 2.2 seem to 10. The oil refineries There is quite a literature discussing the impressive amount discussing the impressive is quite a literature There - - - - WDI, National Statistical tradeeconomics.com, calculations National Kyrgyz WDI, own Committee Republic, the of In terms of FDI projects, their future prospects seem to prospects their future FDI projects, In terms of On transportation costs, the savings from enterprise enterprise On transportation costs, the savings from The government of the Kyrgyz Republic proposes The government of the Kyrgyz Republic proposes Table 3: Unit Labor Costs in China and the Kyrgyz Republic, 2017 Table Source: * This average wage is for the formal urban sector, which represents a smaller part of the economy of the Kyrgyz Republicpercent (according of all employed to official work in informal statistics, economy). If incomes more than70 of workers in informal economy are lower than in formal,may be then biased the average upwards. wage It value might reported be that the respective in the table value for China is also for the formal sector. A detailed sector-specificassess the unit labor analysis costs is ratio.needed in order to more accurately Unit labor costs, % of GDP per employed Average wage (PPP), international dollars per month Average GDP per employed (PPP), international dollars per year be promising, but the government of the Kyrgyz Republic be promising, communities. relationships with local beneficial in the foreseeable future despite some infrastructure some infrastructure despite future in the foreseeable in some countries of Southeast Asia. One could think of of Southeast Asia. One could think of in some countries ism and agriculture aimed at the Chinese market seem to market seem Chinese at the aimed and agriculture ism Kyrgyz Republic are, indeed, much lower than in China, China, in than lower much indeed, are, Republic Kyrgyz higher labor Kyrgyz Republic. This is explained by much Kyrgyz Republic is small and may not justify any invest Kyrgyz Republic is small and may not Kyrgyz Republic, following the pattern observed already Kyrgyz Republic, following the pattern observed already unit labor costs are 20 percent lower in China than in the 20 percent unit labor costs are roads usually provide a cheaper option than automobile a cheaper option than automobile usually provide roads Kyrgyz Republic is not system in the The railroad roads. relocation to the Kyrgyz Republic would depend on the to the Kyrgyz Republic would depend on the relocation distant markets planned destination markets. For relatively productivity in China. productivity ments (as the example of Zhondga oil refinery seems to seems to ments (as the example of Zhondga oil refinery probably continue consuming a large part of Chinese FDI. consuming a large part continue probably from the Kyrgyz Republic are high and may remain high high high and may remain the Kyrgyz Republic are from to move some industrial enterprises from China to the China to the to move some industrial enterprises from of industries: two possible rationales for such relocation well developed and transport flows are highly asymmetri highly are flows transport and developed well where transportation costs could become an issue, rail issue, an become could costs transportation where should help potential investors to build long-term mutually should help potential sure that tax revenue from these projects is substantial, is substantial, these projects from that tax revenue sure and (ii) easier, in terms of trade barriers and transportation and (ii) easier, market of the and other EAEU countries) as the domestic the indicative from follows it costs, labor Regarding attest). as this is arguably the only reason to have them (since (since them have to reason only the arguably is this as cal, so rail transportation costs for imports to and exports calculations provided in Table 3 that while wages in the in the 3 that while wages in Table calculations provided costs, access to some third country markets (e.g. Russia costs, access to some third employment generated by mining activities is small, and by mining activities is small, and employment generated in tour an issue). Projects damage may be environmental (northern/western Kazakhstan, Russia, or the Middle East) (i) lower labor costs in the Kyrgyz Republic than in China, (i) lower labor costs in the Kyrgyz Republic depend on the sector considered. Mining projects would projects Mining the sector considered. depend on The government just make Kyrgyz Republic should of the  ROMAN MOGILEVSKII 28 directions (someroad projects mentionedinSection2.1 dramatic improvements inroad connectivityinallpossible (Vinokurov etal.2018).Also,itseemsthattherailand on theavailabledataFDIand associatedtradeflows ers of trade associated with BRI implementation. Based of equipmentandproduction inputsmaybethemaindriv vices, delaysatborders, highEAEUtariffs forsomegoods) one of the trading parties, thetransportinfrastructure does capacity. Then, fortheKyrgyzRepublic,arealistic assess competition betweendifferent routes. Thisapproach may Ocean seaportsandWest Asia).Itseemsthisredundancy only asmallfraction(thoughstillverylargenumberin could be critically important and could justify much higher of thevolumetheseflowsforwhichthisspeedincrease are more important than transportation costs. Then, FDI ated with supply(too few competitive goodsto export from are notcompletedyet,butmanyroads havebeenreha automobile road networkdevelopedintheBRIframework all infrastructure and regulatory issues are addressed absolute terms)oftotaltradeflowbetweenChinaand some tradecosts(insufficiently developedlogisticalser the Kyrgyz Republic), demand (saturation of the domestic transit railroad (China-KyrgyzRepublic-Uzbekistan). should feed transit service exports is needed. This, in turn, tries toAfghanistanandWest Asia;viaPakistantoIndian to theWest (via Russia only; viaKazakhstan to Russiaand transport isused.Therecent studyofEDBindicatesthat transportation costswhenrailandespeciallyautomobile transport incomparisontousingmore traditionalmaritime market with imports at currently achieved GDP level) and ment of the transit flows and associated revenue from routes wouldserve only afractionofitsmaximumtransit routes. Fewer papers, however, provide any assessment not seemtobethemainimpedimentanymore. Despite Figure 4).Thismayindicatethattheconstraintsassoci Kyrgyz Republic,Tajikistan andotherCentralAsiancoun Black Sea/Turkey toEurope andtheMiddleEast;via Europe; viaKazakhstan,theCaspianSea,Caucasusand Europe couldbeshiftedfrom seatosurface routes if into export-orientedenterprises andassociatedimports import flowsdidnotgrow forthelastseveralyears(see into theassessmentoffeasibilityborrowing forthe it also means that in any normal situation each of these is intentionallydesignedasitprovides alotofflexibilityand ing routes leading in roughly the same direction from China is redundant inatechnicalsense:there are manycompet bilitated already), the volumes and values of export and be justified for the PRC from a strategic point of view, but For non-transit trade in whichtheKyrgyzRepublic is ------13. Thisisrelated nottoroad infrastructure (itisalready decent),butto 12. Almostalltheseinvestmentsare spentonimportsofequipment, in 11. E.g. total cumulative FDI in the mining sector (inclusive of geological of China(possiblyfor securityreasons). generated exports of gold ore and concentrate of US$121 million for the flows China. And,ofcourse, these Chinese FDIprojects may aim Chinese companiestoorganizeproduction soitcomplies ducers and traders. On the other side, there is also the (see above),onecanestimatethatUS$1inadditionalFDI of totalexports ofgoods)towards China. Thisisahuge ensure theeffective protection ofChineseinvestmentsin of theKyrgyzRepublicintradewithChina.Thus,for gold concentrate may remain the keyexport commodity exports from mostlysmall Kyrgyz producers tomakethis challenge ofconsolidatingsufficiently largequantitiesof costs forKyrgyzexporters.Itseemsthatinthemedium ers) amongKyrgyzbusinesspeopleinvolvedintoagrifood of Chinesemarketknowledge(includinglanguagebarri explorations) for2006-2017wasUS$1.2 billion,andtheseinvestments same period of time. The export returns on investments in oilrefineries are with thetechnicalregulations andmarketrequirements of would, ofcourse,reduce profit marginsforKyrgyzpro to China due to several reasons: veterinary and phytosan the sector, themediationofrelationships withthelocal tion 2.2).Onecouldexpectthissituationtolast,andgold/ term theonlyfeasibleoptionforsuchexportswouldbeto tracks—this causesdelaysandincreases transportation territory ofChina, trade; theverylimitedaccessofKyrgyztrucksto the regulations onaccesstothemarketof China; lack food sectoroftheKyrgyzRepublic;itwouldbeeasierfor puts, andconstructionengineering servicesfrom abroad (China). much smallersofar. products. So far there are no exports of these products market for Kyrgyz fruits, vegetables, meat, and dairy reorient itsagrifoodexports(currently upto20percent revenue budget(seeSection3.1). forthegovernment proper taxationofthesector, whichwouldproduce more population (seeSection3.4),andtheestablishmentof main partofChineseFDIintheKyrgyzRepublic(seeSec Chinese regulations disallowingforeign truckstogodeepintothe territory much dependontheinflowofChineseFDIintoagri prospects ofthistypeexporttoChinaseemvery Kyrgyz government themainchallengeseemstobe Kyrgyz government itary issueswithKyrgyzproduce anditscompliancewith import business attractive for Chinese companies. So, the intended forexporttoChinabereloaded toChinese has sofargeneratedsomeUS$0.05-0.10inannualexport have themoperatedbyChinesetradingcompanies.This So far, investments in the mining sector remain the It seemsthattheKyrgyzRepublicshouldeventually 11 andUS$0.90inimportflows. 13 whichrequires anyKyrgyzproduce 12 ------THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  29 ------investments in the Kyrgyz Republic are going to to going are Republic Kyrgyz the in investments Make sure that newly built enterprises with foreign that newly built enterprises with foreign Make sure Provide effective support to and protection of of support to and protection effective Provide use modern and environment-friendly technologiesuse modern and environment-friendly tionships with the local population; and that technology transfer to local engineers/ Chinese and other foreign investors in their rela their in investors foreign other and Chinese • • Subnational allocation of the projects and the impact of the impact and the projects of allocation Subnational The externalThe government con should situation debt infrastructure projects may need to be approved only if it may need to be approved projects infrastructure is very clear that they would generate enough government interest for investors to locate their enterprises in the parts for interest 5. Recommendations FDI enterprises. BRI projects are planned in the country. Another dimen Another planned in the country. are BRI projects 5.1. For the government of the Kyrgyz Republic: regions of the Kyrgyz Republic would be the development of regions accurate servicing to ensure and export receipts revenue flexible Different to be implemented than before. projects projects, if properly taxed, could also bring in substantial substantial in bring also could taxed, if properly projects, money to the budget. dimension of these projects’ may be another important incentives to operate in with proper investors providing forms of public-private partnerships which do not involve these less accessible and developed parts of the country. of the country. these less accessible and developed parts public New analyzed. and monitored carefully be to tinue and promoted. etc.) may need to be explored ture, these projects on the development of the Kyrgyz regions of the Kyrgyz regions on the development these projects parts of the and mountainous remote that rural, to ensure with labor, energy and other production resources. So, the So, resources. production other and energy labor, with sion of BRI projects of substantial interest could be the could be the interest of substantial projects sion of BRI of secondary and tertiary infrastructure (e.g. roads, energy roads, (e.g. infrastructure and tertiary of secondary much stricter selection of the of the debt. This may require government (concessions, FDI into infrastruc borrowing government revenue generated by these projects. As the by these projects. generated government revenue manufacturing in Section 3.1 suggests, evidence provided major taxpayers; the transit road enterprises may become government of the Kyrgyz priority evaluation. It is a clear and devel of total investments a fair share country receive On the other side, it may not be of great opment projects. to access and supply difficult more of the country that are foreign/domesti contribution of BRI (and, in fact, any other regional development the towards cally financed) projects the success in of the Kyrgyz Republic would depend on distribution networks) serving the areas hosting these hosting these distribution networks) serving the areas Another type of activity to facilitate the inflow of FDI to the Another type of activity to facilitate the inflow ------Implementation of any BRI projects in the Kyrgyz in the Kyrgyz Implementation of any BRI projects One potentially prospective and currently almost almost currently and prospective potentially One be short-term and, arguably, limited (as mentioned above, mentioned (as limited arguably, and, short-term be in increasing the Kyrgyz economy’s total factor productiv factor total economy’s Kyrgyz the increasing in export orientation of ity (TFP), which implies an increased produc of modern and environment-friendly introduction in the BRI context, including investments in environmental in environmental in the BRI context, including investments in the Kyrgyz Republic that year. The National Statistical Statistical National The year. that Republic Kyrgyz the in ism. According to the World Tourism Organization’s data, data, Organization’s Tourism World the to According ism. tourists thousand 49 received Republic Kyrgyz the 2015 in it is in mining. Republic. The GDP and employment effects from con from Republic. The GDP and employment effects Republic (either infrastructure investments or FDI in man Republic (either infrastructure Kul lake or mountainous areas). Along with commercial Along with commercial Kul lake or mountainous areas). new jobs requiring higher-skilled labor. So, efficiency con So, efficiency labor. higher-skilled new jobs requiring ufacturing, agriculture or services) may produce significant or services) may produce ufacturing, agriculture number of Chinese tourists and tourism receipts from them. from number of Chinese tourists and tourism receipts untapped export sector for the Kyrgyz Republic is tour is Republic Kyrgyz the for sector export untapped protection for vulnerable natural destinations (e.g. Issyk- protection percent of the total number of international of tourists arriving percent of total exports of tourism services. million, or 2.0 percent pects of FDI in Kyrgyz agriculture, one should also account one should in Kyrgyz agriculture, pects of FDI be would probably with the local population relationships It seems that with the growing middle class in China there middle class in China there It seems that with the growing from East Asia and the Pacific (includes China), or just 1.6 or just China), Pacific (includes and the East Asia from for the fact that the Kyrgyz legislation prohibits land own prohibits that the Kyrgyz legislation for the fact the economy, lower trade costs, better market linkages, linkages, lower trade costs, better market the economy, caused by the tion technologies, etc. Economic growth these works are done by mostly Chinese companies and these works are workers using mostly Chinese inputs). The main macro siderations may become a matter of primary interest when siderations may become a matter of primary interest struction associated with these projects would probably probably would projects these with associated struction should be considerable potential for increases in the in the increases should be considerable potential for as serious an issue in agricultural investment projects as as in agricultural investment projects as serious an issue also at exporting not only to China, but also to the EAEU but also to the not only to China, also at exporting pros In assessing the markets outside of China. and other employment generation, as such projects would create would create employment generation, as such projects economic effect of these projects could and should be could and should be of these projects economic effect effects on the macroeconomic situation in the Kyrgyz situation in the Kyrgyz on the macroeconomic effects considerations, this would also strengthen the reputation the reputation considerations, this would also strengthen actor that of the government of China as a responsible countries. in receiving the environment about cares exports of tourism services to China were only US$8.6 only US$8.6 exports of tourism services to China were ership by foreign legal entities and individuals. Managing entities and individuals. Managing legal ership by foreign Committee data (Figure 5) provide similar picture: in 2016, similar picture: 5) provide Committee data (Figure 4.3. Macroeconomics and Debt TFP effects may also be the most promising in terms of in terms of may also be the most promising TFP effects Thus, this may become an attractive sector for Chinese FDIThus, this may become an attractive sector  ROMAN MOGILEVSKII 30 China: organizations: 5.3. ForthegovernmentofPeople’s Republicof 5.2. FortheKyrgyzprivatesectorandcivilsociety • • • • • • • • • • • Assure thatoperationsandmaintenance Continue/expand participation in regional integra flicts associatedwiththeseprojects. effects oftheseprojects, andtoprevent anycon cial effects, butalsosocialandenvironmental explicit accountingfornotonlyfinancial/commer openness ofChinaintheBRIcontext; revenueof government from this sector. even atconcessionalterms; aimed atenvironmental protection inpartnercoun and developataxationregime forrailwayandauto are allocatedfrom budgetor thegovernment appropriately managedandnecessaryresources and lowercostsoftrade,transitparticipation which wouldnotrequire sovereign borrowing by their enterprisesinremote partsofthe country; the regions hostingFDIprojects; the government; byavoidingexcessiveborrowingthe government tion initiatives(e.g.CAREC)tooptimizeinvestments tries; integrate environmental safeguards into all In theframeworkofBRI, supportprojects mobile road transittoensure anappropriate level mobilized asinfrastructure userfees; requirements of infrastructure investments are practices forinfrastructure investmentprojects part oftheseenterprises’businesspractices; managers/skilled workersisbeingconductedasa mentation oftheBRIandsimilarprojects toensure practices inorder toeffectively utilizetheincreasing market and study Chinese legislation and business Provide incentives for those investors which locate Develop secondaryandtertiaryinfrastructure in Develop infrastructure whichisnecessary fortour Develop/strengthen appropriate legislation and BRI infrastructure andFDIprojects; Provide onimple monitoringandearlywarning Explore opportunities forexportstotheChinese Modify the taxation regime for the mining sector Maintain debt the of sustainability of the external in thekeytourismdestinations,etc.); ism exports (airports, waste management facilities valuechainsforKyrgyzenterprises; in international ------6. Topics forFuture Research areas requiring more in-depthresearch: 5.4. Forinternationaldevelopmentpartners: The analysisprovided aboveseemstoindicateafew • • • • • • • Continue/improve coordination of infrastructure of large infrastructure andFDIprojects, whether economic, socialandenvironmental assessment of thescaleanddirection ofpotential tradeand of theseemingredundancy ofplannedtrans-conti ects. Themethodsofriskmanagementinsuch corridors) might cover more than two countries. guaranteed net economic value of these projects very significant. Very optimisticassumptionsonthe geopolitical considerations, with gains from these are evenlessclearthaninotherlong-termproj and environmental benefit andcostflowsoflarge analysis ofexpectedfinancial,economic,social, several countries; Some ofthelargeBRIprojects (e.g.transport these are partoftheBRIoranyotherinitiative; transport flowsfrom ChinatoEurope and West these projects. tribution ofbenefits,costsandassociatedrisks couldbe tainability forparticipatinggovernments) these projects debt sus (e.g. the risks to external It would be important to conduct an assessment It seemsthatintheseprojects thescale anddis ment ofChina. project planningandimplementationbetween receiving countriesindevelopingmethodologiesfor managers toprepare themtodealwithlocalpopu multi-country infrastructure projects may need to may needtobecarefully checked.Athorough projects possibly materializing onlyoverthe(very) much bypure economicrationale,butbystrategic/ nental infrastructure and get a better understanding nese investorsandreceiving governments. Provide technical assistance to the governments of Provide of technicalassistancetothegovernments Provide appropriate trainingtoChineseenterprise Develop project financingmodalitieswhichwould BRI projects seemstobenecessary forbothChi Many BRIprojects are motivatednotonly/notso international financial institutions and the govern international be suitableforfairrisksharingwhenprojects cover be developed and risk assessments conducted for be developedandriskassessmentsconductedfor lations andtoavoid/minimizeanypotentialconflicts. long term.Still,short-andmedium-termcostsof ------THE KYRGYZ REPUBLIC AND THE BELT AND ROAD INITIATIVE  31 - - . . . . Kyrgyz Republic. . . Suspends Work at New Suspends Work Kyrgyzstan .” Eurasianet. information portal Kyrgyz Republic Kyrgyz Republic Ministry of Finance of the Kyrgyz Republic (MoF) Ministry of Finance of the Kyrgyz Republic and Communications Ministry of Transport National Bank of the the Kyrgyz Committee of Statistical National Republic (NSC) Implementation Group the State Committee on Industry, Energy and Subsoils State Committee on Industry, State Customs Service under the Government of World Development Indicators (WDI). World of the Kyrgyz Republic. Investment Projects Projects Investment Republic. Kyrgyz the of of the Toktom legal Toktom No. 5. tral Asia Program. 41-50. tral Asia Program. stan and Kyrgyzstan.” China’s Belt and Road Initiative China’s stan and Kyrgyzstan.” Washington University, Central Asia Program. 77-85. Program. Central Asia University, Washington Asia. Ed. Marlene Laruelle. and its Impact in Central Cen University, Washington The George Washington: of Trans-EAEU Freight Traffic Growth Potential.” EDB Growth Traffic Freight of Trans-EAEU (2018). “Silk Road Transport Corridors: Assessment Corridors: Assessment (2018). “Silk Road Transport Chinese Refinery for Integration Studies. Centre Tajiki in Initiative BRI the and Investments Chinese • • • • • • • • Asia. Ed. Marlene Laruelle. Washington: The George The George Laruelle. Washington: Asia. Ed. Marlene Wolters, Alexander (2018). “Hegemonic or Multilateral? “Hegemonic or Multilateral? Alexander (2018). Wolters, Bank (2017). Kyrgyz Republic Economic Update World Sources of Figures and Tables Vinokurov, E., V. Lobyrev, A. Tikhomirov, and T. Tsukarev Tsukarev and T. A. Tikhomirov, Lobyrev, E., V. Vinokurov, Trilling, David (2014). “ David (2014). Trilling, - - - - - .” .” Public Public .” Radio Makmal investors ask Makmal investors ask Unlucky “Smart City” The post-imperial chessboard .” International Republican Institute. infrastructure. infrastructure. Regarding the relocation of some industries industries of some the relocation Regarding manufacturing assessed. from China to the Kyrgyz Republic and some some and Republic China to the Kyrgyz from and the probability of receiving Chinese FDI in in Chinese FDI of receiving and the probability other countries of the region, a deeper analysis a deeper analysis region, other countries of the may need to be conducted of unit labor costs Asia which are going to use the newly developed to use the newly going are Asia which Mining Tax Regimes in the Kyrgyz Republic.” Natural Mining Tax Resource Governance Institute. Resource Banyan. in Kazakh BRI Investments, Risks, and Opportunities Free Europe/Radio Liberty. Europe/Radio Free na’s Belt and Road Initiative and its Impact in Central na’s Issues and Prospects. Working Paper No. 9.” Insti Working Issues and Prospects. Internal Affairs Ministry to settle conflict with locals Internal Affairs IMF Country Report No. 18/53. tute of Public Policy and Administration, University of University Policy and Administration, tute of Public tral Asia Program. 67-76. tral Asia Program. Source of Rent for Ruling Elites in Central Asia?” Chi Asia?” Central in Elites Ruling for Rent of Source stan and Kyrgyzstan.” China’s Belt and Road Initiative stan and Kyrgyzstan.” China’s and Social Development of the Kyrgyz Republic. and Social Development of the Kyrgyz Republic. Paper No. 32.” Institute of Public Policy and Working World Bank. World and its Impact in Central Asia. Ed. Marlene Laruelle. Laruelle. and its Impact in Central Asia. Ed. Marlene Cen University, The George Washington Washington: Opinion Survey: Residents of Kyrgyzstan, February February Opinion Survey: Residents of Kyrgyzstan, of railways: A railway strategy for CAREC, 2017–2030. of railways: A railway 24.kg. Central Asia. derless Bazaars and Border Trade in Central Asia.” Central Asia.” in Trade derless Bazaars and Border • Administration, University of Central Asia. 15 - March 2, 2017 15 - March “The Impact of Kumtor Gold Mine on the Economic “The Impact of Kumtor Gold Mine on the Economic References Mogilevskii, R., N. Abdrazakova, and S. Chalbasova (2015). Mogilevskii, R. (2012). “Re-Export Activities in Kyrgyzstan: Manley, D. (2018). “An Economic Evaluation of Gold Gold of Evaluation Economic “An (2018). D. Manley, Kudryavtseva, Tatyana (2018). “ Kudryavtseva, Tatyana Kaminski, B. and S. Mitra (2011). “Skeins of Silk: Bor Kaminski, B. and S. Mitra (2011). “Skeins Baktybaev, Zairbek (2018). “ Zairbek Baktybaev, International Monetary Fund (2018). “Kyrgyz Republic.” Center for Insights in Survey Research (2017). “ Center for Insights in Survey Research Asian Development Bank (2017). Unlocking the potential Bank (2017). Unlocking the potential Asian Development Jochec, Marek, and Jenny Jenish Kyzy (2018). “China’s and Jenny Jenish Kyzy (2018). “China’s Jochec, Marek, Toktomushev, Kemel (2018). “One Belt, One Road: A New Kemel (2018). Toktomushev, The Economist (2014). “

The Belt and Road Initiative in the South Caucasus Region

Giorgi Khishtovani, Mariam Zabakhidze, Irakli Gabriadze, and Rezo Beradze

1. Executive Summary in 1993. More recently, completion of the Baku-Tbilisi-Kars The Belt and Road Initiative (BRI), according to Chi- (BTK) railway, and developments along the Trans-Caspian nese officials, intends to improve connectivity through Asia, International Transport Route (TITR), linking Kazakhstan, Europe and Africa. The BRI is seen as a game-changer, Azerbaijan, Georgia and Turkey, have been considered as it promises to have an impact on more than 4 billion as contributing towards the China-Central Asia-West Asia people in more than 65 countries across Asia, Europe corridor under the BRI. In addition, the first phase of the and Africa (Tung 2016). The South Caucasus region, at Anaklia Deep-Sea Port in Georgia and the renovation of the crossroads between Europe and Asia, certainly comes Alat Port in Baku are also labeled as BRI projects in the under the focus of the BRI. This country note evaluates South Caucasus. Major pipelines such as the Baku-Tbili- the potential outcomes/impacts of the BRI on the South si-Ceyhan (BTC) oil pipeline and the Baku-Tbilisi-Erzurum Caucasus region by reviewing the current political and eco- (BTE) pipeline, also referred to as the South Caucasus nomic situations of Armenia, Azerbaijan and Georgia and pipeline (SCP), are already operating across the region and outlining their current and future engagement in the BRI. could also fall into the BRI narrative. Furthermore, in this Armenia, Azerbaijan and Georgia share many similar- context, the Trans-Anatolian Natural Gas Pipeline Project ities as former Soviet Union countries who regained their (TANAP) is also relevant and has attracted interest from independence in the early 1990s. Russia’s occupation of China. Most recently, the AIIB approved its biggest loan two Georgian regions and the conflict between Armenia so far for the construction of a gas pipeline connecting and Azerbaijan over Nagorno-Karabakh makes the region Azerbaijan with Turkey and Southern Europe. politically complex. Having advanced relationships with Due to its land borders being closed with Azerbaijan Azerbaijan and Turkey as well as with Armenia, Georgia and Turkey, Armenia’s regional connectivity is quite limited. plays a pivotal role in regional connectivity and coordina- A multimodal transport corridor, the Persian Gulf-Black tion. Moreover, among the three countries of this region, Sea corridor, is one of the very few options available for Georgia is the most politically stable, with the highest Armenia to become involved in the Initiative. This corri- position in the Ease of Doing Business Index, Index of dor envisages connecting Iran with Europe via Armenia Economic Freedom and Corruption Perception Index. and Georgia. However, Azerbaijan, having by far the largest economy Although there are some projects that can be linked in the region (bigger than the economies of Armenia and to the BRI, it is still difficult to evaluate the impact of the Georgia combined) due to its oil and gas reserves, also Initiative on the South Caucasus region. Nonetheless, this plays an important role in the region. report has identified that for the South Caucasus region the What all three countries in the South Caucasus region Belt and Road Initiative can serve as a means of: share is the need to modernize their infrastructure and • Diversifying economic activities; boost trade opportunities. Long before the BRI, hard infra- • Improving coordination between projects and structure connectivity had been prominent on the regional perhaps harmonizing them under one umbrella agenda. Relevant projects have been initiated as part of (one aim); two major infrastructure development trajectories in the • Catalyzing better regional coordination and attract- region: (1) the Asian Development Bank-initiated Central ing more investors; and Asia Regional Economic Cooperation (CAREC) Program, • Focusing on the region not only as a transit corridor launched in 1997; and (2) the EU-led link between the but also as an economic corridor by making greater South Caucasus and Central Asia (TRACECA), launched use of relatively cheap labor and other resources

33  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 34 The importanceoftheregion isamplifiedbytheexistence Azerbaijan, followedbyanevaluationofthecurrent level down. The main concern relateddown. Themainconcern totheBRIisunpacking Caucasus countrieswilladoptacommoncoordinated outcomes/impacts are presented inthefollowingchapter. of engagement of these countries in the BRI. The potential of theBRIonSouthCaucasusregion. Thefirstchapter economic cooperation? cannot afford financinglargeinvestmentprojects bythem eration (Georgia-Azerbaijan;Georgia-Armenia)hasbeen competitive. DuetothepoliticaltensionbetweenArmenia and Georgia), situated at the crossroads between Asia and Would investmentandtradebedrivenbymarket-based and Azerbaijan,itisnotparticularlylikelythattheSouth significant difference. Inparticular, itisimportanttoassess selves, theyhavetotakeintoconsiderationtheassociated should focusonsoftinfrastructure toolslikeunifiedtrack 2. SouthCaucasusRegion: Overview what are likelytobethereal objectivesbehindtheInitiative. transactions, orwouldtheybeaformofforeign aidthatis the risksSouthCaucasuscountriesare facingbyincreas for the governments oftheSouthCaucasus countries,for for thegovernments private entities. research are identified, alongwithsome recommendations risks. Thus,thefiscalflexibilityofthesecountriesmakesa regard, apart from hard infrastructure projects, countries proven possiblegiventhealready existingactivities.In this policy approach towards the BRI; however, bilateral coop numerous countries in Asia, Europe and Africa along the not basedoneconomicgainsandlosses?Whichofthe unfolding and,duetoitsscale,itissomewhatdifficult topin Lastly, basedontheanalysis,gapsandareas forfuture Belt andRoadwilllikelybetheInitiative’s core targetsof BRI, thecountriesofSouthCaucasusneedtoachieve Europe, is geopolitically significant andpolitically complex. investors/donors, for the Chinese government, andfor investors/donors, fortheChinesegovernment, ing theirlevelsofindebtedness. ing andtracingsystems. briefly presents country profiles of Georgia, Armenia and better coordination tomaketheregion more attractiveand The SouthCaucasus(SC)region (Armenia,Azerbaijan, This paperevaluatesthepotentialoutcomes/impacts Based ontheanalysis,itisclearthatBRIstill Furthermore, asArmenia, Azerbaijan and Georgia However, tobuildontheincentivescomingfrom the coupled with establishing closer ties with the EU and othermarketssuchastheEurasianEconomic Union (EAEU). - - - - 12 points(Freedom House2018).Nonetheless,although Turkey (Azerbaijan’s closeally).Armeniakeepsties 1. Formally, Russia recognized the independence of Abkhazia and South Azerbaijan, themainchallengeforitseconomyishigh dependency onnaturalresources. Intermsofinternational Georgia ranks9 Georgia and Armeniaare partly free, with scores of 64 Georgia hasthehighestaverageinstitutionalquality(see Georgia (population 3.7 million) and Armenia (population 2.9 million)recorded US$15.2billionandUS$11.5 country. Havingadvanceditsrelationships withAzerbaijan environment. Those challenges are similar in Armenia, conditions are dominantfeatures ofitscurrent economic gia rankshighestamongthesethree countries.According of which Russia now occupies two Georgian regions exploding into armed conflict in 2008,as a consequence goods from EastAsiatoWesternEurope, leadingtolarger of gasandoilreserves intheCaspianBasinandneighbor and Turkey aswellwithArmenia,Georgiaplaysapivotal addition, the conflict between Armenia and Azerbaijan over and 44 out of 100, respectively. Meanwhile, Azerbaijan and democracy. According totheFreedom HouseIndex, with Russia,whichhasalargemilitarybaselocatedinthe which isranked47 trade/cargo flowsthrough the region. However, theneedfor to theWorld Bank’s World Indicators(WGI), Governance total GDPofAzerbaijanwasaround US$40.5billion,while Index and44 role inregional connectivityandcoordination. rankings, Azerbaijanhastheleast favorableresults among respectively (World Bank2018a). ness Indexand16 Figure 1). For example,Georgia, due to its NATO and EU aspirations, Ossetia, the regions of Georgia accounting for 20 percent of the country’s Nagorno-Karabakh hasresultedNagorno-Karabakh intheclosingofborders territory. is currently classified asnotafree country, scoring only is opposedbyRussiaatvariouslevels,withthistension infrastructure isanticipatedtomakeiteasiertransport ing CentralAsia.Apartfrom naturalresources, improved bined. With a population of over 9.9 million, as of 2017, the bined. With biggest, greater thanthose ofArmeniaandGeorgiacom between bothArmeniaandAzerbaijan better connectivity is hindered bysome critical obstacles. high unemploymentandchallengingsocio-economic A similartrend isobservedwhen itcomestofreedom In theSCregion, Azerbaijan’s economyisbyfarthe In terms of political stability and transparency, Geor th intheIndexofEconomicFreedom. Asfor th intheworldEaseofDoingBusi th th inthelatestEaseofDoingBusiness intheIndexofEconomicFreedom, 1 . In - - - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  35 - - - - coupled coupled 6 2 1 0 9 64 16 46 2 3.7 15.2 4,090 5 10,740 Georgia 1 0 2 4 1 0 2 3 1 0 2 2 1 0 2 1 1 12 57 67 9.8 122 0 40.7 4,140 2 17,530 0 a Azerbaijan 1 i 0 g r 2 o 9 e 0 G 0 2 8 0 0 2 7 0 n 0 a j 2 i a 44 47 44 6 2.9 107 b 11.5 0 r 3,860 9,480 folio is not particularly diversified. Most of its exported goods are com folio is not particularly diversified. Most of its exported goods are world-market prices. 2. Due to its weak industrial and agricultural sectors, Georgia’s export port Georgia’s sectors, 2. Due to its weak industrial and agricultural ments (FTAs) with CIS countries, , Turkey and EFTA and EFTA Turkey with CIS countries, Ukraine, ments (FTAs) resulted in relatively slow economic growth. The main main The growth. economic slow relatively in resulted modities with low added value, and these are highly vulnerable to volatile highly vulnerable modities with low added value, and these are tourism, transport, real estate and finance) and construc tourism, transport, real tion, with the economy now significantly dependent on as Georgia is regarded In the SC region, these areas. with regional political and economic fluctuations have all political and economic fluctuations have all with regional sources of growth have been the service sector (including of growth sources an open economy, having signed several strategic trade trade having signed several strategic an open economy, Free including the Deep and Comprehensive agreements economic growth and a weak export structure economic growth Countries, and most recently a free trade agreement with trade agreement a free Countries, and most recently China (including Hong Kong). All of these could potentially Trade Agreement (DCFTA) with the EU, free trade agree with the EU, free (DCFTA) Agreement Trade 0 e Armenia 2 z A 5 - 0 th 0 2 4 0 in the 0 2 th a i 3 n 0 e 0 2 m r 2 A and 67 0 0 th 2 1 0 0 2 out of 180 countries, 180 of out 0 nd 0 0 2 place and Georgia is 46 9 th 9 9 1 8 9 9 1 7 9 9 1 6 9 9 1 1 2 4 6 8 2 0 6 4 2 ...... - 0 0 0 0 1 0 0 0 - - - - - World Bank (2018) IMF, World Bank, Freedom House, Heritage Foundation, Transparency International Transparency Heritage Foundation, House, Freedom Bank, World IMF, Even though the SC countries have made significant made significant have Even though the SC countries Source: Table 1: Key indicators for Armenia, Azerbaijan and Georgia 1: Key indicators for Armenia, Azerbaijan and Table Figure 1: Average Institutional Quality (unweighted average of six WGI indicators) average Quality (unweighted Institutional 1: Average Figure Source: Corruption Perception Index, 2017 (Rank) Corruption Perception GDP, 2017 (US$ billions) 2017 (US$ GDP, GDP per Capita, 2017 (US$) 2017 GDP per Capita PPP, House Index, 2018 (Score) Freedom Ease of Doing Business, 2018 (Rank) 2018 (Rank) Index of Economic Freedom, Indicator Population (million) Decades of hardship have affected the living standards of the living standards have affected Decades of hardship Ease of Doing Business Index and the Index of Economic Foundation 2018, World (Heritage respectively Freedom, Bank 2018b). In terms of good governance, Azerbaijan much of the population of Georgia, 21 percent of which which of percent 21 Georgia, of population the of much main indicators for SC countries. face serious socio-economic problems. they still progress, faces the most challenging situation in the region, with with faces the most challenging situation in the region, the lowest score in Transparency International’s Corrup International’s in Transparency the lowest score 122 ranking Index, Perception tion the SC countries, as the country ranks 57 whereas Armenia holds 107 whereas still lives below the poverty line (ADB 2017b). Unbalanced line below the poverty still lives (Transparency International 2017). Table 1 summarizes the International 2017). Table (Transparency  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 36 Armenia hasopenborders withtwocountries,Georgiato 24 November2017,ArmeniaandtheEUofficially signed 2016 inInan&Yayloyan 2018).However, asArmeniadoes (CEPA), giving the country a GSP+ trade regime and the country forArmenia’s exportedandimportedgoods.On support exportdiversificationandincrease FDIflowsinto the Comprehensive andEnhancedPartnershipAgreement the northandIrantosouth.Furthermore, Armeniais to itsclosedborders withAzerbaijanandTurkey. Today, the country, wouldrequire whichinturn betterconnectivity. Union (EAEU),whichgivesArmeniaaccesstoasingle potential toincrease itstradevolume withtheEU. partner) aswellpolitically. InJanuary2015,Armenia nectivity with neighboring Georgia, which is the main transit nectivity withneighboringGeorgia,whichisthemaintransit not share aborder withanyofitsmembercountries,to Eurasian economic market of 180 million people (KPMG benefit from theagreement thecountryneedsbetter con became amemberoftheRussia-ledEurasianEconomic highly dependentonRussiaeconomically(itstoptrading Figure 2:Growth inConnectivity(percent), 2000-14 South Caucasus Central Asia EuropeEastern Turkey Western Europe Note: Source: Table 2:MultidimensionalConnectivityIndices(onapercapitabasis;lowestmeansbest) Source: Armenia’s economicintegrationintheSCislimiteddue FDI = foreign direct investment; ICT = information and communication technology Country World Bank World World Bank World Azerbaijan Armenia Georgia connectivity dimensional Multi- 106 104 87 84 94 62 56 6 Trade 106 102 104 90 99 59 55 6 107 102 FDI 70 65 93 60 57 6 - Azerbaijani oilreserves willlastforanother15-20years,high data of2017,accountsfor90percent ofthecountry’s 2013). Therefore, toreduce thisdependence,Azerbaijan vulnerabilities are rapidlyincreasing” (Albino-War &Quillin when Georgia signed an Association Agreement (AA) with three countriesneedbetter connectivitytoovercome their the EU, Azerbaijan rejected the EU’s offer to do likewise. to theTrans-Caspian transportnetwork trade corridorandhassignedmultipleagreements relating total exports(UNCTAD 2018a).According toanIMFreport, ularly itsoilandgasreserves that,according toUNCTAD Russia andtheWest. Meanwhile, thecountryhasalsonotexpressed aninterest 3. For instance, the TITR project, which is an extension of TRACECA, could in joiningtheEAEUasittriestokeepabalancebetween been heavily dependent on its natural resources, partic has madesubstantialinvestmentsintheTrans-Caspian Kazakhstan, andGeorgiatoaddress tariff issues. lighting thefactthatAzerbaijan’s “oildependenceandfiscal be regarded asanattemptbytherailwayandportauthoritiesofAzerbaijan, Migration Azerbaijan’s political and economic development has Based onthediscussionabove,itisapparent thatall 101 87 77 63 64 81 39 9 103 104 101 ICT 89 98 54 76 9 Airlines 104 103 93 79 99 57 62 15 3 . However, in2014, Portfolio Flows 106 101 81 90 93 76 85 19 - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  37 - - - - Status Ongoing Ongoing - - - baijan, People’s baijan, People’s stan, Uzbekistan Kyrgyz Republic, Tajikistan, Turkey, Turkey, Tajikistan, Afghanistan, Azer Republic of China, Moldova, Romania, Mongolia, Pakistan, Ukraine, Uzbekistan Tajikistan, Turkmeni Tajikistan, Azerbaijan, Armenia, Countries Involved Georgia, Kazakhstan, stan, Kyrgyz Republic, Georgia, Iran, Kazakh and the Baku-Tbilisi-Erzurum (BTE) 4 - by opment Bank and European European Financed ADB, EIB). various IFIs IFIs (EBRD, and various (EBRD, IMF, (EBRD, IMF, World Bank) World Commission Asian Devel ISDB, UNDP, ISDB, UNDP, Historically, outside interest in the SC region has been in the SC region outside interest Historically, Hard infrastructure connectivity has been prominent on connectivity has been prominent infrastructure Hard han (BTC) oil pipeline border-crossing variances (Inan & Yayloyan 2018, World 2018, World variances (Inan & Yayloyan border-crossing behind in terms of infrastructure connectivity, mainly due mainly due connectivity, behind in terms of infrastructure improvement of regional connectivity. Moreover, relevant relevant Moreover, connectivity. regional of improvement Economic Forum 2014). Development Bank-initiated Central Asia Regional Eco Development Bank-initiated Central Asia lagging is still region the show, studies as myriad However, nomic Cooperation (CAREC) Program, launched in 1997; in launched Program, (CAREC) Cooperation nomic mainly driven by the rich oil reserves of the Caspian Sea. Sea. of the Caspian by the rich oil reserves driven mainly projects have been initiated as part of two major infrastruc have been initiated as projects detailed information about these initiatives). more provides to deficiencies such as gauge size differences, tariffs and tariffs to deficiencies such as gauge size differences, though the corridors they support are very much part of part of very much they support are corridors though the BRI. envisaged by the the corridors decades. two than more for region SC the in agenda the (1) the Asian trajectories in the region: development ture with Turkey and two countries of Central Asia (Kazakh and two with Turkey Since long before the announcement of the BRI, two of the BRI, two the announcement Since long before 3.1. Infrastructure Connectivity 3.1. Infrastructure Connectivity stan and Turkmenistan), have been working towards the the been working towards have stan and Turkmenistan), and (2) the EU-led links between the South Caucasus South Caucasus and (2) the EU-led links between the 3 in 1993 (Table and Central Asia (TRACECA), launched Oil and Gas Pipelines countries of the SC (Georgia and Azerbaijan), together (Georgia and Azerbaijan), together countries of the SC direct Chinese investment in the ongoing projects, even even projects, in the ongoing Chinese investment direct operational in 2005. It serves as Azerbaijan’s main export pipeline. operational in 2005. It serves as Azerbaijan’s 4. Backed by Western companies led by BP, the BTC pipeline became pipeline BTC the BP, by led companies Western by Backed 4. Thus, some major pipelines such as the Baku-Tbilisi-Cey the such as pipelines major some Thus, - Short Description Good Prospects.” TRACECA is an internationally recognized TRACECA is an internationally recognized economic aimed at strengthening program trade and transport communication relations, of the Black Sea basin, South in the regions active to owing Asia Central and Caucasus work based on political will and common aspirations of all member-states. entails the partnership The CAREC Program of 11 countries and development partners development working together to promote cooperation, leading to accelerated through and poverty reduction. economic growth vision of It is guided by the overarching and Partners, Good Neighbors, “Good date 1993 1997 Launch TRACECA (2018), CAREC (2018) However, it should also be mentioned that, during mentioned that, during it should also be However, It is challenging to identify the specific date on which theIt is challenging to identify the specific date Table 3: Initiatives Involving the South Caucasus Region Table Source: CAREC TRACECA Initiative/ Name Project have contributed to the current state of engagement of state of engagement of have contributed to the current been embodied in different projects, including the EU-led projects, been embodied in different is difficult to find ways to improve connectivity, but there is but there connectivity, to improve to find ways is difficult BRI landed in the SC region. However, a range of events a range of events However, BRI landed in the SC region. nomic Cooperation (CAREC) Program, and most recently and most recently nomic Cooperation (CAREC) Program, nearly 75 percent, which is by far the best result across across far the best result which is by nearly 75 percent, more detail, with a particular focus on the BRI. detail, more region has been driven by a number of externalof number a by driven been has actors, region focusing on the main areas of BRI engagement (transport focusing on the main areas for the SC region and neighboring regions. According to to According neighboring regions. and for the SC region the SC countries in the Initiative. This section outlines the section outlines Initiative. This countries in the the SC the China-led Belt and Road initiative (BRI). In the following the China-led Belt and Road initiative (BRI). the index, Western Europe has the best Connectivity IndexConnectivity best the has Europe Western index, the 3. The BRI in the South Caucasus Region: 3. The BRI in the South Caucasus section, these overlapping projects will be discussed in in discussed be will projects overlapping these section, such as the EU, Russia, the USA, Turkey, and China, all and China, all such as the EU, Russia, the USA, Turkey, some potential. The room/need for improvement in terms for improvement The room/need some potential. all regions. This improvement in connectivity in the SC SC the in connectivity in improvement This regions. all and then Azerbaijan. and the SC region has the worst. Among the SC countries, has the worst. Among the SC region and the SC current level of involvement of SC countries in the BRI by current has been no so far there connectivity and trade). However, of which have their own interests in the region. This has This has in the region. of which have their own interests of connectivity in the region is apparent from Table 2, which Table from is apparent in the region of connectivity economic challenges. Considering the regional context, it the regional challenges. Considering economic Current Involvement Current 2000-2014, the SC region has increased connectivity by by connectivity has increased the SC region 2000-2014, Georgia has the best connectivity, followed by Armenia followed by Armenia connectivity, Georgia has the best depicts World Bank’s Multidimensional Connectivity Index Connectivity Multidimensional Bank’s World depicts Asian Development Bank-led Central Asia Regional Eco Asian Development Bank-led Central Asia Transport Corridor Europe-Caucasus-Asia (TRACECA), the (TRACECA), Corridor Europe-Caucasus-Asia Transport  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 38 Azerbaijan andGeorgiahasbeenaround sincethe1990s (SCP) opposition from Russia, the Trans-Caspian energy cor ongoing forsome time. For example,despiteconstant pipelines throughof alternative the SC region has been Georgia. ridor from Turkmenistan andKazakhstantoTurkey via pipeline, alsoreferred toas theSouthCaucasuspipeline becoming less dependent on Russian energy, the building 5. ConnectsAzerbaijaniShahDenizfieldswithErzurumin Turkey through South CaucasusRegion Figure 3:MajorOilandGas Pipelinesinthe Source: line (TANAP) Natural GasPipe Trans-Anatolian pipeline si-Erzurum gas Baku-Tbili pipeline han (BTC)oil Baku-Tbilisi-Cey Name Initiative/ Project Source: Table 4:SummaryofOil-andGas-related Projects intheSouthCaucasusRegion Furthermore, duetogrowing interest from Europe in 5 U.S. Energy Information U.S. Energy Administration and IHS EDIN BP (2018), TANAP (2018) TANAP (2018), BP , are already operatingacross theregion. - - - Launch 2005 2015 2006 date Europe. from the south of the Caspian Sea, to Turkey and II fieldintheCaspianSea,aswell as from otherfields It aimstotransportgasfrom Azerbaijan’s ShahDeniz atic Pipeline(TAP), GasCorridor. forms theSouthern TANAP, combinedwiththeSCPand theTrans-Adri on 30June2018. ready tooperatebefore commencementofexport ies toTurkey were completedonscheduleand were required tosupportthefirstcommercial gasdeliver gia. Allinfrastructure across AzerbaijanandGeorgia along thepipelineroute across AzerbaijanandGeor half of2018,SCPXactivitiescontinuedsuccessfully to theTurkish gasdistributionsystem. During thefirst Azerbaijan andGeorgiatoTurkey, where itislinked Baku-Tbilisi-Ceyhan (BTC)crudeoilpipelinethrough terminal near Baku. It follows the route of the and Turkey. Thepipelinestarts from theSangachal export ShahDenizgasfrom AzerbaijantoGeorgia The South Caucasus pipeline (SCP) was built to Limited(BIL). International Co., whiletheTurkish sectionisoperatedbyBOTAS operated byBPonbehalfofitsshareholders inBTC Azerbaijani and Georgian sections of the pipeline are 249km inGeorgia,and1,076kmTurkey. The Its lengthis1,768kmintotal:443kmAzerbaijan, Shah Deniz across Azerbaijan,Georgia and Turkey. water Gunashli(ACG)fieldandcondensatefrom The pipelinecarriesoilfrom theAzeri-Chirag-Deep Short Description - designated fortheTANAP which,whencompleted,will Gas PipelineProject (TANAP) isalsorelevant. Mostrecently, (Wheeler 2013).Inthiscontext,theTrans-Anatolian Natural ern Europeern (Suokas2016). concept of the “Silk Road Economic Belt” [SREB]), aims across Turkey andthen onward to markets in Southeast Europe.and Southern Azerbaijanreceived US$600million transport naturalgasfrom fieldsinAzerbaijanviaGeorgia tion of a gas pipeline connecting Azerbaijan with Turkey the AIIBapproved itsbiggest-everloanfortheconstruc Railway Program Figure GasCorridor 4:Southern Source: Part oftheBRI(or“Belt,”alsoreferred toasthe GSDPM - - - - Chevron (8.9%) shares (30.1%) (10.0%), TPAO stream (6.7%). ited (25%)and and SGCMid the majorityof (19 %),Petro Lukoil (10%), Financed by AzerBTC lim British Petro including the nas (15.5%), Multiple IFIs, World Bank, NICO (10%) tor (28.8%), followed by leum holds BP, opera AzSCP AIIB - - - - - Azerbaijan, Azerbaijan, Countries and Azer Involved Georgia, Georgia, Georgia TANAP; Turkey, Turkey Turkey baijan, SCP - Operational Operational Ongoing Ongoing Status - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  39 - - - - Trans-Caspian Trans-Caspian , it was revealed that , it was revealed Furthermore, the competitiveness of the corridor pass corridor the of competitiveness the Furthermore, hard infrastructure, a range of challenges come from a lack come from range of challenges a infrastructure, hard Asia and historical position as a land bridge between ince in China to the port of Poti in Georgia, going through Georgia, going through of Poti in the port China to ince in 2015. The analysis showed that in Georgia on 6 February Turkey’s is largely linked with the SC region ing through Kazakhstan and Azerbaijan (part of the Kazakhstan and Azerbaijan been has Turkey this connectivity, strengthen To Europe. usually almost a third of the transit time was spent under time of the transit usually almost a third railway cargo loaded in China on 29 January 2015 arrived railway cargo loaded International Transport Route [TITR]) International Transport fore, improvements in soft infrastructure across the region region the across infrastructure in soft improvements fore, the efficacy of the road connection between prov between Xinjiang road connection of the the efficacy the SC region. the corridor passing through will greatly contribute to the increased competitiveness of competitiveness of contribute to the increased will greatly such as the Baku-Tbilisi-Kars (BTK) railway (Reconnecting railway (BTK) Baku-Tbilisi-Kars the as such actively investing in domestic and transnational projects projects actively investing in domestic and transnational overcome. Apart from the need to modernize the need and develop Apart from overcome. instance, while examining tools. For of soft infrastructure the 2015). Moreover, (Grey procedures going bureaucratic other major corridors from corridor is facing competition such as the China with Europe, connecting hinterland Asia 2018a). The project began in 2007 with the signing signing the with 2007 in began project The 2018a). Asia Trans-Siberian and Central Kazakhstan corridors. There corridors. Kazakhstan Central and Trans-Siberian - CSIS Davydenko et al. (2012, p. 140) This corridor presents numerous opportunities for the numerous This corridor presents Source: Figure 6: Turkey’s Vision of Being a Land Bridge between Europe and Asia between Europe Vision of Being a Land Bridge 6: Turkey’s Figure Source: Figure 5: TRACECA Corridor 5: TRACECA Figure jan, Georgia and Turkey, and ultimately Europe by railway. by railway. and ultimately Europe jan, Georgia and Turkey, Europe though Central Asia, Russia and the SC. It is not Europe to build railway and road infrastructure linking China to to linking China infrastructure to build railway and road However, to Europe. China trade corridors connecting SC region; however, there are a number of obstacles to be are there however, SC region; encompassing the Transport Corridor Europe Caucasus Caucasus Europe Corridor Transport the encompassing yet possible to exhaustively list all possible routes and and routes yet possible to exhaustively list all possible “China-Central is corridors trade anticipated the of one Asia-West Asia,” covering several countries and potentially Asia-West Azerbai Asia (TRACECA), connecting China, Kazakhstan,  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 40 Yayloyan 2018). Armenia andGeorgia,shouldbenotedhere. TheChinese Azerbaijan isamaininvestorinthisrailwayschemeand dard gauge.Non-harmonized tariff and border-crossing Ocean andthePersianGulftoBlackSeathrough Iran, countries usea1.520mgauge,whileChina,Turkey and come before itbecomesfullyfunctional.First,Turkey lacks completed in2017,there are stillseveralobstaclesto over of anagreement betweenTurkey, GeorgiaandAzerbaijan. as akeycommoditiestransitcorridor, carryingoilfrom Iran and thenontotheEU.Inaddition,CentralAsianSC an effectiveTurkey railwaynetworklinkingKarstowestern approved a loan of US$770 million to Georgia for the con struction of the missing Akhalkalaki-Kars section and for Sea (MOFCOM 2017). At the same time, Azerbaijan is also to Europe overArmeniaandGeorgia andacross theBlack tions withTurkey andAzerbaijan.However, theongoing ridor initsdirection. Accordingly, thisproposed US$3.2 making substantial efforts to redirect the north-south cor regional mega-infrastructure projects duetoitstenserela procedures alsocontributetoincreasing costs(Inan& rehabilitation oftheexistingroute through Georgia. north-south corridordevelopment,connectingtheIndian EU countriesusea1.435mgauge,knownasthestan Ministry ofCommerce hasstatedthatthe lattercouldserve Route (TITR) Transport International Trans-Caspian Kars Railway Baku-Tbilisi- ect Name Initiative/ Proj Source: Table 5:SummaryofRailway-related Projects intheSouthCaucasusRegion In general,Armeniaseemstohavebeenleftoutofthe Despite the Baku-Tbilisi-Kars railway having been Kenderdine (2018), Shahbazov (2017) - Launch 2007 2013 date per yearby2020. 5.5 milliontonsofcargoannually, risingto13.5 milliontons TITR initsinitialoperationswillbe abletotransport up to TransportInternational Route.”Participants predict that the Association“Trans-Caspianto establishtheInternational TITR—Kazakhstan, Azerbaijan, and Georgia—decided of the Coordinating Committee for the Development of the opment of the TITR. In December 2016, the participants establishment of the Coordination Committeeforthedevel and JSC“GeorgianRailway”signedanagreement onthe Kazakhstan Temir Zholy,” CJSC“AzerbaijanRailways,” in Astana,theleadersofJSC“NationalCompany port andLogisticsBusinessForum“NewSilkRoad” TransIn November2013,aspartoftheIIInternational of cargoandaboutthree millionpassengers. railway lineisforecast tocarryanestimated17milliontons 6.5 million tons of cargo in its initial stage. By 2023, this the BTKrailwaylinewilltransportamillionpassengersand societal cooperation between them.Expertsforecast that three participating nations, as well as increase political and the flowofbothpassengerandfreight traffic betweenall Baku, Azerbaijan’s capitalcity. Itspurposeistoincrease in northeast Turkey to the Georgian capital of Tbilisi and The BTKrailwayisaregional raillinkthatconnectsKars Short Description - - - - - 146 millionpeoplelivingwithinnearreach oftheport.The 17 million inhabitants of SC and Central Asian countries, it TEUs andadrybulkcargofacilitywithcapacityof1.5 (Azerbaijan) railwaylinkingtherailnetworksofIran,Russia, goods toreach thePersianGulfand,perhapsmore impor offered IranaUS$500millionloanforthecompletion of and Europe. Set to be operational in2021 (after the first and Azerbaijan(Inan&Yayloyan Bakuhas 2018).Inturn, struction of a container terminal with a capacity of 900,000 structed inninephases.Theportwillbe16metersdeep, to serveasthemaingatewayforimportsapproximately the IndianOcean. tantly, itwouldfacilitatetradebetweenRussiaandIndiavia this railway(Valiyev 2016).Thislinewould enable Russian to 10,000TEUs.Phase1oftheproject includes the con thus enablingittohandlevariousvesseltypes,suchas phase is finished),theUS$2.5billionproject isbeingcon region is the Anaklia Deep-Sea Port (Georgia). Anticipated mitment IranhasmadetoworkontheRasht(Iran)-Astara ultimate goalistoembracetradeopportunitiesemerg Ports Panamax, Handymax,andAframax,withcapacitiesofup ing from theNewSilkRoad traderoute betweenChina is alsoexpectedtoprovide criticalsupplyroutes fornearly billion linkwithArmeniaisunderthreat duetothecom Another project thatcanberelated totheBRIinSC - - involved via Azerbaijan, Financed Countries Turkey IFIs by Kazakhstan, Azerbaijan, Azerbaijan, Countries Involved Georgia, Georgia, Turkey Turkey Ongoing Finished Status - - - - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  41 - Status Ongoing Ongoing Georgia Involved Azerbaijan Countries - LLC. billion, the Azerbaijan million. The Consortium ernment has Out of a total Development Financed by rest has come rest Georgian gov offered US$110 offered value of US$2.5 from the Anaklia from - - - - Another BRI-relevant port, Baku International Sea InternationalBaku port, Sea BRI-relevant Another ment. With a total investment of US$540 million, three ment. With of US$540 million, three a total investment phase first The anticipated. are construction of phases project and to providing the project with various types of the project and to providing project to 17 million tons of cargo and 150,000 TEUs. Once the to 17 million tons of cargo and 150,000 aims to bring capacity up to 10 million tons of cargo and aims to bring capacity up to 10 million tons equipment needed to control a modern terminal container equipment needed to control (ZPMC) has committed to investing US$50 million in the in the million US$50 investing to has committed (ZPMC) (Shah 2018). 40,000 TEUs, whereas the second stage entails raising this 40,000 TEUs, whereas Trade Port, is currently under construction in Alat settle Alat in construction under is currently Port, Trade - - - Short Description south and to the border with Iran. south and to the border nomic Zone (SEZ) adjacent to Anaklia Deep-Sea Port with Develop of development territory. about 2,000 hectares ment of the port will take place over 9 phases. Phase 1 of construction will be completed in 2021, and the cost of development and construction will be US$540 million. The new port in Alat is a transportation hub linking west, connec Azerbaijan’s south and north. It will also increase the volume of hub and thus increase tivity as an efficient location cargo being handled. In addition, the new port’s is linked to existing highways and railways, connecting are There of the country. the port to the inland regions all which Azerbaijan, into international routes rail three through passing northwest, the to (1) Alat: at converge Georgia through passing west, the to (2) Russia; to Baku and (3) to the of the Black Sea and Turkey; to the shores ADC is developing the Anaklia Deep-Sea Port and the ADC is developing the Anaklia Deep-Sea Port and the Anaklia City/Special Economic Zone. Anaklia Deep-Sea between Anaklia Devel PPP project Port is a greenfield opment Consortium LLC (ADC) and the Government of Georgia to develop, construct, operate and transfer a coast of the Black Sea. JSC deep-sea port on the east Anaklia City intends to develop the city-scale Special Eco date 2013 2015 Launch - China National Development and Reform Commission Reform and Development National China Shah (2018), Shepard (2016) Source: Table 6: Summary of Port-related Projects in the South Caucasus Region Projects 6: Summary of Port-related Table Figure 7: Major Ports in the South Caucasus Region in the South 7: Major Ports Figure Source: Alat Port Azerbaijan Anaklia Development Consortium (ADC) Initiative/Proj ect Name in the port. Indeed, Shanghai Zhenhua Heavy Industries Heavy Industries in the port. Indeed, Shanghai Zhenhua BTK railway. This could explain China’s interest in investing interest This could explain China’s BTK railway. railway, China is interested in exploring opportunities pre China is interested railway, million tons. Its final capacity is expected to reach 100 reach 100 to million tons. Its final capacity is expected a joint Development Consortium, The Anaklia million tons. trade route, especially given the recent completion of the especially given the recent trade route, sented by the Anaklia Deep-Sea Port via the trans-Caspianthe via Port Deep-Sea Anaklia the by sented addition to the port infrastructure, the consortium is devel is consortium the infrastructure, port the to addition gia-based TBC Holding, is implementing the project. In In project. the implementing Holding, is TBC gia-based As for the area. oping a Special Economic Zone in this venture between US-based Conti Internationalventure and Geor Chinese involvement in this project, it should be noted that Chinese involvement in this project, trans-Siberian due to the limited shipping capacity of the  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 42 construction) which is connecting the east of the country to construction) which is connecting the east of the country to cant amountoffundingbefore beingcompleted.Inthis of cargoand1millionTEUsisanticipated(Shepard 2016). approximately highwaybypassingthe 14.3kmofmodern with theBRI. the west.Elsewhere onthehighway, there isonesignificant the BRI) for a US$114 million loan for the construction of the AIIB(afinancialinstitutiondirectly associatedwith the secondannualmeetingofBoard of ofGovernors to westandsouthnorth.However, manypartsofthe the network of highways crossing the SC region from east third phase has finished, a capacity of up to 25 million tons pass thatstillrequires significantinvestment(AIIB2017). part inthecenterofhighwayaround Rikotimountain part oftheEast-West HighwayofGeorgia(currently under port city ofBatumi on the Black Sea coast. This segment is regard, there are severalprojects thatcanbeassociated nia-Georgia Border Road(M6Vanadzor-Bagratashen) Recently, ofJapandevotedUS$340mil the Government Roads andHighways highways are underconstructionandstillneedasignifi lion totheconstructionofthispart(ADB2018). Initiative/ Corridor Transport North-South International Corridor Black Sea Persian Gulf- Corridor Transport Lapis-Lazuli way (Georgia) bypass high Batumi Project Name Source: Table 7:SummaryofRoad-andHighway-related Projects intheSouthCaucasusRegion To improve Georgia-Armenia transit options, the Arme In June2017,Georgiasignedaloanagreement during In termsofroad connectivity, itisimportanttohighlight Daly (2017), Inan & Yayloyan (2018) &Yayloyan (2017), Inan Daly - Launch Launch 2017 2015 2017 date and 19bridgesoverriversvalleys. this stretch ofroad requires theconstructionoffivetunnels tainous settlements.Duetothehillynature oftheterrain, Georgia). Theroad wouldpassthrough anumberofmoun to provide a bypass to Batumi (the second largest city in The project willconstructanewtwo-lane14.3kmhighway efficiency for road transport along the East-West Highway. improve regional connectivityinGeorgiaandtoimprove The objectiveoftheBatumiBypassRoadProject isto strategy. nectivity initiativeparalleltoChina’s OneBelt Road Russia andEurope viaIran.This is claimed to be a con (INSTC) is an India-driveninitiative connecting India with North-South TransportationThe International Corridor nia withIranandGeorgia. oftransport infrastructuremodernization connecting Arme of theproject. Oneofthekeyissuesinthisproject isthe Armenia, Georgia, Greece, and Bulgaria are key members necting IranwithEurope viaArmeniaandGeorgia.Iran, A multimodaltransportcorridorwhichenvisagescon and culturallinksbetweenEurope andAsia. Azerbaijan, Georgia,andTurkey, andexpandeconomic tion andconnectivitybetweenAfghanistan,Turkmenistan, This corridoraimstoenhanceregional economiccoopera Short Description - - - Georgian ports(Inan&Yayloyan 2018).Thiscorridor, also Georgia atBagratashenistobesupportedbytheEIB (US$56.4 million) and the ADB (US$50 million) (Recon (Vanadzor) andtheGeorgianborder (Bagratashen),one van via the Iranian port of Bandar Abbas than to ship to of the busiest roads and external in Armenia for internal cargo tohead to theport of BandarAbbas in Iranand then with Europe viaArmeniaandGeorgia. borderwith Iran to its northern with Georgia, financed by the ADBandEIB,isseenasapotentiallytime-efficient aswellthrough loansfromthe Armeniangovernment two-lane M6highway from Vanadzor to the border with trade. The rehabilitation and upgrade of 51.5 km of the to improve the strategic regional link between Armenia Iran, AzerbaijanandRussia.Thisroute wouldenableIndian modal transportcorridorwhichenvisagesconnectingIran route thatbooststheIran-Armeniaconnection.Ittakes rehabilitation project hasto benoted.Theproject aims north-south connection,linkingArmenia’s border southern necting Asia2018b). national South-NorthTransport CorridorincludesIndia, known as the Persian Gulf-Black Sea Corridor, less timetoshipgoodsfrom anyportinChinatoYere Another corridorisofinterest toAzerbaijan. TheInter In addition,theMeghri-Yerevan-Bavra highway, another - - - - - Turkmenistan, Georgia (27.7 Financed by Georgia, and Afghanistan, involved via involved via Azerbaijan, (36.15%), (36.15%), Countries Countries Turkey ADB AIIB IFIs IFIs %) Turkmenistan, Georgia, and nia, Georgia, Afghanistan, Iran, Arme Azerbaijan, Azerbaijan, Countries Iran, India, Involved Georgia Greece Russia Turkey - is a multi Ongoing Ongoing Ongoing Ongoing Status - - - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  43 - - 7 1 0 2 6 1 0 2 5 1 0 2 4 1 0 2 a i 3 g 1 r 0 o 2 e G 2 1 0 2 n 1 a j 1 i Similar trends in terms of trade with China have been Similar trends 0 a 2 b r having an FTA with China and having a DCFTA with the EU. EU. the with DCFTA a having and China with FTA an having in the accession process. The trade relationship between The trade relationship process. in the accession with China. For instance, bilat its cooperation increased increased by 21.0 percent in 2017 over 2016 levels. It is in 2017 over 2016 levels. It is percent by 21.0 increased ranked 4th and 6th respectively among Georgia’s big among Georgia’s respectively ranked 4th and 6th In 2017, Georgia signed an FTA with China (effective as of with China (effective In 2017, Georgia signed an FTA US$940 million. Excluding the EU, China is the third largest the EU, China is the third US$940 million. Excluding US$1.49 billion in 2017. Armenia’s trade turnover with US$1.49 billion in 2017. Armenia’s total trade turnover). has Over the past decade, Georgia reached 2017 it by whereas million, US$10 around to to percent 30.4 by turnover trade increased China with with both countries. As of 2017, Azerbaijan and Armenia Azerbaijan and Armenia countries. As of 2017, with both also worth mentioning that Armenia is a member of the the of member a is Armenia that mentioning worth also conflict, however Georgia enjoys close trade relationships close trade Georgia enjoys conflict, however of (8.8 percent while China was 3rd gest trade partners, two countries in 2002 amounted eral trade between the Georgia, accounting for 7.9 percent export destination for of Georgia 2017). Statistics Office of total exports (National observed in Azerbaijan and Armenia as well. Azerbaijan’s well. Azerbaijan’s observed in Azerbaijan and Armenia as China is also on the rise: trade between the two countries the two between trade rise: on the is also China e Armenia and Azerbaijan is non-existent due to the ongoing due to the ongoing Azerbaijan is non-existent Armenia and 1 January 2018), putting Georgia in a unique position of position of 1 January 2018), putting Georgia in a unique z 0 A 1 - - - - 0 2 9 0 a 0 i 2 n e m 8 r 0 A 0 2 7 0 0 2 6 0 0 2 5 0 0 2 0 0 0 0 0 0 0 0 -

0 0 0 0 0 0 0 0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 6 4 2 ,6

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UNCTAD Investment and trade cooperation under the BRI the BRI Investment and trade cooperation under Armenia and Georgia have been members of the WTO Armenia and Georgia have been members Another recent development occurred at the 7th 7th at the occurred development Another recent Source: Figure 8: Trade Turnover with China (US$ thousands) Turnover 8: Trade Figure lation will be living in developing countries, many of which many of countries, developing be living in will lation ing for a major international trade and transport corridor Regional Economic Cooperation Conference on Afghani Conference Cooperation Regional Economic Russia and beyond. Russia and remove investment and trade barriers to enhance business remove In addition, it should ensure that the WTO Trade Facili Trade WTO the that ensure should it In addition, tation Agreement takes effect and is implemented. It is and is implemented. It is takes effect tation Agreement have formed the trading partnerships that SC countries with China develop. 3.2. Trade Facilitation: China’s Trade Relations in the in the Relations Trade Facilitation: China’s 3.2. Trade since 2003 and 2000 respectively, while Azerbaijan is still while Azerbaijan is since 2003 and 2000 respectively, should improve the investment and trade system, and and system, trade and investment the improve should stan (RECCA-VII) when Turkey, Afghanistan, Turkmenistan, Afghanistan, Turkmenistan, Turkey, stan (RECCA-VII) when to Afghanistan via the post-Soviet Turkey from stretching are part of the BRI. This section provides an overview of an overview of provides This section part of the BRI. are relationship and how each country has seen its trading estimated that in 2020, 80 percent of the world’s popu of the world’s estimated that in 2020, 80 percent opportunities within the region and for all related countries. and for all related opportunities within the region overland by road and/or rail through Azerbaijan and on to Azerbaijan rail through and/or road overland by (Daly 2017). Central Asian republics, named the “Lapis Lazuli Corridor” named Central Asian republics, South Caucasus Region Azerbaijan and Georgia signed an agreement provid signed an agreement Azerbaijan and Georgia  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 44 7. AzerbaijantraditionallyisoneofthelargestinvestorsinGeorgia. Azerbaijan istheUK,constituting50percent ofAzerbai China’s investment into the country was US$590 million (19 percent) and theUK (13 percent). China held 10 over thelastcoupleofyears.In2017,largestinvestor of boostingtheireconomies.ThechartbelowshowsFDI and communication, energy, real estateand the financial also maintainsclosetieswithRussia,itssecond-largest sector. Overtheperiod of2002-2017,thenetinflow 3.3. FinancialIntegration:FDIintheSouthCaucasus with 2percent. Themaininvestment sectorsare transport which constitutedapproximately 12percent ofitsGDP the building of a new pipeline), followed by the Netherlands the buildingofanewpipeline),followedbyNetherlands the SCcountries(seeFigure 9).Thelargestinvestorin Region market of180millionpeople(Inan&Yayloyan 2018). net inflowsasapercentage ofGDPforeachSCcountry. FDI investor(UNCTAD 2018b) EAEU, whichgivesArmeniaaccesstoasingleeconomic in Georgia wasAzerbaijan (25percent) investments madebyBritishPetroleum). However, Baku jan’s FDI inflows between 2003 and 2014 (largely due to 6. Informationregarding FDIflowsfrom ChinatoAzerbaijanisnotavailable. Figure 9:Foreign Direct Investment(netinflows,percentage ofGDP) Source: All three countriesintheSCregion seeFDIasameans Georgia isalsosignificantlydependentonFDIinflows, In 2016,AzerbaijanhadthelargestFDIinflowamong World Bank (2018) Bank World G A A z r e e m o r r e b g 1 1 1 n a i 0 2 4 0 2 4 6 8 a i i % % % % % % % % a j a n 7 6 5 2 . . . 0 4 3 7 1 7 4 2 0 % % % 6 . 7 8 6 6 2 (mainly because of . . . 0 0 8 4 1 8 0 4 1 % % % 5 7 4 th 2 . . . place place 0 9 6 6 1 5 0 8 2 % % % - The mostnotableactivityhasbeenChina’s interest incon Armenia Railway project toconnecttheBlackSea and the China CommunicationsConstructionCompanycarried 2016). OnesuchzoneisnearKutaisi,whichapproxi (GEOSTAT 2018). (3.3 percent oftotalinvestmentsoverthesameperiod) (UNCTAD 2018b),Chinaisbecominganimportantinvestor over thecourseoflasttwodecades.Armenia’s main company HualingGroup hasmadeanapproximately out a feasibility study for the construction of the Southern out afeasibilitystudyfortheconstructionofSouthern agriculture, banking, telecommunications, infrastructure, the China Energy Company Limited (CEFC) purchased 75 US$500 millioninvestmentinGeorgia,halfofwhichhas region andhasseennosignificantinvestmentsfrom China percent ofshares inthePotiFree IndustrialZonelocated mately 120kmfrom AnakliaDeep-SeaPort.Furthermore, necting the Black Sea and the Persian Gulf. In this regard, nese activityislessevidentthanintheotherSCcountries. Persian Gulf. investor countryin2017wasGermany. InArmenia,Chi in Potiport(CEFCChina2017). in transitioneconomies(includingSCcountries).China’s been devotedtoFree EconomicZones(Tskhovrebova hospitality and light industry. Since 2007, the Chinese 6 3 3 2 . . . 0 3 5 1 Armenia hasthelowestshare ofFDItoGDPinthe Overall, according toWorld InvestmentReport2018 Reportedly, Chinese investments in Georgia target 1 7 3 1 3 % % % 1 5 3 2 1 . . 0 . 8 4 0 1 9 8 1 4 % % % 1 7 1 2 1 . . 0 . 6 6 8 1 3 9 6 5 % % % 1 1 3 2 1 1 . 0 . . 2 1 8 1 0 8 9 6 % % % - - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  45 - - Furthermore, since 2016, the Georgian Chamber of 2016, the Georgian Chamber of since Furthermore, In terms of advanced manufacturing and transport, in In terms of advanced Cooperation between the JSC Partnership Fund and Chi hub and to unlock trade opportunities. Furthermore, both Furthermore, opportunities. trade to unlock and hub key precondition for Georgia to position itself as a transit itself as a transit for Georgia to position key precondition ing those goals (Gabekhadze 2016). ing those goals (Gabekhadze Hong Kong-based entity focusing on the development of Hong Kong-based entity focusing on the Highway and the BTK railway as pivotal projects in achiev railway as pivotal projects Highway and the BTK details about JSC Partnership more Box 1 below provides engagement with Chinese partners. Fund’s received attention, as an MoU was signed to support the attention, as an MoU received Cooperation in tourism of tea plantations in Georgia. revival travel opportunities for tour groups (agenda.ge 2016). The travel opportunities for tour groups (JSC Partnership Fund 2017a). the industrialization process Silk Road Chamber of International Commerce (SRCIC), a Silk Road Chamber of International Commerce (JSC Partnership Fund 2017b). This is in line with an increasing line with an increasing This is in 2017b). (JSC Partnership Fund in wine export. Back in 2016, Georgian Winetrend House was (Ministry of Agriculture opened in China, in Jiangxi province of Georgia 2016). In 2017, wine exports to China increased to export data over 2016 levels, and according by 43 percent for 2018, after analyzing the first six months, China is the 2018). importer of Georgian wine (data.gov.ge third-largest China and, in order to boost bilateral economic and financial financial and economic bilateral boost to order in and, China cooperation, emphasis will be placed on RMB-denominated RMB settlement services financial services and cross-border of important a range having Despite 2017). China (CEFC is no single there MoUs, it is worth mentioning that currently all of them are the BRI, as regarding document overarching project/sector-specific. the 2017 in as sectors, industrial goes beyond partners nese with Baima Wine Fund signed a framework agreement City Industrial Co Ltd to support Georgian wine export to China and cultural exchanges have also risen. For instance, talks and cultural exchanges the two countries about visa-free ongoing between are one with Chinesealso established several MoUs, including engineering company SEDIN Engineering Co to assist withengineering company SEDIN Engineering 2016, Georgian Railway signed an agreement with China’s with China’s signed an agreement 2016, Georgian Railway also has sector agriculture The locomotives. freight 28 Commerce and Industry (GCCI) has been a member of the and Commerce documents emphasize infrastructure modernization emphasize infrastructure documents as a Port, the East-West mention Anaklia Deep-Sea documents factory in Tbilisi and to purchase CRRC to build a new JSC Partnership Fund, a state-owned investment fund, hasJSC Partnership Fund, a state-owned investment ------At the Belt and Road Forum for International Cooperation Policy coordination is regarded as an important guaran is regarded Policy coordination Initially, in 2013, Georgia was not part of the BRI. not part of the BRI. in 2013, Georgia was Initially, Currently, the Government of Georgia (GoG) uses two Currently, to accelerate the development of an innovative Belt and Road state that CEFC these agreements trade model. Furthermore, China will work with the GoG to set up the Georgian Develop CEFCoperated by and Bank. This bank will be controlled ment Georgia’s First Deputy Prime Minister and Minister of Econ Georgia’s Saganelidze, David and Development, Sustainable and omy aim of CEO of the JSC Partnership Fund. The overarching cooperation strategic advance further to is agreements these the to build as well as the GoG, and China CEFC between intended is which Zone,” Market Common Road “Silk planned pany Limited signed two important cooperation agreements pany Limited signed two important cooperation agreements with the GoG: a Memorandum of Understanding on the Joint Establishment of the Georgian Development Bank; and a on the Joint Strategic Cooperation Framework Agreement Fund. Construction National Georgian the of Establishment then Kumsishvili, Dimitri by signed were documents These held in Beijing on 14 May 2017, CEFC China Energy Com Box 1: JSC Partnership Fund and the BRI hosted two international forums—one in 2015 and another beyond 2020. Boosting the private sector’s competitive beyond 2020. Boosting the private sector’s in 2017—dedicated to the BRI, and signed an FTA with with FTA an signed and BRI, the to 2017—dedicated in However, it has gradually become a valuable and reli it has gradually However, FDI stock in this region increased from US$8 billion in 2011 US$8 billion from increased this region FDI stock in ness, developing human capital and improving access to ness, developing human capital and improving national plans of the SC countries’ governments.national plans of the focuses (Government of Georgia 2013). More recently, in recently, focuses (Government of Georgia 2013). More Both four pillars, one of which is economic development. tor country for transition economies. tor country implementation, thus this section outlines tee of the BRI’s integrated with the investments are the extent to which BRI to US$23 billion in 2016, making it the fourth-largest inves fourth-largest it the 2016, making billion in to US$23 3.4. Policy Coordination able partner for China in general. As a result of increased increased of result a As general. in China for partner able guiding strategy documents to tackle economic challenges.guiding strategy documents to tackle economic cooperation since 2017, Georgia has repositioned itself, itself, cooperation since 2017, Georgia has repositioned 2016, the GoG announced a “4-point plan” focusing on focusing on 2016, the GoG announced a “4-point plan” 2020,” announced in 2012, is a broad guiding document 2020,” announced in 2012, is a broad finance are the three main areas on which the document main areas the three finance are directed at the long-term growth of most economic sectors economic most of growth long-term the at directed China (Ismalov & Papava 2018). Georgia A social and economic development strategy “Georgia “Georgia A social and economic development strategy  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 46 40 Azerbaijani and 400 Chinese companies. Among the 4. TheBRIandtheSouth Caucasus:Future Armenia has the least formalized cooperation with China Armenia Azerbaijan document entitled“ArmeniaDevelopmentStrategy2030” deals in areas including trade, judiciary, civil aviation, edu document “Azerbaijan2020:TheLookintotheFuture,” 20 contracts signed by businesses at the forum, one Outcomes/Potential Impacts (Government ofArmenia2018). (Government ofAzerbaijan2012). (Government cooperation withChinawilldevelopunderthenewadmin vision. However, following the recent political shift in Arme outlines the general trajectory of Armenia’s development cation, transportationandenergy(Xinhuanet.com2015). cables, mobiledrillingrigsusedintheoilandgasindustry, casus-Asia and north-south transport corridors, some able economies dueto theirhigh degree ofdependence on and computertechnology(Babayan2014).Ten yearslater, agreement established abasein Azerbaijan for develop seatradeportinAlatandtheBTKrailway an international specific BRI-linked projects have been mentioned, such as Silk RoadEconomicBelt,focusingonsecuringaseriesof which alsopresents oftransportinfrastruc modernization tionship. Movingforward, itwillbeinteresting tofollowhow to before theBRI.Forinstance,in2005,whenAzerbaijani the deepeningofeconomicandtraderelations datingback to boostthecountry’s competitivenessintheEurope-Cau ture asoneofthecountry’s mainareas offocus.Inorder the BRIandseekingtoadvanceitsmembers’growth and materials forstorage/packagingofagricultural products, prosperity byoffering tradeandinvestmentopportunities. under the BRI and the developments under this flagship nia, thecurrent administration isworkingonanewstrategy nese business forum took place with representatives of President IlhamAliyevvisitedChina,anAzerbaijani-Chi istration inArmenia. initiative somewhatreflect thegeneralChina-Armenia rela in 2015AzerbaijansignedaMoUonconstructionofthe ing Chineseknow-howinthemanufacturingoffiberglass The countriesoftheSCregion haveincreasingly vulner The ArmeniaDevelopmentStrategyfor2014-2025 Azerbaijani-Chinese cooperationhasbeendrivenby Currently, compared with the other SC countries, Similar toGeorgia,Azerbaijanhasaguidingstrategy ------Thus, forthecountriesofSC,opportunitiespre Thus, as part of the BRI, Armenia could consider a south- Azerbaijan (Inan&Yayloyan 2018). dent onoilandgas,Armeniaremittances from Russia, coordinated policyapproach towards theBRI;however, certain factors(forinstance,Azerbaijanisheavily depen connection’ (ADB2011). corridor (stage3),economicorgrowth corridor(stage4), ered ascomprisingfivestages:transportcorridor(stage1), efforts to divert south-north transportation from Iran via and GeorgiaonFDIinflows regional politicalstability). and developmentcorridor(stage5).Thecountriesinthis sented bytheBRIcouldbesummedupasfollows: serve asapathwaytoreach stagefive.Inthis regard, the structure, improved regional ties and communication could success ofthisislikelytobehindered byAzerbaijan’s we canassumethattheSCregion, asapartofthecor to anarea inacountryorregion thatpreviously lacked to theinfrastructure dimensionthatprovides physicallinks the corridorapproaches andtheirdifferent stages.Thus, to-north highwayfrom the Iranianborder totheGeorgian the most interested in boosting its share of global trade region are atstageone: ‘Transport corridorsgenerallyrefer ridors connectingAsiatoEurope, willexperiencevarying nia) hasalready proven possible. EU, IranandGeorgiatotransitcargofrom southtonorth. impacts intermsofintegrationatvariousstages. its EAEUmembershiptogetherwithclosertiesthe bilateral cooperation(Georgia-Azerbaijan;Georgia-Arme baijan, itisnotlikelythattheSCcountrieswilladopta border asbeingkeyforits involvement.Nonetheless,the by positioningitselfintheBRI.Armeniacouldleverage border crossings withAzerbaijanandTurkey, shouldbe logistics corridor(stage2),transportandtradefacilitation Among theSCcountries,Armenia,havingclosed According totheADB(2011),region canbeconsid It couldbearguedthatfocusing onsoftandhard infra In termsoffuture possible impacts,wemayconsider Due topoliticaltensionbetweenArmeniaandAzer • • • • and strength oftheregion toattractmore investors; Strive tobecomemore thanjusttransitcountries with theEUandothermarketssuchasEAEU. Improve coordination betweenawidespread of relatively cheapresources coupledwithcloserties projects underoneumbrella (oneaim); Enhance regional coordination andutilizethe Diversify economicactivities; by offering skilled and relatively cheap labor and ------THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  47 ------Factors such as political stability, government effec Factors such as political stability, Although initially the BRI had been regarded as a as a Although initially the BRI had been regarded has gained global recognition and is currently viewed as as viewed and is currently has gained global recognition instance, as noted earlier, the political tension between between tension political the earlier, noted as instance, improve ICT connectivity across Eurasia should be noted ICT connectivity across improve innovation-driven and knowledge-based economy through knowledge-based economy through innovation-driven and 5. Risks along the BRI Highway (TASIM) is a fiber-optic route spanning from Hong route spanning from is a fiber-optic Highway (TASIM) with an estimated length Kong to Frankfurt in Germany, noted that more skilled human capital is needed. The lack skilled human noted that more projects are interdependent, regional and country-spe and regional interdependent, are projects ment, as a key part of economic development, is especially which investments, infrastructure large-scale to relevant reaching US$559.1 million in 2015. Furthermore, more more million in 2015. Furthermore, US$559.1 reaching In addition, the existence of fiber optic networks and the In addition, the existence of fiber optic funded by the World Bank aimed at the development of an Bank aimed funded by the World tition regarding the International North-South Transport the International North-South Transport tition regarding tiveness, and rule of law, coupled with democratic democratic with coupled law, of rule and tiveness, to the Enterprise Incubator Foundation (2015), total rev (2015), total Incubator Foundation to the Enterprise operate in Armenia, with aver than 450 ICT companies Bank 2016). IT skills in Georgia (World the advancement of is still under construction, and its potential to the TASIM stan, Azerbaijan, Georgia, Turkey and Germany. Currently, Currently, and Germany. stan, Azerbaijan, Georgia, Turkey and geopolitical risks. However, as BRI-related infrastructure infrastructure as BRI-related and geopolitical risks. However, are inherently risky due to weak governance risky inherently or poorly-ex are political, geopolitical, economic, to these not immune are political underpin corruption, of control and accountability age annual growth of 10 percent. However, it should be it should be However, of 10 percent. age annual growth are networks and services of broadband affordability cific internal instability poses a major threat to them. For cific internal to them. For major threat instability poses a one of the most significant global development initiatives initiatives one of the most significant global development 2013). Risk manage of the 21st century (Szczudlik-Tatar ecuted rule of law and corruption. Countries of the SC evant to the SC region. countries of the SC to engage. For instance, ICT remains For instance, ICT remains the SC to engage. countries of According sectors in Armenia. fastest-growing one of the in 2014, by 17.7 percent sector grew the ICT enue from Geor neighboring in noted is also workforce a skilled of programs ongoing capacity building are there gia, where Information Super important. The Trans-Eurasian extremely China, Kazakh will pass through of 11,000km. This route (ESCAP 2017). 2018). Therefore, this section reviews BRI-related risks rel BRI-related this section reviews 2018). Therefore, Corridor and Persian Gulf-Black Sea routes. Azerbaijan Azerbaijan routes. Sea Gulf-Black Persian and Corridor domestic development strategy aiming mainly to boost mainly to boost domestic development strategy aiming western gradually it underdeveloped provinces, China’s risks (Sheng social and environmental regulatory, financial, Armenia and Azerbaijan has been evident in the compe - - - - Development of the information and communication Development of the information and communication Furthermore, future potential outcomes/impacts potential outcomes/impacts future Furthermore, healthier and more developed economies could emerge. developed economies healthier and more be seen as one of the key areas to be indirectly affected affected to be indirectly be seen as one of the key areas building about vocal been has China As Initiative. the by became a member of the WTO, in 2017 it reached US$573 reached became a member of the WTO, in 2017 it 2017). In terms of modes of trans & Prodi billion (Fardella increases trade by 2 percent, 5.5 percent and 1.1 percent and 1.1 percent 5.5 percent trade by 2 percent, increases initiative, thus BRI-related expectations are linked to their linked to their expectations are initiative, thus BRI-related China between trade at Looking cooperation. increasing European railway trade with China (source: Eurostat). This Eurostat). railway trade with China (source: European Europe represent the geographic and political ends of the of ends political and geographic the represent Europe BRI could serve as an incentive for SC countries to move for SC countries to serve as an incentive BRI could respectively.” Considering the potential benefits of an effi an of benefits potential the Considering respectively.” port, until recently almost 99 percent of the cargo moving almost 99 percent port, until recently maintain the regional growth trajectory, eradicate poverty, poverty, eradicate trajectory, growth regional the maintain regional perspective. According to a recent ADB report, to report, ADB to a recent perspective. According regional 5 could bring more cargo and FDI across borders and and borders and FDI across cargo more 5 could bring far as trade flows between BRI countries are concerned, BRI countries are trade flows between as far from the Asia-Pacific region to Europe and vice versa was region to Europe Asia-Pacific the from favorable conditions for boosting trade. Notably, China and favorable conditions for boosting trade. Notably, forward from stage 1. The journey from stage 1 to stage stage 1 to stage 1. The journey stage from from forward technologies (ICT) and digital technologies sector could technologies (ICT) and digital technologies sector could total shipments. In addition, a simulation by Garcia Herrero Herrero total shipments. In addition, a simulation by Garcia to the OECD (2011), in 2050 Europe-Asia railway routes railway routes to the OECD (2011), in 2050 Europe-Asia transported by sea (European Commission 2018). How transported by sea (European to narrowing the infrastructure financing gap in Asia. In In Asia. in gap financing infrastructure the narrowing to will be able to absorb between 0.5 and 1 million TEUs out structure investments of US$26 trillion from 2016 to 2030, trillion from investments of US$26 structure a “Digital Silk Road,” this could also offer potential for the a “Digital Silk Road,” this could also offer and the Czech Republic accounting for 80 percent of total percent and the Czech Republic accounting for 80 impacts when looking at the possible is crucial analysis almost doubled from 2015 to 2016, with Germany, Poland Poland 2015 to 2016, with Germany, almost doubled from and Europe, which accelerated after 2001 when China which accelerated after 2001 when China and Europe, addition, improved connectivity is expected to enable more connectivity is expected to enable more addition, improved and respond appropriately to climate change in Asia, infra to climate change appropriately and respond cient railway corridor for the BRI, individual countries and engaged in intense competition. corridors are of a total of 20 million in the world, or 2.5-5 percent of of of a total of 20 million in the world, or 2.5-5 percent of the BRI from SC countries’ perspectives, as according SC countries’ perspectives, as according of the BRI from ever, the value of goods shipped by railway increased from from by railway increased of goods shipped the value ever, or US$1.7 trillion per year, are needed (ADB 2017a). One needed are year, or US$1.7 trillion per is expected to contribute greatly can argue that the BRI enable conducive conditions for innovation. As a result, result, for innovation. As a conditions enable conducive a broader by looking at the BRI from could be anticipated & Xu (2016, p. 6) using a gravity model revealed that as that as & Xu (2016, p. 6) using a gravity model revealed €1.6 billion in 2011 to €10.2 billion in 2016 and the value €1.6 billion in 2011 to €10.2 billion in 2016 “a 10 percent reduction in railway, air and maritime costs and maritime costs air railway, in reduction 10 percent “a “Belt and Road” for the Eurasian continental part of the part of the “Belt and Road” for the Eurasian continental  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 48 debt problems havealready beenseenasproblematic. For ysis of68BRI-related countries,thestudyrevealed low, of project lending associated with the BRI. Based on anal capital control policies. A paper by the Center for Global graphic sphere of influence, China’s targeting of the region view ofpost-Sovietcountriesasfallingwithinitsgeo as a focus of its Silk Road initiative has received a largely and Armeniaare bothseekingimproved connectivity with sustainability (Hurleyetal.2018).Itisworthmentioning significant andhigh-riskcountriesfrom adebtsustainability while GeorgiaandAzerbaijanwere foundtohavelowdebt tested against police over a newindustrial zone surrounding that increasing debtandChina’s role inmanagingbilateral Iran (Sheng 2018). Inaddition,givenRussia’s longstanding perspective. Armeniawasfoundtobeatsignificantrisk, risk ofunsustainabledebtbasedonanidentifiedpipeline many BRIcountriesadoptforeign exchangecontrol or rectly threatening thecompletion of BRI-related projects, negative reaction 2016). intheKremlin (Wilson Hambantota port. Meanwhile, in Pakistan, Chinese officials Eight countries Development assessedthelikelihoodofdebtproblems instance, inSriLanka,citizenshaveonaregular basispro in the68countriesidentifiedaspotentialBRIborrowers. 8. Thesecountriesare Djibouti, theKyrgyzRepublic(Kyrgyzstan),Lao Pakistan, andTajikistan. People’s Democratic Republic (Laos), the Maldives, Mongolia, Montenegro, Figure Gross 10:GeneralGovernment Debt,Percentage ofGDP(IMFWEO) Source: As fortheeconomicandfinancialrisksdirectly orindi IMF (2018) IMF 1 2 3 4 5 6 0 0 0 0 0 0 0 8 2 havebeenidentifiedasbeingatparticular 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 A r m 2 0 e 1 n 1 i a 2 0 1 2 2 - - - - 0 A 1 z 3 e (CPEC), whichisamongtheBRI’s flagshipprojects and external debtmakesuparelatively highshareexternal ofthese of indebtedness.Figure 10depictsthecurrent levelsof other handthefiscalspacethesecountrieshavemakesa ects bythemselvesandthushavetoborrow. Ontheone of investmentininfrastructure isapparent. Countriesinthe countries’ debt structures, it caused an increase in the and around theSCregion, theneedforasignificantamount significantly from 2014 to 2016. This is partly caused by debt increased general government shows that external significant difference. Inparticular, itisimportanttoassess should remain relatively stableoverthenextfouryears share relative toGDP. According totheIMF, thisshare SC region cannotafford tofinancelargeinvestmentproj the devaluationoflocalcurrencies againstmajorinter the risk SC countries are facing by increasing their levels the construction of the China-Pakistan Economic Corridor tries should be relatively cautious when considering taking national currencies to which the debt is converted. Since new loans. indebtedness for each of the SC countries. Figure 10 be China or other international institutions?),be China or otherbut on international the but, asthecurrency crisisin2014 showed,thesecoun hand, theoriginofborrowed moneyisimportant(willit has alsobeenthesubjectofprotest (Sheng2018). have openlyappealedtooppositionpoliticiansembrace r 2 b 0 a 1 i When itcomestotheneedincrease connectivity in j 4 a n 2 0 1 5 2 0 1 G 6 e o 2 r 0 g i 1 a 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 - - - THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  49 ------Based on the analysis, it is clear that the BRI is still Based on the analysis, it is clear that the BRI is still From a more global perspective, several studies have global perspective, several a more From In general, SC countries should seek better regional In general, SC countries should seek better regional In terms of dedicated freedom of information legislation, legislation, information of freedom dedicated of terms In been carried out to assess the level of risk associated assess the level of risk associated been carried out to ing 0.88 and Azerbaijan scoring 0.68 (The Association of ing 0.88 and Azerbaijan scoring 0.68 (The in-depth and case-by-case research is needed to have is needed to have research in-depth and case-by-case unfolding and, due to its scale, it is somewhat chaotic. chaotic. somewhat is it scale, its to due and, unfolding nomic calculations of gains and losses? Which of the 65 ness, legal and regulatory environment, macroeconomic macroeconomic environment, ness, legal and regulatory produced the Belt and Road Country Cooperation Index and Road Country Cooperation Index the Belt produced investment and objectives behind the Initiative. Would real public viewing. Therefore, it goes without saying that more saying that more it goes without public viewing. Therefore, of wide stakehold information about the involvement more labor market, trade and payment, tax policy, risks, foreign Intelligence Unit (EIU) conducted a study titled “Prospects conducted a study titled “Prospects Intelligence Unit (EIU) it was given Intelligence Unit 2015). Positively for Georgia, the lowest risk level in the SC region. Another study initi the lowest risk level in the SC region. risk. operational the of level the by level cooperation try’s trade be driven by market-based transactions, or would aid that is not based on eco they be in the form of foreign the national, regional and local levels. However, the pro levels. However, and local regional the national, 6.1. For the Governments of South Caucasus Countries with BRI-related projects. For instance, the Economist For instance, the Economist projects. with BRI-related ated by ACCA and the Shanghai Stock Exchange (SSE) (SSE) Exchange Stock Shanghai the and by ACCA ated priority targets for likely to be the Initiative’s and Road are all three countries have provisions in place applicable at at applicable place in provisions have countries three all “the Belt and Road”: A risk and Challenges on China’s 10 across risks on based is study The report.” assessment ommendations for BRI stakeholders and tries to identify ommendations for BRI stakeholders and tries to identify is needed. further research gaps where study detail in a previous (highlighted in more coordination or so countries in Asia, Europe and Africa along the Belt and Africa along the Belt or so countries in Asia, Europe some rec economic cooperation? This section provides visions for accessing information vary. Some investment investment Some vary. information accessing for visions ers into the decisions-making. government effective political stability, categories (security, risk (Economist of the BRI countries have high operational (BRCCDI). This index is calculated by dividing a coun (BRCCDI). This index is calculated by Chartered Certified Accountants 2017). Chartered documents, due to their confidentiality, are not open for not open for are their confidentiality, documents, due to revealed that most and financial risk, and infrastructure), 6. Recommendations The average score was set at 1.02, with Kazakhstan and Kazakhstan with 1.02, at set was score average The Georgia scor 1.38 and 1.22 respectively, scoring Turkey The main concern to the BRI is ascertaining the related ------, including 9 , led by China led , 10 Assessment and management of social and environ and management Assessment limited to, labor and working conditions, labor strikes, working conditions, labor strikes, limited to, labor and ly: to bring potential negative impacts of high-risk activities on the condition junctions; in particular, railway lines leading to Azerbaijan, Armenia and junctions; in particular, 9. This commitment implies adoption of the environmental assessment 9. This commitment implies adoption of the environmental be improved. Even before the new legal framework was the new legal framework was Even before be improved. Information, Public Participation in Decision-Making and Access to Jus indigenous people, and cultural heritage (Sheng 2018). and cultural heritage (Sheng 2018). indigenous people, tional lines leading to Europe via Turkey, railways in Tbilisi also form part via Turkey, tional lines leading to Europe tice in Environmental Matters” (hereafter, Aarhus Convention) in issues of issues in Convention) Aarhus (hereafter, Matters” Environmental in tice Nonetheless, the enforcement mechanism still needs to to needs mechanism still the enforcement Nonetheless, Railway 23rd Bureau Group, experienced some challenges.some experienced Group, Bureau 23rd Railway nies. While the latter concentrate on procedures, careful careful procedures, on concentrate latter the While nies. Georgia’s Black Sea ports converge in Tbilisi. Due to these major interna Georgia’s more concerned with hard results (Zhou 2012). More More 2012). (Zhou results concerned hard with more local from a protest faced the same company recently, management was different from that of Western compa Western of that from different was management companies were planning and safety matters, Chinese rely on international conventions and the internalrely policies related to infrastructure. For instance, in 2018 Georgia Georgia 2018 in For instance, infrastructure. to related projects and can serve as important drivers of public drivers of public serve as important and can projects demolition and relo and abatement, pollution prevention mental issues can be critical in infrastructure and energy energy and infrastructure in critical be can issues mental public and private projects on environment.” public and private projects from Georgian Railway stated that the style of Chinese Railway stated that the style of Chinese Georgian from frameworks handling social and environmental issues issues social and environmental frameworks handling tested against vibrations caused by the construction work, to employ a local workforce. Furthermore, some officials some officials Furthermore, to employ a local workforce. to its own considerations, the company had no obligation to its own considerations, the company the Environmental Impact Assessment and Environmental and Environmental Impact Assessment the Environmental which endangered their houses. which endangered western Georgia. The workforce expressed dissatisfaction expressed western Georgia. The workforce with the working conditions and the local population pro which gives the contractor the right to hire labor according labor according which gives the contractor the right to hire size, population, and traffic flows (Babunashvili 2018). size, population, and traffic sion-making process in relation with effects on the environment, particular environment, on the with effects relation in process sion-making environmental protection and will ensure public participation in the deci in public participation and will ensure protection environmental in compliance with the requirements assessment regulation, environment Strategic Assessment, whereas Armenia and Azerbaijan Armenia and Azerbaijan Strategic Assessment, whereas adopted, the Tbilisi Bypass Railway project Railway Bypass Tbilisi the adopted, adopted the Environmental Assessment Code Assessment adopted the Environmental Operating under the 1999 FIDIC Yellow Book conditions, Book conditions, Operating under the 1999 FIDIC Yellow of the funding financial institutions (Parliament of Georgia of the funding financial institutions (Parliament opinion and attitudes. These issues include, but are not not are issues include, but attitudes. These opinion and and ecological protection, cation, biodiversity conservation 2017, United Nations Development Programme 2016). 2016). 2017, United Nations Development Programme Georgian employees working on another railway project in Georgian employees working on another railway project of the east-west transport corridor, which now could be linked to the BRI. of the east-west transport corridor, of the natural environment, as well as on human life and health, under the as well as on human life and health, of the natural environment, of certain 2011/92/EC “on the assessment of the effects of EU directive code that will envisage the requirements of the convention “on Access to code that will envisage the requirements Tbilisi has been one of the key junctions within the national and regional Tbilisi has been one of the key junctions within the national and regional city’s the growing was to address for this project Thus, the main reason 10. Construction of the Tbilisi Bypass Railway project started in 2010. started 10. Construction of the Tbilisi Bypass Railway project The countries of the SC region have different regulatory regulatory have different SC region The countries of the  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 50 11. Zabakhidze,M.,andR.Beradze (2017). “GeorgiaasaTransit Hub data flowandrunscheduledtrainoperations.Thesesteps deepen regional willgivethe economictiesthat,inturn, Countries canusetheincentivesarisingfrom theBRIto creation ofjobopportunities;however, governments complex political context and existing regional conflicts, it very carefully. Whendoingso,focusshouldbeplacedon also becautiousaboutincreasing theirdebtportfolios. already raisedsomequestions regarding debtsustainabil a joint approach. Therefore, further research is needed to a numberofdocumentsrelating tocertainbenefitsand are allnecessarytoincrease thereliability ofthecorridor, to along thecorridorshouldmanageanefficient electronic a softinfrastructure toolattheregional level, suchasa and weaknesses of each corridor need to be examined significantly reduce thetimespentcrossing borders, and studying already-existing hard infrastructure, its improve should ensure thatlocalhumancapitaldevelopmentis Several particularstepscouldbehelpfulhere. SC region more comparativeadvantagesandallowthe and itsIncreasing PotentialintheImplementationofBeltand Road would be impossible for the countries of the SC to have was identifiedthattariffs are highlyvolatile,makingitnearly 6.2. ForDonors/Investors tance (ODA)wasUS$868million intheSCregion (Georgia, the SC. As several BRI-related infrastructure projects have this direction. the factthatpartieswithinTRACECAhavesigned to minimizecargodelaysandtheftrisk. the trade routes passing through them. The strengths US$463 million;Armenia,US$327 million;andAzerbaijan, properly integratedintoanysuchprocesses. reduced tariffs, inpracticelittlehasbeenaccomplished region togainmore attentionandinvestmentsfrom China. ment andfurtherstepsforimproving softinfrastructure unified trackingandtracingsystem,whilethecountries ity, apartfrom should policycoordination, governments identify regional cooperationoptions forthecountriesof impossible tomakeanyreliable priceforecasts. Despite is ofgreat importance.Itisalsostrongly advisedtocreate in order toincrease thecompetitivenessof corridors. Initiative.” PMCG. by PMCG) Secondly, while investigatingtheTRACECAcorridor, it In 2016, the net total of official development assis BRI-related projects havethepotentialtoenable However, asalready mentionedabove,duetothe Firstly, thesimplificationofborder crossing procedures 11 inorder toincrease thecompetitivenessof - - - This hasbeenreflected inastudybyBakerMcKenzie, 13. As of 2016,activeportfolio in Georgia,Azerbaijan and Armenia was 12. Current portfolioinGeorgia,Azerbaijan andArmeniaasofJuly2018 donors/investors. Forinstance,GeorgiaandAzerbai due tothenecessityofdiligence,businessstructuring, communications; consumergoodsandretail; industry; operating insectorssuchas:technology;mediaandtele common ground and developing a coordination mecha on a greater scale. Therefore, furtherresearch on finding challenge fordonorswouldbetoensure coordination challenges facingtheInitiative:selectionofappropriate environment wouldbeessential forprivateentitiestoenter context andthelowlevelofhumancapacitylocal challenges arisingfrom the lackofknowledgethelocal contract negotiation,laborandtaxregulations, andinsur energy; mining;andinfrastructure. Inaddition,companies activities (BakerMcKenzie2017). ance requirements as part ofa firm’s successful offshore social andeconomicinfrastructure (OECD2018).Inaddi structures. Therefore, more insightsintothelocalbusiness worth US$350billionoverthenextfiveyears.Mostoppor which BRI projects linked toChina were assessed to be will beimportanttoaddress thefollowingquestions: workforce, aswellcomplex legalregulations orpower 6.3. ForPrivateEntities tunities, assuggested, are unlocked for private companies financialinstitutions,suchasthe tion, majorinternational future successdependsoninterest from theprivatesector. US$78 million)andmostofthefundingwasaimedat region. HavingtheBRIinSCregion couldbring new political andeconomicmatters.Thus,movingforward it projects; implementation of the projects; and separate providing professional servicesare criticaltomitigaterisks, manufacturing andtransportation;financialinstitutions; nism wouldbehelpful. new markets. EBRD was €789million,€1,426millionand€312 million,respectively. jan havealready received loansfrom theAIIB.Thekey US$1,021 million,US$2,791 millionandUS$804respectively. Although theBRIiscurrently initiative,its agovernment In general,itcanbearguedthatthere are three main However, companies might face some international • • 12 andtheADB What willtheBRIdoforregional cooperationand and Road? the Initiative contribute to stability,Will or will it fuel powerdimensionsincountriesalongtheBelt how willitenhanceregional connectivity? 13 , havesignificantportfoliosinthe ------THE BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS REGION  51 ------.” . . .” ADB Eco in Georgia Meeting Asia’s Meeting Asia’s . Republic of Azerbai of Republic Regional Corridors Regional Corridors Poverty Georgia: Batumi Bypass Georgia: Batumi . .” International Monetary Fund. . New Silk Roads in the Southern . Belt & Road: Opportunity & Risk & Opportunity Road: & Belt China Ambassador to Armenia PM: CEFC China Signs Two Cooperation CEFC China Signs Two . Georgia Signs China Deal to Manufac . Electric Locomotives About CAREC . Road Project AIIB, Georgia Sign Loan Agreement for Batumi AIIB, Georgia Sign Loan Agreement Pipelines jan, - Selected Issues Road Project Development in Regional Cooperation Bypass nomics Working Paper Series. nomics Working Infrastructure Needs Infrastructure ture Development in Tbilisi Comparative Analysis of theof Analysis Comparative Tbilisi in Development ture ture Modern ture Silk Road Caucasus: Chinese Geopolitics in a Strategic Region Agreements with the GovernmentAgreements of Georgia to Help Alternatives.” and Dialogue. Public Policy Discourse Yale Journal of International Affairs. Yale The Prospects and Perils of Building China’s New New and Perils of Building China’s The Prospects Trade between Our Countries Increased by 34.5% between Our Countries Increased Trade In conclusion, the BRI is a priority on the policy agenda In conclusion, the BRI References Russia and the West, and Armenia is a member of the the is a member of and Armenia the West, Russia and con given these geopolitical EAEU. Therefore, Russia-led BP (2018). Babayan, David (2014). “ Babunashvili, Giorgi (2018). “Options for Railway Infrastruc (2017). McKenzie Baker raised some questions regarding debt sustainability, apart debt sustainability, regarding raised some questions from geopolitical peculiarities, governments should also befrom to how this Initiative will be implemented. While synergies to how this Initiative needs in the countries of the SC region, development ture tion, financial risks and concerns about the transparency siderations, further research is needed to identify regional regional is needed to identify further research siderations, as several BRI-related infrastructure projects have already already have projects infrastructure as several BRI-related it is still uncertain as However, region. and beyond the SC and fairness of the BRI. agenda.ge (2016). cooperation options for the countries of the SC. In addition, options for the countries cooperation debt portfolios. their cautious about increasing in and planned projects existing of China, with numerous infrastruc the BRI and current could be observed between coordina policy of lack to a due limited still is cooperation CAREC (2018). CEFC China (2017). Albino-War, M., and B. Quillin (2013). “ (2013). Quillin B. and M., Albino-War, Armenia News (2018). (2018). Development Bank Asian Asian Development Bank (2017). Asian Development Bank (2017). Asian Development Bank (2011). “ AIIB (2017). ------TANAP, combined combined TANAP, Georgia, with its NATO and EU EU and NATO its with Georgia, ing the Initiative? tutions in the realization of the BRI? tutions in the realization the BRI give China a greater role in the global global in the role China a greater the BRI give What will be the role of non-BRI countries in shap of non-BRI countries the role What will be old financial insti of new and What will be the role Will the BRI advance China’s soft power and will and will power soft WillChina’s advance the BRI governance architecture? • • • However, while there is some potential to further is some potential to further while there However, Due to the complex political framework and existing and existing Due to the complex political framework Armenia, having just two open borders (one with Geor Armenia, having just two open borders This country note has analyzed possible outcomes outcomes possible analyzed has note country This boosting its share of global trade by positioning itself in the in itself by positioning trade global of share its boosting project as a key seen can be the Georgian border to border between Georgia and Azerbaijan. The improve regional connectivity, it should also be mentioned connectivity, regional improve ing Kazakhstan, Azerbaijan, Georgia and Turkey, and the ing Kazakhstan, Azerbaijan, Georgia and Turkey, infrastructure modernization and enhanced regional modernizationregional enhanced and infrastructure BRI. Therefore, a south-to-north highway from the Iranian south-to-north highway from a BRI. Therefore, BTK railway project could also be considered examples of could also be considered BTK railway project regional cooperation. regional regional conflicts, it is impossible for all of the SC coun conflicts, regional ple-to-people exchange. Therefore, the BRI narrative and the BRI narrative and ple-to-people exchange. Therefore, II to Turkey and Europe. In a similar manner, the TITR, link In a similar manner, and Europe. II to Turkey from Azerbaijan’s fields in the Caspian Sea like Shah Deniz the Caspian Sea like fields in Azerbaijan’s from facilitating investment, consumption, job creation and peo creation facilitating investment, consumption, job that Georgia, Armenia and Azerbaijan differ greatly in termsin greatly differ Azerbaijan and Armenia Georgia, that to ensure its involvement in the BRI. Nonetheless, the suc to ensure the South Natural Gas Corridor that aims to transport gas the South Natural Gas Corridor that aims the common objectives of the countries of the SC appear the common objectives of the countries to be a natural fit. Georgia, having However, tries to have a joint approach. while, Azerbaijan is trying to keep a balance between while, Azerbaijan is trying to keep a balance between with the SCP and the Trans-Adriatic Pipeline (TAP), forms Pipeline (TAP), with the SCP and the Trans-Adriatic sible. The TANAP, for example, showcases cooperation for example, showcases cooperation The TANAP, sible. socio-economic challenges that can be addressed by by that can be addressed socio-economic challenges aspirations, seeks closer ties with its western allies. Mean an important role in regional cooperation. Thus, bilateral bilateral cooperation. Thus, in regional an important role aimed at unlocking new markets, promoting trade, and trade, and aimed at unlocking new markets, promoting and impacts of the BRI on the countries of the SC region. on the countries of the SC region. and impacts of the BRI of their foreign policies. policies. foreign their of cess of this is likely to be hindered by Azerbaijan’s efforts to efforts Azerbaijan’s by hindered be to likely is this of cess gia and one with Iran), should be particularly interested in gia and one with Iran), should be particularly interested cooperation between countries of the SC has proven pos has proven cooperation between countries of the SC good relations with Azerbaijan as well as Armenia, plays with Azerbaijan as well as Armenia, plays good relations cooperation. According to Chinese officials, the BRI is the BRI is to Chinese officials, cooperation. According divert south-north transportation from Iran via Azerbaijan. divert south-north transportation from Currently, Armenia, Azerbaijan and Georgia are facing facing are Georgia and Azerbaijan Armenia, Currently, 7. Conclusion  GIORGI KHISHTOVANI, MARIAM ZABAKHIDZE, IRAKLI GABRIADZE, AND REZO BERADZE 52 Grey, Eva(2015). ofGeorgia(2013). Government ofAzerbaijan(2012). Government ofArmenia(2018). Government GEOSTAT (2018). Garcia Herrero, Alicia,andJianweiXu(2016).“ Gabekhadze, Gvantsa(2016). data.gov.ge (2018). “ CEFC China(2016). Heritage Foundation (2018). Freedom House(2018). Fardella, Enrico, andGiorgioProdi (2017).“ European Commission (2018). ESCAP (2017).“ Enterprise IncubatorFoundation(2015).ArmenianICT Economist IntelligenceUnit(2015). EBRD (2018). Davydenko, I.,I.LandaMaxta,R.Martens, N. Nesterova, Daly, JohnC.K.(2017).“ Hurley, John, Scott Morris, and Gailyn Portelance (2018). (2016). Hindustan Times “ ‘Armenia Development Telecommunication Technologies SectorinArmenia. Assessment Report Action Planforthenext Visits CEFCChinaandMeetswith Visits dors Corridors & Logistics Developments along the Corri dor Finally End Afghanistan’s Isolation? Common Chabahar Goods and RoadInitiative:CanEurope ExpectTrade Gains? and RoadInitiativeinChina-CentralAsiaCorridor and T. Wark (2012).“ Social CommissionforAsiaandthePacific(ESCAP). Sector, StateoftheIndustryReport:Informationand tive Information andCommunicationsTechnology and Examining the Debt Implications of the Belt and ment StrategyofGeorgia‘ next Road InitiativeImpactonEurope: AnItalianPerspec Disaster Risk Reduction Division, Economic and Develop anInnovativeTrade Modelinthe‘SilkRoad Economic Freedom Bruegel. into theFuture. ConceptofDevelopment lenges onChina’s ‘OneBelt,OneRoad’:ARisk .” China&World Economy 25(5):125–38. .” European Commission. Freight Revolution? with China Belt andRoadInitiative(BRI) Market Zone Port Agreement A StudyofICTConnectivityfortheBelt Can theTrans-Caspian RouteDeliverthe Foreign Wine Export Wine First Vice PrimeMinisterofGeorgia First Vice . . . Freedom inthe Will theLapisLazuliRailwayCorri Will Potential for Eurasia Land Bridge Potential for EurasiaLandBridge India, IranandAfghanistanSign Direct Investments .’ Strategy 2030.’ 4 Years? . GEORGIA 2020.’ Social-Economic Develop European Union, Trade in .” Data Exchange Agency. PM HoldsDiscussionon What IsGovernment’s Azerbaijan 2020:Loon Prospects andChal 2018 Index of Ye Jianming World 2018 . ” CACI Analyst. The Beltand . China’s Belt . . .” .” ” - - - - - JSC PartnershipFund(2017). JSC PartnershipFund(2017). OECD (2018). Shepard, Wade (2016). “ Sheng, Jin(2018).AnalyzingtheRisksofChina’s ‘OneBelt, Shahbazov, Fuad(2017).“ Shah, Shakhil(2018).“ Ismalov, Eldar, andVladimerPapava(2018).“Caucasian Investopress (2018). 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The Belt and Road Initiative in Central Asia and the South Caucasus: A View from Tajikistan

Rustam Aminjonov and Matin Kholmatov

1. Introduction investments in Tajikistan. Starting in 2015 (after the sign- In 2013, China announced a new development initia- ing of the Memorandum of Understanding between the tive: the Belt and Road Initiative (BRI)1, aimed at creating Ministry of Economic Development and Trade of Tajikistan infrastructure and establishing links between the countries and the Ministry of Commerce of the PRC on the joint of Eurasia (and other continents). The five major goals of promotion and establishment of the Silk Road Economic the BRI are policy coordination, facilities connectivity, unim- Belt), Chinese authorities has considered all their projects peded trade, financial integration and people-to-people in Tajikistan as BRI projects. But the Government of Tajik- bonds (NDRC et al. 2015). istan considers such projects as national development This year, China celebrates the 40th anniversary of projects, which it is implementing with the help of Chinese the policy of reform and opening up, as well as the 5th investments. The case of Tajikistan is not unique, and many anniversary of the BRI. During the first five years of the experts and analysts note the same phenomena elsewhere:

BRI, China signed 103 documents on cooperation with 88 “There is no agreed-upon definition for what qualifies as a countries and organizations. China’s total trade with BRI BRI project. Temporally, functionally, and geographically, countries exceeded US$5 trillion. China’s total investment what counts as a BRI project is open to interpretation. The in the countries covered by the initiative exceeded US$70 BRI banner hangs over a wide and ever-expanding list of billion. Chinese enterprises opened 75 zones of trade activities. There are BRI fashion shows, concerts, and art exhibits. By design, the BRI is more a loose brand than a and economic cooperation that provided 200 thousand program with strict criteria” (Hillman 2018a). new jobs in BRI countries. The volume of trade between

the China and Tajikistan increased from US$2.75 million “The BRI is also breathtakingly ambiguous. There is no offi- in 1992 to US$850 million in 2016, an increase of more cial definition for what qualifies as a BRI project. There are than 300 times. Now China has already become the larg- Chinese-funded projects in countries not participating in est source of investment in the economy of Tajikistan, the the BRI that share many of the same characteristics. The largest donor country and one of Tajikistan’s major trading partners (Avesta 2018). Table 1: Foreign Investment in the Tajik Econ- Between 2007 and 2017, the flow of foreign invest- omy, 2007-2017 ment into the economy of the Republic of Tajikistan Attraction of investments Total, US$ Year amounted to US$8.614 billion, of which US$3.673 billion Direct Other Portfolio millions 2 was direct investment, US$4.439 billion other investment 2007 388.4 472.2 860.6 and US$501.9 million portfolio investment (Table 1). 2008 425.7 563.6 989.3 In 2007-2017, investments from 57 foreign countries 2009 89.4 293.8 383.2 were attracted to the economy of Tajikistan. Most of these 2010 238.9 228.2 467.1 (US$2.250 billion, 26.1 percent of the total) came from 2011 161.4 164.0 0.1 325.5 the PRC. 2012 391.3 355.0 0.1 746.4 The main expected result of Tajikistan’s participation 2013 341.1 670.6 0.2 1,011.9 in the BRI is massive investment from China. It should 2014 377.4 530.4 1.4 909.2 be noted here that there is no clear and formal distinc- 2015 470.9 506.9 0.0 977.8 tion between BRI investment/projects and other Chinese 2016 434.2 408.4 0.1 842.7 2017 354.5 245.9 500.0 1,100.4 Total 3,673.2 4,439.0 501.9 8,614.1 1. The BRI’s earlier name was the One Belt, One Road (OBOR) Initiative. 2. “Other investments” include soft loans and other financial resources. Source: Agency for Statistics under the President of the Republic of Tajikistan

55  RUSTAM AMINJONOV AND MATIN KHOLMATOV 56 Tajikistan document presents those areas and sectors which have Currently theauthoritiesof bothcountriesplan,withinthe (NDS-2030), which outlines the following key objectives (loans andinvestments)provided byChinagotoimple (NDS-2030), especiallyforlargeinfrastructure projects communication routes toenablethecountrygetoutof cient useofelectricity;2)ensuring bettertransportation/ of roads, tunnelsandetc.),energy(constructionofgener earth metals,coal,etc.),construction(cementandbrick egies by leveraging policy coordination” (Xinhua 2017a). one of the significant sources of financing for the imple ating facilitiesandpowerlines)agriculture. already attractedChinese investment ormostlikelywillbe anisms includingtheAsianInfrastructure InvestmentBank such asroads, railways,airports,energyfacilities(power 2. KeyCharacteristicsofBRIEngagementin who pays the piper, calls the tune”). The main areas at the NationalDevelopmentStrategyofTajikistan until2030 the momentare: mining(development ofgold,silver, rare they are mostlychosenby China initsrole ofinvestor(“He that theBRIis“tocomplementnationaldevelopmentstrat factories, contracts for the construction of large govern for Cooperation,toidentifyalistofpriorityprojects from Commission framework ofthebilateralIntergovernmental for thenext15years:1)ensuring energysecurityandeffi [AIIB], theSilkRoadFund,andNewDevelopment menting projects defined aspriority investments under ment facilities), transport (construction and rehabilitation potential areas forBRI-related projects withChinesefund plants, powerlines),etc.President XiJinpinghimselfstated mentation oftheNationalDevelopmentStrategyuntil2030 Bank [alsoknownastheBRICSbank]) NDS-2030, whichwillbelabeledasBRIprojects andwill 3. Private meetings with senior government officials.3. Privatemeetings withseniorgovernment ing inthefuture. be financedfrom BRIfunds(vianeworenhancedmech “Association withBRIisequallylithe. as if it were a kind of franchise. Even the project’s name umbrella, andcompaniesinChinareadilyidentifywithBRI, years earlierareoftencounted”(Hillman2018b). to ‘One Belt, One Road’, and becoming the ‘Belt Road in Englishhasremainedfluid,changingfrom‘SilkRoads’, Initiative’ in2015 BRI was officially launched in 2013, but projects started long predateBRIhave been brought under the initiative’s The Government ofTajikistanThe Government countsontheBRIas As fortheareas ofChineseinvestmentinTajikistan, However, itshouldbenotedthatvirtuallyallfunds ” (Mardell2017). Projects androutes 3 . Therefore, this that ------ductive employment.According toNDS-2030,atthefirst diture Review(PER-2)and consistedofthree stand-alone Council 2018). grams, suchastheShanghaiCooperationOrganization, cial sectorshouldbedeveloped.”Projects implemented out in2013-14bytheWorld BankunderthePublicExpen sustainable developmentinurbanizationandindustrializa stage ofitsimplementation(until2020)“theminingindus state-owned enterprises,andcapitalexpenditures and Shanghai Cooperation Organization, which are deploying will furtherpromote economictiesamongmembersofthe with Chineseinvestmentare alsocloselyintegratedwith the Central Asia Regional Economic Cooperation (CAREC) try, energy, transport,telecommunications, foodandlight the communicationdeadlockandhelptransformcountry tion, andintheservicecommunicationsectors(State from thegrowing demandofcountriesinCentralAsiafor people-to-people exchanges. New opportunities will come more resources inrailways,trade,financialservicesand plans and priorities within regional organizations and pro public accesstoqualitynutrition;and4)expandingpro particular, itnoted: public investmentmanagement(World Bank2014).In public finance management, fiscal risks associated with notes coveringthefollowingtopics:keyissuesinfield Program, etc. infrastructure projects andtheirdevelopingprioritieson industry, buildingmaterialsindustry, tourism, andthefinan into aviabletransitcountry;3)ensuringfoodsecurityand in Tajikistan, themostrecent detailedanalysiswascarried The BeltandRoadInitiativenewbusinessmodes With regardWith toinvestmentprogramming andbudgeting • • • The PublicInvestmentProgram inTajikistan dination between them and the parallel process of operation) resulting from investment projects are consolidated statebudget.Atthesametime, accounted between40to50percent ofthe sions onnewinvestmentprojects withouttaking Summarizing the main shortcomings of investment Summarizing themainshortcomingsofinvestment the financialcapacityofstate budget); the abundance of strategic documents, weak coor ration ofthefuture budget; programming inthecountry, itisnecessarytonote not wellcalculatedandbudgeted for intheprepa Future operational costs (for maintenance and into accountthebudgetprocess andassessing investment budgeting in Tajikistan continued to budgeting (such as the government making deci budgeting (such as the government lag international bestpractice; lag international

------THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A VIEW FROM TAJIKISTAN  57 ------For quite some time now, both local and foreign and foreign both local For quite some time now, In October 2016, China forgave Cambodia’s debt of $90 debt of $90 In October 2016, China forgave Cambodia’s In 2015, the government of Pakistan transferred the port the port In 2015, the government of Pakistan transferred investments had a real positive impact on the lives of many positive impact on had a real investments first, after 15 years China has passed: from ing investments have to be paid in which investments act as a bait and will facilities, its, operating and new enterprises, infrastructure than 80 percent of China’s oil imports pass. of China’s than 80 percent This agreements. new 31 concluding for exchange in million allowed the country to take on new loans for a number of that will be implemented by Chinese companies. projects at that time, China accounted for 43 to the IMF, According total debt. of Cambodia’s percent well as the implementation of other major projects. As a result, result, As a well as the implementation of other major projects. moment, the At island. the on appear may base naval China’s Hornthe in in Djibouti base of foreign one has already China Asia and Africa, next to an important transport artery between military presence As the Asia TimesEurope. notes, China’s loans, which in the East African state was achieved through in Djibouti’s share while China’s GDP, half of Djibouti’s reached public debt is about 90 percent. Over China company state-owned Chinese to Gwadar of seas Port Holding on a 43-year lease and allowed the lessee a “special” economic zone at the port, writes Asia to create Times.billion $16 almost borrowed Islamabad that noted is It 91 deal, China will receive Beijing. As part of a long-term from revenues and 85 percent the port’s from of the profits percent zone. Gwadar is the southern of the surrounding end of the China-Pakistan Economic Corridor (CPEC), which originates in the Xinjiang Uygur Autonomous Region of the PRC. Estimated at $ 46 billion, CPEC will link China to the Middle East, which alter an become will corridor The resources. energy in rich is more which currently native to the Straits of Malacca, through nation and discontent. The BRI is regarded as a “debt trap” The BRI is regarded nation and discontent. people. However, at present the period of euphoria regard the period of euphoria at present people. However, framework of the BRI in the region and around the world. and around in the region framework of the BRI depos assets (lands, valuable natural resource for by real some of them are given in Box 1. some of them are as well as negative, are fully visible; second, the majority fully visible; second, the majority are as well as negative, and a lot, so they learn about the actual results and read other donors did not allocate funds for a long time. These for a long time. allocate funds did not other donors positive consequences, their implementation, project of of the country consists of of the working-age population who travel, see, communicate, young and mobile people within the implementation of projects consequences of the thoughts— for such grounds are There 2013). etc.) (Sattori of discrepan experts have been trying to bring the issue goals of the BRI to and declared cies between the real As a result, people are increasingly expressing their indig expressing increasingly people are As a result, ------tion Departments), with low levels of coordination of coordination with low levels tion Departments), stan, therefore economic efficiency and efficiency and efficiency economic efficiency stan, therefore assessed (Ecorys 2014). and integration between key players; and integration between of investment projects as cost savings are not not are savings cost as projects investment of continue to be prepared separately, often by two often by two separately, be prepared continue to different departments (the Budget and Construc and Budget (the departments different Tajiki in investment projects final evaluation of At the sectoral level, current and capital budgets budgets capital and current level, sectoral the At To date, there is no system of intermediate and intermediate and is no system of date, there To According to CNN, China plans to establish a military pres According According to the IMF, Sri Lanka’s foreign debt at the end debt at the end foreign Sri Lanka’s to the IMF, According In the Tajik capital of Dushanbe, the Chinese company capital of Dushanbe, the Chinese company In the Tajik • • In the beginning, the first Chinese investments were were In the beginning, the first Chinese investments It should be noted that in the preparation of invest that in the preparation It should be noted ence in the South Pacific region due to loans to the island state ence in the South Pacific a $270 million loan for the con China has provided of Vanuatu. as Vanuatu, in Santo Espírito of island the on port a of struction enterprise China Merchants Port Holdings on a 99-year lease. enterprise China Merchants Hambantota is a deep-sea port located at the very crossroads noted is It Ocean. the Indian cross that routes trade global of the of security energy the for indispensable is Hambantota that imported oil passes along of China’s PRC, because two-thirds near this port. the routes of 2017 amounted to $48.3 billion, or more than 80 percent percent 80 than more or billion, $48.3 to amounted 2017 of $8 billion. However, was approximately share China’s of GDP. Times, the Sri Lankan authorities to the New York according handed the debt on time and as a result unable to repay were over the port of Hambantota to the Chinese state-owned region (Verkhniy Kumarg and Duoba) with proven reserves of reserves Kumarg and Duoba) with proven (Verkhniy region of Geology about 100 tonnes of gold. The Main Department states that the Company under the Government of Tajikistan will mine gold in the fields until full compensation of the funds invested in the construction of the Dushanbe-2 thermal power station is achieved. After the compensation of this debt, a new will be signed on new terms. agreement TBEA (Tebian Electric Apparatus) built the Dushanbe-2 ther Electric Apparatus) built the Dushanbe-2 TBEA (Tebian which of million, $350 around costed It plant. power mal TBEA obtained $330 million was invested by TBEA. In return, to develop two gold-bearing deposits in the Sughd a license Box 1: Assets for Debt key requirements and usually are paid for as part of the paid for as part of the and usually are key requirements ing the most urgent problems of the country, for which for which of the country, ing the most urgent problems positively received in Tajikistan, as they were aimed at solv as they were in Tajikistan, positively received ment projects with Chinese investment, the necessary investment, the necessary with Chinese ment projects the population are usually not conducted, or they are con usually not conducted, or they are the population are expense of the grants they allocate. consultations with potentially affected communities and communities and affected consultations with potentially ducted for show. In the case of projects of international In the case of projects ducted for show. the among are consultations such institutions, financial  RUSTAM AMINJONOV AND MATIN KHOLMATOV 58 The PRC seeks to create a unique financial system that Yuan theofficial currency ofBRIoperations(Bateman2018, during theimplementationofits initiative. Chen 2018,Deloitte2018).Trade flowsalongthenewsilk quick torebut theseaccusations,asarguedin 2017). According tounofficial communicationsofChinese (Pantucci 2016).TheBRIhasbeenpresented asfree from Xi’an andShenzhentoresolve disputesthatmayarise yuan (Pale2015). currency ofChina,theyuan.There are planstomakethe officials, forachievingthe goals oftheinitiativetheyexpect coexistence” (Xinhua2017a).Yet noteveryoneagrees with economic opportunitiestoallcountriesalongitsroutes, geopolitical, ideological or military objectives. Beijing insists officials in Central Asia that China’s interests and invest and that“genuineinfrastructure needsand commercial a report ontheBRIthatquestionedreal intentions are widespread worriesabouttherisksofBRI,includ and caution.ThemostvocalcriticoftheBRIisIndia,with argues thatthere isapersistentsenseamongexpertsand will uniteregional developmentbanksandprovide foran to lose30percent oftheir investments inCentralAsiaand to reinvent thewheelbutto complementnationaldevelop the Chinese project with varyingdegrees of enthusiasm this commonChinesenarrative,andobserversperceive that there isno“politicalagenda”behindBRI,andthatthe that theBRIwillpromote free tradeandbringtremendous the attentionofawideraudience.Forexample,Pantucci route willbeservicedbyafinancialsystembasedonyuan. primarily by China’s efforts to extend its global influence,” ment strategiesbyleveragingpolicycoordination.” mentary mine thesovereignty ofothernations”(Mitra2017). ments intheregion masksomesortofhiddenagenda up to80percent oftheirmoney in Pakistan. officials are national businesses(Leach2017). Chinese President Xihimselfhasstated thattheBRIis“notmeant Beijingoftryingto“under Prime MinisterModi accusing is notBRI’s primarygoal.“ItisaChina-centric trade increase insettlementsnationalcurrencies, primarilyin ing itseffects onemployment andtheviabilityoflocal initiative’s intendedresult isa“bigfamilyofharmonious behind it.Theagencystatedthattheproposal is“driven logic mightbesecondarytopoliticalmotivations”(Fitch Another goal of the BRI is the internationalization ofthe Another goaloftheBRIisinternationalization It isimportanttonote that industrialdevelopment In addition,Chinaiscreating newcourtsinBeijing, In January2018,credit rating agencyFitchpublished Behind therhetoricofcooperationandmutualbenefit from theofficial newsagencyXinhua(2017b).And a com - - - - - At thesametime,Tajikistan’s debtasofJan totalexternal 4. Unfortunately, information about the terms of Chinese financing is not financial structures ofArabcountries.Debt resulting from development. duction, poverty levels, international reserves, salaries,duction, povertylevels,international (more thanUS$1.2billion),theWorld Bank (US$318mil (Badykova 2017).However, theinvestmentsinnon-trans eral basis.However, thedetailsofagreements reached channels predominantly forcurrent andupcomingChinese trade concept –enhancing and expanding international of principaldebtandpaymentinterest in2017were of Tajikistan are the Export-Import Bank of China (CHEXIM) all regional organizationsandprograms (SCO,CAREC, and newmarketsforChineseproducts whilekeepingChi and negative. We look at eight specific areas in this section. surplus outputs.Beijingwantstoredirect itssurplussav sion of rapid growth of the main macroeconomic indicators. state budgetindicators),atleastintheshorttomedium 3. BenefitsandRisksoftheBRIfor Tajikistan 3.1. MacroeconomicIndicators SPECA, etc.), implementation ofinvestment projects inthe the maintenanceofEurobonds, thisfigure will amountto mar securitiesoninternational the saleofgovernment to 40.3percent ofthecountry’s GDP term, with the exception of the indicator of external debt, as debt,as term, withtheexceptionofindicatorexternal the mainmacroeconomic indicators(GDP, industrial pro framework oftheBRIiscarriedoutexclusivelyonabilat US$147 million.Inthecurrent year, taking into account Islamic DevelopmentBank(US$112million),theEuropean In thecaseofChineseinvestments,theycreate animpres publicly available. providing complementarycapacityforeconomic (corridor) port areas (construction,agriculture, etc.)couldbeseenas uary 1, 2018 amounted to US$2.9 billion, which is equal nese companies busy implementing the initiative’s projects” Bank forReconstructionandDevelopment,aswell involvement intheBRIare very significant, bothpositive ings byinvestinginOBORprojects andsecure existing infrastructure developmentinitiativebasedonapragmatic investments are provided mainlyintheformofsoftloans bilaterally are usuallynotdisclosed. kets isUS$500million.Foreign debtservicing,repayment 5. DataoftheMinistry ofFinancetheRepublicTajikistan. lion), theAsianDevelopmentBank(US$278 million), the The potentialimpactandconsequencesofTajikistan’s Attraction oflargeinvestmentsalwayspositivelyaffects In spiteofthefactthatChinaparticipatesinalmost 5 . Themaincreditors 4 ------. THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A VIEW FROM TAJIKISTAN  59 ------. The continued high 6 Usually Chinese experts and workers speak only Usually Chinese experts and workers speak only . In this situation, investments from China exert addi In this situation, investments from The results of numerous studies in recent years confirm years recent studies in of numerous The results life of the population, the growth of social problems, and of social problems, life of the population, the growth large areas of agricultural land for agricultural production), production), agricultural for land agricultural of areas large The pop country. lack of an adequate supply of jobs in the hired in the local market, Chinese workers are brought in. brought in the local market, Chinese workers are hired birth rate and corresponding population growth) and the and the population growth) birth rate and corresponding 6. Projections based on the National Development Strategy of Tajikistan of Tajikistan based on the National Development Strategy 6. Projections ing to the results of an anonymous online opinion survey of an anonymous online opinion survey ing to the results in labor-surplus Tajikistan, since, when providing invest since, when providing Tajikistan, in labor-surplus Republic regarding perceived risks of increasing Chinese Chinese risks of increasing perceived Republic regarding Federation through labor migration and simplified forms of labor migration Federation through ulation of the country will grow steadily and by 2030 it is steadily and by 2030 it is ulation of the country will grow medium term. Its volume, according to various estimates, medium term. Its volume, according Kazakhstan, and Russia countries, two to mainly year, per its own Chinese ment, China always insists on using position is also increasing in agriculture (through leasing leasing (through agriculture in increasing also is position restrained It is largely is increasing. market of Tajikistan 11.5 million people to reach projected to will, of course, contribute in Tajikistan population growth until 2030. found in neighbouring Central Asian countries. Accord Asian found in neighbouring Central tional pressure on the already difficult employment situation employment difficult the already on pressure tional 150 thousand (Open Asia can reach the PRC in Tajikistan population among the Tajik the appearance of perceptions in nega that Chinese employment practices could result tive social consequences, such as a lack of employment 2018). Such sentiments the aggravation of crime (Wolters tion (study in China). tion (study that tension in the labor-surplus the general conclusion (associated with a high in labor supply tinued stable growth the relevance jobs in the country, the Government to create which absorb up to 97 percent of Tajik labor migrants. of Tajik which absorb up to 97 percent be could workers which for jobs for Even workforce. 3.3. Employment and Migration 3.3. Employment and services (restaurants), health (various clinics) and educa health (various clinics) services (restaurants), and conclusions are not unique to Tajikistan and are also and are not unique to Tajikistan and conclusions are accounts for between 800 thousand to 1.2 million people 1.2 million to thousand 800 between for accounts an increase in the workforce. Given the limited capacity of capacity Given the limited workforce. in the an increase of informed, influential people in Kazakhstan and Kyrgyz of informed, influential people in Kazakhstan and Kyrgyz opportunities for Tajik workers, a decrease in the quality of quality the in decrease a workers, Tajik for opportunities only by the absorption of Tajik excess labor by the Russian excess labor by the Russian of Tajik only by the absorption of the con This situation is the result obtaining citizenship. of external in the short and high labor migration remains 2015) Chinese, which creates additional difficulties in the work. in the work. additional difficulties Chinese, which creates According to unofficial data, the number of migrants from from of migrants number the data, to unofficial According They also do not adapt to the local society. This led to led to This They also do not adapt to the local society. ------The

Thanks to this, China managed to become the main Thanks to this, China managed to become the main The traditional sources of investment for the GovernThe traditional sources large donor countries (USA, Russia, Japan, EU countries). large donor countries (USA, Russia, Japan, loans may “have negative impact on the country’s public country’s loans may “have negative impact on the latter reflects a decrease in the country’s ability to earn for in the country’s a decrease latter reflects lia, Montenegro, Pakistan and Tajikistan—have become become Pakistan and Tajikistan—have lia, Montenegro, has increased from moderate to high, as several important moderate to high, from has increased becomes a problem” (Fitch 2017). becomes a problem” indicators have exceeded the estimated thresholds. The The thresholds. estimated the exceeded have indicators Fitch credit agency warns borrowing countries that BRI agency warns countries that BRI Fitch credit borrowing moving from large government facilities and infrastructure large governmentmoving from facilities and infrastructure estate. China’s real and residential to commercial projects panies enjoy a preferential position. As a result, China China position. As a result, panies enjoy a preferential industries, metallurgical and chemical mining, energy, ronmental standards, which often results in environmental in environmental which often results standards, ronmental monopolization; and poor compliance with social and envi reporting. By comparison, loans from China are relatively relatively China are comparison, loans from By reporting. ment of Tajikistan are international are financial institutions and ment of Tajikistan US$200 million. According to the analysis of the Center analysis of the Center to the According US$200 million. for Global Development, eight countries participating in in countries participating Development, eight for Global tation of large infrastructure projects in Tajikistan; in the in the in Tajikistan; projects tation of large infrastructure to increase at an accelerated rate (World Bank 2017). rate (World at an accelerated to increase the BRI— Djibouti, Kyrgyzstan, Laos, Maldives, Mongo Maldives, Laos, Kyrgyzstan, Djibouti, BRI— the (FDI) 3.2. Financial Flows and Foreign Direct Investment Investment Direct Foreign and Flows Financial 3.2. sian and other companies; and in construction, gradually simple and easy for the government.the for easy and simple come loans These already occupies a dominant position: in the implemen already also affects FDI flows: when deciding whether to award FDI flows: when deciding whether to award also affects and reporting are rather soft. Chinese funds are typically typically rather soft. Chinese funds are are and reporting sector mining of transparency; levels low by accompanied are met. In addition, it is necessary to follow strict proce met. are a result of future financing for BRI projects (Hurley et al. (Hurley et al. projects financing for BRI of future a result of debt unsustainability in Tajikistan also notes that the level contracts for commercially viable projects, Chinese com viable projects, contracts for commercially creditor of Tajikistan during last decade. This dependence of Tajikistan creditor ones, accompnay the funds they allocate. Funds are allo Funds are ones, accompnay the funds they allocate. as the conditions cated for several years, not at once, but eign currency for servicing its external debt, which began eign currency (Kurbanov 2018, p. 93). 2018). The recently updated Debt Sustainability Analysis Analysis Sustainability Debt updated recently The 2018). displacing Western (European, American, Canadian), Rus Canadian), American, (European, Western displacing degradation, resource over-depletion, and social tensions over-depletion, degradation, resource quickly and at once, and the procedures for using funds funds using for procedures the and once, at and quickly dures in procurement, targeted spending, monitoring and targeted procurement, in dures finance position if debt-servicing from project proceeds proceeds project finance position if debt-servicing from financially vulnerable and run the risk of bankruptcy as and run the risk of bankruptcy as financially vulnerable A number of preconditions for reforms, including political political including for reforms, A number of preconditions  RUSTAM AMINJONOV AND MATIN KHOLMATOV 60 “the enormous difference in the size ofthetwocountries demonstrates: Chinese technologyiscoming.Thesetechnologiesare documented evidenceforthesepossibleimplications,this Central AsiaandcompetitionbetweenlocalsChinese drown inaChinesesea”(Goble2011). 2018). Kyrgyz people also were deeply concerned that2018). Kyrgyzpeoplealsowere deeplyconcerned of Chinesespecialistsinthefuture, asthisquotevividly other countries.Atthesametime,alldocumentation or (ii) Chinese replicas (copies) of new technologies from of Chinese immigrants: about 80 percent of respondents accompanying thetechnologyisinChinese,whichvery account theimperfectionsofaccountingandstatisticsin and peopleswouldmeanthattheKyrgyzsoon statistics on Chinese migration, as well as limited access 3.4. Technology andInnovation this area, aswellthelackofreliable informationand to thisinformation(Garibov2018,p.152).Taking into the generalfearof“China’s demographicexpansion”into tend toagree thatthisconstitutesarisk(Jochec&Kyzy from other countries. However, here it is necessary to plicated bythelackofconsistentandcomprehensive migrants forthelimitednumberofjobsinKazakhstanand note twopoints:thesetechnologiesare either(i)obsolete not bad and are alwaysrelatively cheaper than analogues under-researched, challengestobeaddressed before nese migrantsremains oneoftheimportant,but nese migrantscanbegrouped intotwobroad categories: Kyrgyzstan, andthebadreputation ofChinesefirms(Gari inconvenient touse,asitcertainlyimpliestheparticipation innovation andknow-how. Chineseinvestments, With is certainlyanappropriate area forfurtherresearch. implementation ofBRI-related projects. Theissueiscom investment, themostfeared negativeimpactistheinflux bov 2018,p.146). “Instruction manualswritteninChinese,whichaccom cement localfearsthatChinawill control theflowofelec able thatKyrgyzandTajiks donotwanttobecomehostage tricity, possiblytothedetrimentofCentralAsianrepublics, to Chineseexpertise,tools,andworkerscurrentlyoperat the call Chirussian, a sort of incomprehensible mix pany Chineseequipment,havebeentranslatedintowhat monopolization of technique and instruments helps to ing theirdomestichigh-voltagelines. Infact,theChinese between ChineseandRussian.Itisthereforeunderstand The reasons forthesenegativeattitudestoward Chi A negative public perception of China and Chi Investments are usuallyaccompaniedbytechnology, ------This trend ismotivatedbythefactthatlocalfarmersdonot 7. DataoftheStateCommitteeforLand ManagementandGeodesyofthe despite this, agriculture is the main source of livelihood of Central Asia,aslandsuitableforcultivationofcrops occu Chinese producers andspecialists.Forexample,inTajik ducers inTajikistan isincreasing. Overthepastsixyears, demographic growth, whenthepopulation grows atan 2018) control localmarketsandputtheminfulldependenceon gies (connectedwiththeextractionofrawmaterialsand, concern and,insomeinstances,discontentamong the concern of Tajikistan, Dushanbe,whichis12.7thousand hectares. conditions, the transfer of land to Chinese agricultural pro equal and fair distribution of and access to land resources, country’s totalarablelandarea is720.2thousandhect approximately 72percent ofTajikistan’s population,with and HUAWEI. at most,theirprimaryprocessing), andalmostneveronthe authorities forthetimebeing. as wellrelated wateruse, are aggravated.Amidthese average rateof2percent a year, thearablelandareas are ares, ofwhich502.8thousand hectares are irrigated;thus, 3.5. Agriculture ators isavailable. with anactivedumpingpolicyby Chineseseedproducers, the Dushanbevideosurveillancesystem“SafeCity,” is the area oflandleasedbyChinesefarmersinTajikistan has there are 0.10-0.09hectares ofarablelandand0.06-0.07 their incomesdirectly orindirectly linkedtoagriculture. The pies onlyabout8percent ofthecountry’s territory. But, population overall and of farmers in particular, coupled ofthe availableland.Thesecasescausegrowingreturn) newest andmostinnovativeones.Theonlyexceptionis unfortunately reduced inpercapita terms,andtheissuesof istan, thewholesystemoftelecommunications,including in thesphere oftelecommunications,butonlyinorder to investments, relies mainlyonso-called“dirty”technolo increased from 500to18thousandhectares (Karimzod based ontheequipmentoftwoChinesecompanies,ZTE have sufficient fundsforeffective use(toobtainmaximum hectares ofirrigatedlandper inhabitant 8. Nodetailsontheprioruseoflands andtheirusebyChineseoper Republic ofTajikistan local population.Thissituationisbeingcontrolled bythe thus creatingarelationshipofdependency”(Duarte2018, p. 19). Tajikistan is one of the most land-poor countries in As aresult ofthelowpurchasing poweroftheTajik It shouldalsobeemphasizedthatChina,withits 8 . Thisarea islargerthantheterritoryofcapital 7 . Inconditionsof ------THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A VIEW FROM TAJIKISTAN  61 . - - - 10 . These areas might be . These areas 11 . In 2018, Tajikistan plans to . In 2018, Tajikistan 9 In Tajikistan, which does not have its own oil reserves, which does not have its own oil reserves, In Tajikistan, One of the main dangers of coal lies in the fact that the fact that One of the main dangers of coal lies in Development. Democratic Republic of the Congo, India and Canada. In per capita terms 9. Data of the Ministry of Industry and New Technologies of the Republic the of New Technologies and of Industry the Ministry of Data 9. highest in the history of Tajikistan (even in the times of the (even in the times of of Tajikistan highest in the history but Tajikistan faces an electricity shortfall only in winter time, winter in only shortfall electricity an faces Tajikistan but istan, accelerating their melting. This will create additional create istan, accelerating their melting. This will increase its coal production to 2 million tons per year. Coal year. per tons million 2 to production coal its increase in Dushanbe is used locally at the thermal power station coal- the from capacity generating in electricity increase worth 527 billion kilowatt hours per year, after China, Russia, USA, Brazil, worth 527 billion kilowatt hours per year, using environmentally friendly renewable energy sources, energy sources, friendly renewable using environmentally enjoys over 300 sunny days namely solar energy (Tajikistan under the coal industry development program, industrial industrial program, coal industry development under the production in Tajikistan to 2 million tons, potential environ to 2 million tons, potential in Tajikistan production US$42 million a year. could reach mental costs for Tajikistan security in the risks for sustainable development and food water supply in and in the long term will reduce region, basis form the which resources, per year) and hydropower production has been developed rapidly in Tajikistan, and and rapidly in Tajikistan, has been developed production amount a record produced years: in 2017 Tajikistan recent neighbouring countries and energy imports from programs try’s glaciated area may decrease by 20 percent, and the by 20 percent, may decrease glaciated area try’s the country. Also, mainly due to Chinese investments, coal investments, coal mainly due to Chinese Also, the country. Dushanbe-2 thermal power the coal-fired this program, 300 thousand tons per year) 300 thousand tons per which can be solved by energy efficiency/energy saving saving which can be solved by energy efficiency/energy and by land area, Tajikistan ranks either first or second in the world. Tajikistan and by land area, Soviet Union, coal production in Tajikistan barely exceeded barely in Tajikistan Soviet Union, coal production station was built in Dushanbe with Chinese money. As a As a with Chinese money. station was built in Dushanbe a large oil refinery is slated to be built with Chinese funds a large oil refinery and at industrial plants; in the last ten years about 200 years about 200 and at industrial plants; in the last ten of coal used to generate electricity causes environmental environmental of coal used to generate electricity causes the coun may disappear, of small glaciers in Tajikistan (ADB 2011). volume of ice by 25-30 percent enterprises are transferred to the use of coal. As part of of use of coal. As part to the transferred are enterprises tens of times in has grown consequence, coal production the was million tons; this figure 1.7 than coal—more of (CEP 2018). The enterprises have been converted to coal of the country’s energy potential of the country’s (Fields et al. 2012). Environmentalists note that one ton note that one ton (Fields et al. 2012). Environmentalists damage of around US$21 a year. Given plans to bring coal Given plans to bring US$21 a year. damage of around glaciers of Tajik during combustion coal dust settles on the thousands estimates, to predictive According Asia. Central fired power plant is welcome to meet local power needs, needs, power local meet to welcome is plant power fired of Tajikistan. resources, hydroelectric of reserves potential total of terms in globally At the same time, Tajikistan has enormous potential for has enormous potential for At the same time, Tajikistan 10. It will be built by the Chinese company Dong Ying Heli Investment and 10. It will be built by the Chinese company Dong Ying 85th largest, ranks eighth is the world’s whose land area 11. Tajikistan, - - - In recent decades, China has consistently implementedhas China decades, In recent It is well known that Chinese technologies in agriculture technologies in agriculture It is well known that Chinese A review of available research found only one relevant found only one relevant of available research A review Taking into account the importance of agriculture for for agriculture of into account the importance Taking investments in the Tajik cement and coal sectors. Thanks investments in the Tajik information, the impact of the BRI on this sector is also an nature and drivers of Chinese land acquisitions in Tajikistan Tajikistan in acquisitions land Chinese of drivers and nature ucts, an increase in the incidence rate of health issues, rate of health issues, in the incidence ucts, an increase plants have been built in recent years, which has helped years, which has helped plants have been built in recent partially state-embedded enterprises driven by profit-ori by driven enterprises state-embedded partially or underde either unanswered market demands that are paper discusses large- and small-scale Chinese farm farm Chinese small-scale and large- discusses paper capitalist yet are agriculture main Chinese actors in Tajik may negatively impact the changing gene pool of seeds. may negatively impact in fertilizers chemical of use widespread the for provide market of Tajikistan. As a consequence, better quality better quality As a consequence, Tajikistan. market of turn Tajikistan from an importer of cement to an exporter. an importer of cement to an exporter. from turn Tajikistan to Chinese investments in Tajikistan, several large cement to Chinese investments in Tajikistan, the development of Tajikistan, as well as the lack of reliable as well as the lack of reliable the development of Tajikistan, the territory of Tajikistan, this may in future cause a large- this may in future the territory of Tajikistan, the cultivation of agricultural products. The result of this of this The result products. the cultivation of agricultural the latter gradually have expanded their share in the seed in share expanded their have gradually latter the 3.6. Ecology shed light on the various, sometimes competing, factors shed light on the various, sometimes competing, factors scale ecological catastrophe in the region. in the region. scale ecological catastrophe seeds from other countries and local seeds, specifically specifically and local seeds, other countries seeds from While this is beneficial from an industrial development point While this is beneficial from a policy of transferring industries that adversely affect the a policy of transferring industries that adversely affect appropriate area for further research. for area appropriate article on Chinese engagement in Tajik agriculture. This This agriculture. Tajik Chinese engagement in article on account that more than half of Central Asian rivers start in account that more and most importantly the pollution of rivers, water basins, and most importantly fertilizers and chemicals, as waste from and groundwater are being replaced by less suitable Chinese seeds. This This by less suitable Chinese seeds. being replaced are of view, it also results in significant ecological problems for in significant ecological problems it also results of view, environment from its territory to neighbouring countries territory to neighbouring countries its from environment ented goals. Chinese farm enterprises tap into specific tap into specific ented goals. Chinese farm enterprises or which have emerged due to the veloped in Tajikistan, The number of Chinese consumers in Tajikistan. growing enterprises in Tajikistan, in which discussions around in which discussions around enterprises in Tajikistan, can be the destruction of environmentally friendly prod friendly environmentally of destruction the be can (Roberts (2014). Two examples of this policy are Chinese examples of this policy are (Roberts (2014). Two (and beyond)” (Hofman 2016). driving China’s broader foreign “land rush,” in Central Asia “land rush,” in Central foreign broader driving China’s China’s “global land investments” and the BRI intersect. “global land investments” and the BRI intersect. China’s GMOs affect rivers and penetrate aquifers. Taking into into rivers and penetrate aquifers. Taking GMOs affect designed to fit Tajikistan’s climate and agricultural practices, climate and agricultural Tajikistan’s fit designed to “Rather than state-led endeavors as is often assumed, the “Rather than state-led endeavors as is often  RUSTAM AMINJONOV AND MATIN KHOLMATOV 62 deterioration ofTajikistan’s environment isquitesignificant. of the Republic of Tajikistan)Government and NGOs who (ASIA-Plus 2018b).OnOctober 13,Tajik President Emo (CEP 2018).Theynotethatatpresent accesstocleanair grant ofUS$220milliontoTajikistan fortheconstructionof ofborrowing countries.Forexample,of thegovernments of mineraldepositscontributedtocontinuedsoilerosion construction materials, non-ferrous metallurgy) grew the enterprises tocoal)ontheonehand,andnon-compliance economic activity(motortransport,constructionofther ous andadjacentterritories.Atthesametime,increasing energy sectorofTajikistan. a new parliament and government complexinDushanbe a newparliamentandgovernment and effective systemofprocurement andproject manage and theirpolicies in particular. The lack of atransparent and anincrease inexposure tonaturaldisasters,suchas as theCommitteeforEnvironmental Protection underthe stan. Themostpollutingindustries(miningandprocessing, serious deteriorationoftheair, water, soil,floraandfauna 3.7. PublicAdministrationandEconomicPolicy with environmental measures ontheotherhand,exacer this yearitwasannouncedthat Chinawouldprovide a the favorofdecision-makersandencouragethem,China tries, itcanbeconcludedthatChina’s investmentinthe that hasalready ledtoadecrease inlandproductivity, an fastest (15-40percent) compared toaveragegrowth in for about88percent ofthetotalGHGemissions inTajiki mali Rahmon and Chinese Premier Li Keqiang signed a ment intheprovision of funds promotes corruption. To gain public administration in general, and on individual officials main source of investment for the above-mentioned indus materials, andcottonprocessing industries.Theyaccount pollution includethemining,chemical,energy, construction mal powerplantsoperatingoncoalandmasstransfersof monitoring thestateofenvironment inthecountrynote potential prioritydirections forfuture BRIinvestmentsinthe uses the practice of grants for so-called “image” projects increase inthelevelofvulnerability oftheruralpopulation industry (15percent) (UNDP 2012).Massivedevelopment is achieved,firstofall,duetothecleanairmountain in general corresponds standards, to international but this investments, haveasignificantnegativeimpactontheeco bate thesituationincitiesandvalleypartsofcountry. landslides andfloods(CEP2018).GiventhatChinaisthe logical situation in Tajikistan. Both official structures (such The main anthropogenic sources ofatmospheric air All these industries, put into operation with Chinese Chinese investmentshaveastrong influencebothon ------Tajikistan long-termin termsofpotentialimpactsonthe China, inwhichthelattergained1,000square kilometres dependent onits“big”neighbour, whichmaythreaten financial institutionsandforeign investors, decision-makers 2011 agreement tosettlealanddemarcation issue with of Tajik territory, wasan“unofficial debtwriting-off agree countries isunknown. of the new Tajikcornerstones parliament and government grant toTajikistan andtookpartinceremonies tolaythe agreement on providinggovernment-to-government this cern amonganalysts: cern country’s sovereignty. of investment,andTajikistan isbecomingincreasingly ongoing processes. Whennegotiatingwithinternational cease toadequatelyperceive thereal situationandthe on the economy as a whole. Ultimately, these individuals of thefundsinvolved,theireffective use,theirpossiblecon elites and their Chinese counterparts (Ghiasy &Zhou 2017). and accountability, butalsostrengthens homegrown ani a result, intoamajorsource Chinahasconsistentlyturned are already openlyusingthisargument:ifyoudonotgive accustoming themnottothinkabouttheappropriateness and violentmanifestationsofangeragainstbothruling sequences andtheirimpactonthesectorinquestion 3.8. Culture this” (Sattori2013). to getthebestdeal.Thisisoftenmadepossibleby formation ofthemindsetandthinkingdecision-makers, mosities. Theperception thatChinaiscontributing,even ment, althoughnodocumentary evidence existstosupport us moneyonourterms,thenwewilltakeitfrom China.As nomic challengescanleadinCentralAsiatosocialunrest For example,there havebeensuspicionsthatTajikistan’s indirectly, andeco tosocialinjustice,poorgovernance, bates localproblems associatedwithgoodgovernance by Chinaforprojects inTajikistan andotherCentralAsian buildings inDushanbe(ASIA-Plus2018a). by theChineseauthoritiesare alsocausinggrowing con lack of transparency around the deals they are making. The Chinesebusinessphilosophynotonlyexacer The provided “easy money” contributes to the trans At thesametime,exactamountofgrantsprovided China is good at exploiting poor governance practices China isgoodatexploitingpoorgovernance Select elementsoftheculturalpolicybeingpromoted • The wholeworldwasdivided intotwopartsas China) and the “foreign barbarian periphery” (bar seen bytheChinese:Centralor Middle(mainland barians, i.e.allnon-Chinese people, whowere ------THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A VIEW FROM TAJIKISTAN  63 ------level and 50 percent of the level of attracted FDI. FDI. attracted of level the of percent 50 and level until 2030). Based on this assessment and under mitments are fully implemented. mitments are as a whole (e.g. ment in the country and the region Introduce official restrictions on borrowing from from restrictions on borrowing official Introduce the auspices of the BRI, the governmentof the BRI, the auspices can plan Stop borrowing until the current projects and com projects until the current Stop borrowing clear and mutually acceptable definition of what clear and mutually acceptable definition of what external debt country’s the of percent 40 exceed Conduct a forward-looking labor needs assess Conduct a forward-looking Conduct negotiations with China and agree on a on a China and agree with negotiations Conduct qualifies as a BRI project. should not China. For example, such borrowing • • • Below are some recommendations that can help the that can help the some recommendations Below are As the BRI was only initiated in 2013, it may be too too be may it in 2013, initiated only As the BRI was significant risks for a small are At the same time, there harmonized trade and investment policy within Central within Central harmonized trade and investment policy ing those from China. It is also important to pursue a more China. It is also important to pursue a more ing those from imizing the benefits and minimizing the risks of the BRI: neighboring country like Tajikistan, ranging from economic ranging from neighboring country like Tajikistan, remove corruption, and liberalize border, trade, and invest trade, and and liberalize border, corruption, remove open more ment policies. This will help to make the region potential benefits from greater connectivity: trade volumes, connectivity: trade greater from potential benefits facilitation in countries along the BRI route could raise GDP along the BRI route facilitation in countries to and attractive for foreign and domestic investors, includ investors, domestic and foreign for attractive and to tial economic impact of this ambitious initiative. One study tial economic impact the BRI but some coun a lot from that the PRC would gain as subregions tries, such as Mongolia or Pakistan, as well and political risks, as detailed to social, environmental political coupled with a strong tial risks, decisive reforms well as all Central Asian countries, could also enjoy many could also enjoy Central Asian countries, well as all such as Central Asia and Southeast Asia, stand to benefit such as Central Asia and Southeast Asia, significantly as well (Chan 2017). are very few quantitative studies investigating the poten very few quantitative studies are maximize potential benefits and minimize poten above. To commitment are required to overcome vested interests, vested interests, to overcome required commitment are elites (Kurbanov of the isolationist policy incentives of local countries of Central Asia and the South Caucasus in max growth, reductions in the costs of delivered goods, and goods, and in the costs of delivered reductions growth, there date, likely outcomes of it. To early to assess the trade and network transport the improving that estimated by 0.1 to 0.7 per and South Asia in Central, West growth suggested also It 2016). al. et (Villafuerte points centage 2018, p. 92). firm competitiveness. Asia, given the high internal barriers imposed as a result Asia, given the high internal barriers imposed as a result Asia and the South Caucasus 4.1. For the Governments of the Countries of Central 4.1. For the Governments of the Countries of Central ------leading mainlines of the traditional political ideologyleading mainlines of the 2018). (Voronov territories” lost Celestial Empire has not changed much. Power expansion of Chi has not changed much. is widely practiced in the Xinjiang Uyghur Auton is widely practiced in the Xinjiang Uyghur in China (Kamal 2011). As it stands, China consid in China (Kamal 2011). nese emperors to the outside world is one of the to the outside nese emperors pursue a similar approach among Central Asian among Central Asian pursue a similar approach right to carry ultimate power and authority over all ultimate power and right to carry tives are being bolstered if the family is maintained being bolstered tives are tured). At the same time, China was given a prior a given was China time, same the At tured). shift people’s values. shift people’s state undertakes a mass resettlement of Chinese state undertakes a mass resettlement some of China’s excess male population and to to and population male excess China’s of some and encourage marriages between the local and local and and encourage marriages between the assimilate it with the local border population. This assimilate it with the local border the : for effect in is program assimilation and true order” (Kamornaya 2014). The world (Kamornaya2014). The world and true order” countries in the future, along with a conscious conscious a with along future, the in countries and history to dissolve local traditions, rewrite effort omous Region in China, where an official state state an official omous Region in China, where ered the territory of Central Asia as “temporarily “temporarily the territory of Central Asia as ered other states and people and exhibit the only “right and people and exhibit other states concept as per modern Chinese philosophy order considered spiritually incomplete and non-cul and incomplete spiritually considered (Kaiman 2014). There is a risk that China may is a risk that China may (Kaiman 2014). There Chinese. For families with children, such incen such children, with Chinese. For families Central Asian countries may be expected to absorbCentral Asian countries • Central Asia once played an important role in the old in the old Central Asia once played an important role The BRI has the potential to be a major opportunity for There are many benefits for countries affiliated to the to the for countries affiliated benefits many are There long term, the initiative could transform Central Asia from long term, the initiative could transform Central Asia from BRI on Tajikistan and Recommendations BRI on Tajikistan Road (BRI) may be the initiative that provides Central Asia Road (BRI) may be the initiative that provides BRI, including the possibility of attracting free resources resources BRI, including the possibility of attracting free revenues, and strengthen their competitiveness. In the their competitiveness. In the and strengthen revenues, political, economic, and social difficulties. The New Silk The New Silk political, economic, and social difficulties. Union, Central Asian countries have faced tremendous Union, Central Asian countries have faced tremendous from China to implement large infrastructure projects, the projects, China to implement large infrastructure from ture, access new markets via cheaper routes, generate generate routes, cheaper via markets new access ture, the Central Asian countries to develop physical infrastruc physical develop to countries Asian Central the tunity to enter the Chinese market. with opportunities to actively engage in global trade once Silk Road, but this region has not appeared on the global has not appeared Silk Road, but this region stage for several centuries. Since the collapse of the Sovietthe Since the collapse of several centuries. for stage a landlocked region to a land-bridged region. Tajikistan, as Tajikistan, to a land-bridged region. a landlocked region again (Jochec & Kyzy 2018). creation of new industries and enterprises, and the oppor creation 4. An Overall Assessment of the Impact of the 4. An Overall Assessment of the Impact  RUSTAM AMINJONOV AND MATIN KHOLMATOV 64 4.2. FortheInternationalCommunity • • • • • China/BRI quality ofequipmentandmachinerybeingbrought Group) consistingofdomesticandinternational Central Asian countries when negotiating in the China and acommonstrategy and positions for of Chinese initiatives in the absence of alternative of Chineseinitiativesintheabsencealternative good examplemightbetheJapanesePartner potential; first of all, they should of their internal ever reason. Attheveryleast, investmentinmajor goals intheregion willnotbeachievedforwhat experts (CIS,Europe andAmericas)toassessthe ery toTajikistan/CASC countries(compliantwith of projects tobefundedbytheBRI. context ofstrategiccompetition withChina. countries of Central Asia and the South Caucasus and successfullycompetewithChina.Criticism agriculture, should be seriously evaluated in terms and theSouthCaucasus;therefore itisnecessary and establishapermanentCommission(Working a comprehensive skillstrainingprogram forthe ship for Quality Infrastructure in Asia (PQI). The solidated approach toattractingresources from Significantly intensify its programs and projects in Strengthen regional cooperation. Develop acon tries ofCentralAsiaandtheSouthCaucasus.A to theBRIthatwouldbeattractivecoun the region. It is possible to develop alternatives to agree ontheconditions for attractingborrowing tive muchmore thanthecountries ofCentralAsia that theWest paysattentiontothemonlyinthe from Chinasothatrecipient countriesdrawoverall framework ofBRIprojects. Chinaneedsthisinitia In anycase,itwouldbewiseforCASCcountries relevant environmental protection safeguards) proposals andprojects sends message tothe make economicsensewithinacountryorregion. Revise sanitarysafetystandards andbanthe Develop andadoptrequirements thatwouldallow international communityneedstomoreinternational actively infrastructure projects, aswellinindustryand import, production anduseofGMOsinthe country. into CASC countries under projects funded by importation ofonlynewequipmentandmachin benefits from theBRI. have an alternative planincaseexpectedBRI have analternative local labor force, taking into account the pipeline . ------Avesta InformationAgency (2018). ASIA-Plus (2018b). ASIA-Plus (2018a). Asian DevelopmentBank(ADB2011). Committee forEnvironmental Protection (CEP)underthe (2018).“ Chen, Tian Chan, Sarah(2017).“TheBeltandRoadInitiative:Impli principal questionsdeservemore attention: Bateman, Joshua(2018).“ Badykova, Najia(2017).“ References As oncerns futureAs oncerns research ontheBRI,following The CentralAsia-CaucasusANALYST. Yuan GoGlobal Ambassador inTajikistan Mr. • • • • • • Government oftheRepublicTajikistanGovernment (2018). ofAsianStudies35 (2):52-78. Copenhagen Journal cations forChinaandEastAsianEconomies.”The Oct 13 and MigrationinAsia struction of parliamentary and government complexes complexes struction ofparliamentaryandgovernment Initiative CouldbeDoomedwithoutMarketReforms rency istan: Environment in Tajikistan buildings ofTajik heldon parliamentandgovernment The impact of the BRI on migration and employ The overall value of BRI funding in Tajikistan and The impactoftheBRIonenergyinTajikistan. 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Bahodir Ganiev

1. Introduction Uzbekistan has been trying to leverage the BRI to Uzbekistan is an important country for China’s Belt and achieve its development objectives. The development Road Initiative (BRI). Situated at the heart of Central Asia, priorities of Uzbekistan include upgrading the country’s Uzbekistan borders all other Central Asian countries as transport and communication infrastructure; improv- well as Afghanistan. It has the largest population and the ing its transport links with other countries; fully realizing second-largest territory (after Kazakhstan) in the region. It its potential as a transit country for international trade; is rich in natural resources such as gas, gold and uranium. increasing the production of renewable energy and final It has a relatively well-developed manufacturing base and goods with high value added; diversifying the direction an extensive network of roads and railways. Several routes and composition of exports; developing logistics services, of the ancient Silk Road passed through what is now finance, tourism and science; and improving the quality of Uzbekistan, with Samarkand, Bukhara and Khiva being education (Government of Uzbekistan 2017a). As shown major trade hubs along the road. in the appendix below, these priorities closely match the Uzbekistan has welcomed the BRI. In June 2015, China BRI cooperation priorities. Hence, Uzbekistan has tried to and Uzbekistan signed an agreement on expanding eco- attract—within the BRI framework—Chinese financing and nomic cooperation within the framework of the BRI. The know-how into the transport, communication, hydropower agreement calls for co-building the Silk Road Economic and financial sectors; into the petrochemical, textile and Belt (SREB) through expansion of cooperation between the food industries; and into tourism, science and education. two countries in trade, investment, finance, transport and Uzbekistan has given priority to the development of the communication; implementation of joint infrastructure proj- East Asia-Central Asia-West Asia transport corridor and ects; and collaboration in development of industrial parks the establishment of integrated industrial parks, scientif- (Executive Committee of the Commonwealth of Indepen- ic-innovative clusters and free economic zones along the dent States 2016; Ministry of Commerce of China 2015). SREB (Abduvakhitov 2018, Kurbanov 2017, Sayfullin 2017, Uzbekistan supported the establishment of the Asian Shustov 2017, UzDaily.com 2017a).1 Infrastructure Investment Bank and the Silk Road Fund This note provides an overview of BRI projects in (SRF), which are intended to finance BRI projects. During Uzbekistan.2 In doing so, the note discusses the benefits his visit to China in May 2017, the , of BRI projects for Uzbekistan, the risks that the imple- Shavkat Mirziyoyev, took part in the high-level roundtable mentation of the BRI poses to the country, and measures on the BRI and reiterated Uzbekistan’s support for the BRI. that Uzbekistan has taken or needs to take to manage He stressed the need to fill the concept of the BRI with these risks effectively. The note is intended to serve as a specific programs and projects, including joint projects in background paper for the Emerging Markets Forum (EMF) transport, trade, investment, energy and modern technol- ogies (UzDaily.com 2017a). During 2016-2018, Uzbekistan

and China signed a number of agreements on collabora- 1. This paragraph is also based on: Ministry of Foreign Affairs of the Republic of Uzbekistan. International Cooperation. Uzbekistan and the tion—within the BRI framework—in specific sectors such Countries of the World. Cooperation of the Republic of Uzbekistan with as transport, trade facilitation, finance, and tourism (China the Countries of Asia and the Pacific. https://mfa.uz/en/cooperation/coun- tries/378/ (accessed 10 September 2018). Daily 2017a; Gazeta.uz 2017a). In May 2018, Uzbekistan 2. For the purpose of this note, a BRI project is defined as a project that involves China and is within the BRI framework set out in National Devel- hosted an international conference on prospects for the opment and Reform Commission, Ministry of Foreign Affairs, and Ministry implementation of the BRI (Shonazarov 2018). of Commerce of the People’s Republic of China (2015). The note does not cover the projects that involve China but are deemed to be outside the BRI scope (e.g. the technical assistance that China is providing to the Ministry of Interior of Uzbekistan).

67  BAHODIR GANIEV 68 Asia, andbetweenSouthAsiaEurope. Therefore, Asia remain underdeveloped. Uzbekistan needs to develop Asia andtheSouthCaucasus(CASC). 4. Theoverviewmaynotbecomprehensive. Whileanattempthasbeen commodities (ADB2006). chains andpartlyexplainstheconcentrationofitsexportsinafewprimary China-Kyrgyz Republic-UzbekistanandtheMazar-i-Sharif- 25 years,itslandtransportlinkswithEast,SouthandWest goods. efits oftheseprojects forUzbekistan. available inthepublicdomainasof1October2018,this are beingimplementedorconsidered. sectors of the Uzbek economy. section provides an overview of BRI projects in various some ofthemhavealready beencompleted,manymore 2. BRIProjects andtheirBenefits study on the effects of the BRI on the countries of Central shorten therailroad distancesbetweenUzbekistanandIran’s BandarAb these linkstoreduce transportcostsandtimesforinter tively. Section4provides concludingremarks. that exacerbateormitigatetheserisks,andmeasures that the implementationofBRIposestoUzbekistan,factors the Uzbek economy. Italso discusses the benefits of these 2.1. RailandRoadTransport Uzbekistan hasbeenpushingfortheconstructionof Uzbekistan can take to manage these risks more effec visit, ChinaandUzbekistansignedover100agreements envisioninga reduce transportcostsandtimes and generatetransitincome projects havenotbeencovered duetolackofinformationoranuninten made tocoverallmajorBRIprojects onwhichinformationwasavailable markedly afterPresident MirziyoyevvisitedChinainMay2017.Duringthe unpredictable. ThisconstrainsUzbekistan’s participationinglobalvalue China, as well as between China and Afghanistan and between China and potential asatransitcountryandlogisticshubfortrade port connectivitywiththerest oftheworldoverpast projects for Uzbekistan. Section 3explores major risks that provides anoverviewofBRIprojects invarioussectors of national shipmentsandboostexportsofmanufactured Herat railways. (Gazeta.uz 2017a). would substantiallyreduce therailroad distance betweenUzbekistanand tional omission. tablish arailroad linkbetweenUzbekistanandIranviaAfghanistan and 3. ThenumberofBRIprojects beingimplementedorconsidered increased 6. TheconstructionoftheChina-Kyrgyz Republic-Uzbekistanrailway West Asia. The construction of the Mazari-Sharif-Herat railway would es between East and West Asia, between East and South 5. Atpresent,shipmentstoandfrom transportcostsforinternational Uz in thepublicdomainasof1October2018,itispossiblethatsomeBRI large numberofinvestment projects worthmore thanUS$23billionintotal links with East, South and West Asia also to fully realize its bas and Chabahar seaports, as well as between China and Iran. It would bekistan are high,whiletransporttimesforsuchshipmentsare longand There are numerous BRIprojects inUzbekistan.While The rest ofthenoteisorganizedasfollows.Section2 Although Uzbekistanconsiderablyimproved itstrans 5 Uzbekistanneedstoimprove itslandtransport 6 Uzbekistan has also been pushing for the 4 It also discusses the ben 3 Usinginformation ------The totalcostoftherailway, includingitselectrification 10. UzbekistanRailwaysisastate-owned railwaycompany. Itbuilt the 7. In2011,Iran,,, Turkmenistan andUzbekistansignedan Angren-Pap railway, whichconnectsUzbekistan’s three Agreement ofUzbekistan (Gazeta.uz2018a,Government considerably reduce transportcostsandtimesforshipments corridor connectingthesignatorycountries.Theagreement is commonly Asia-Central Asia-West Asiatransportcorridor. Group began the construction of the tunnel inSeptember fication oftherailwaywasnotcompletedasmid-2018. 2018). 2013 andcompleteditseveralmonthsaheadofschedule 2017b). vided by the Export-Import Bank of China (Rong 2017, Hui vided bytheExport-ImportBankofChina(Rong2017,Hui of whichUS$350millionwasfinancedfrom aloanpro establishment oftheUzbekistan-Turkmenistan-Iran-Oman of therailway, purchase oftrackmaintenanceequipment and southern provinces,and southern partly with China’s assistance and technical assistance to Uzbekistan Railways (World single trackrail,wascompletedin2016.However, electri a circuitous route around mountainsandpassesthrough Tajikistan. agreement transport and transit onthe establishment of aninternational workers tookpartintheconstruction(Podrobno.uz 2015). within theBRIframework. tunnel in eastern Uzbekistanisoneofthelargestcom tunnel ineastern transport corridorinaccordance withtheAshgabat tially reduced thetransportcostsandtimesforboth US$195 millionloantofinancethesignaling,electrification US$1.2 billion.In2015,theWorld Bankapproved a record inoperatingandmaintaining railwayassets. road, includingthetunnel.Itisaprofitable companyandhasa goodtrack main infrastructure ofthenewAngren-Pap railroad, withtheexceptionof port corridorcouldlaterbeconnectedorevenintegratedwiththeEast ment in 2013. Kazakhstan, Pakistan and Iran joined it in 2015, 2016 and referred toastheAshgabatAgreement. Qatarwithdrew from theagree not onlyforAfghanistan,butalsoUzbekistan. pleted BRIprojects in the country. China Railway Tunnel passenger andfreight railtraffic betweentheUzbekpart railway maininfrastructure, including thebridges and the provinces in the with the rest of the country, 2018, respectively. Theimplementation of theAshgabatAgreement would Kamchik RailwayTunnel Bank 2015). the Kamchik tunnel. It is responsible for operating and maintaining the rail in February 2016. The construction cost US$455 million, but excludingtheKamchiktunnel,isestimatedataround bypassing Tajikistan (Figure 1). 8. Noinformationisavailableinthepublic domainaboutthetermsof 9. TheoldAngren-Pap railwaywasbuiltduringtheSovietPeriod. It follows loan provided bytheExport-ImportBankofChina. land transport connectivity between its eastern, western western land transportconnectivitybetweenitseastern, bekistan andSouthAsia.TheUzbekistan-Turkmenistan-Iran-Oman trans between UzbekistanandtheArabianPeninsulaaswellUz The Kamchiktunnelis a section of the new 124 km The constructionofthe19.2kmKamchikrailway Even without electrification, the railway has substan 8 About 1200 Chinese workers and over 600Uzbek 7 Simultaneously, Uzbekistanhasbeenimproving 10 9 Theconstructionofthe ------THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  69 - - - - - When the China-Kyrgyz Republic-Uzbekistan rail When the China-Kyrgyz Republic-Uzbekistan has indicated its willingness to help China, Kyrgyz RepublicKyrgyz China, help to willingness its indicated has and shipments along the railway will widths have different between China and Uzbekistan, but also between China, between China and Uzbekistan, but also joint use of the China-Kyrgyz Republic-Uzbekistan railway joint use of the China-Kyrgyz Republic-Uzbekistan it will reduce the transport costs and times not only for transport costs and times not only for the it will reduce involve transshipments. their recent visit to Uzbekistan, representatives of Taliban reportedly indi reportedly of Taliban visit to Uzbekistan, representatives their recent Pap with the Kyrgyz Republic (CA-News 2018). UNESCAPPap with the Kyrgyz Republic (CA-News 2018). participation of Uzbekistan Railways (ADB 2009). Iran is currently building participation of Uzbekistan Railways (ADB 2009). Iran is currently During is expected to be completed in 2019 (AzerNews 2018). railroad 2018). railway (Anhor.uz It will also foster development of logistics services in these Uzbekistan has started electrification of railways linking of railways linking Uzbekistan has started electrification way is completed, it will generate many benefits. Notably, benefits. Notably, way is completed, it will generate many a railroad linking Khaf in easternin Khaf linking this of construction The Herat. with Iran railroad a shipments between China and the Kyrgyz Republic and Republic and shipments between China and the Kyrgyz to one Asia, on the other hand. According stan and West days Asia by 7-8 and West between China shipments and Uzbekistan draft an intergovernmental agreement on and Uzbekistan draft an intergovernmental agreement ate transit income for the Kyrgyz Republic and Uzbekistan. on the one hand, and Tajikistan, Turkmenistan, Afghani Turkmenistan, on the one hand, and Tajikistan, time for rail will shorten the transport estimate, the railway countries in part because various parts of the railway will (Podrobno.uz 2018c). (Podrobno.uz will gener the railway Furthermore, 2017b). (Podrobno.uz opment Bank (ADB)—within the framework of the CAREC Program—and opment Bank (ADB)—within the framework of the CAREC Program—and cated that they would guarantee the security of the Mazar-i-Sharif-Herat zar-i-Sharif railway in 2009-2013, with the assistance of the Asian Devel zar-i-Sharif

- - - - 13 The government of 12 The railway will become part of the 11 CGTN China, Kyrgyz Republic and Uzbekistan have con China, Kyrgyz Republic and Uzbekistan Source: Figure 1: Map of New Angren-Pap Railway New Angren-Pap 1: Map of Figure been justified (given its high cost) if, when the decision to build the railway transport and trade facilitation projects within the BRI framework and those within the BRI framework transport and trade facilitation projects in 1980s. Afghanistan built the Hairatan-Ma railroad the Termez-Hairatan was taken, relations between Uzbekistan and Tajikistan had been as good between Uzbekistan and Tajikistan was taken, relations East Asia-Central Asia-West Asia transport corridor when East Asia-Central Asia-West Cooperation (CAREC) Program. Cooperation (CAREC) Program. railway, which would enable rail shipments between Uzbeki between shipments enable rail which would railway, more than 50 percent for shipments of oil and oil products for shipments of oil and oil products 50 percent than more northern Afghanistan already exist. The former Soviet Union constructed northern Afghanistan already Union (EAEU) has indicated that it is willing to co-finance the project (Podrobno.uz 2018a). The Eurasian Economic (Podrobno.uz the project 2017). (Podrobno.uz the project the China-Kyrgyz Republic-Uzbekistan railway is built. the China-Kyrgyz Republic-Uzbekistan railway transport costs and times. In particular, it will reduce it will reduce transport costs and times. In particular, and passengers for 35 percent by about costs transport supported by the SCO, EAEU and the Central Asia Regional Economic as they are now. as they are stan and Iran through Afghanistan (Podrobno.uz 2018b). Afghanistan (Podrobno.uz stan and Iran through stan on the joint construction of the Mazar-i-Sharif-Herat stan on the joint construction of the Mazar-i-Sharif-Herat and have mostly agreed on the joint construction of the the of construction joint the on agreed mostly have and conducted consultations with the government the with consultations Uzbeki of conducted of the Fergana Valley and the rest of the country. When its of the country. and the rest of the Fergana Valley reduce will further the railway is completed, electrification (World Bank 2018). (World ducted several rounds of consultations at various levels of consultations at various levels ducted several rounds The Shanghai China-Kyrgyz Republic-Uzbekistan railroad. support for Cooperation Organization (SCO) has expressed China-Kyrgyz Republic-Uzbekistan Railway Afghanistan has also expressed support for the project and support for the project Afghanistan has also expressed 12. There is a good deal of complementarity and even overlap between is a good deal of complementarity and even overlap 12. There via Hairatan in 13. The railways connecting Uzbekistan with Mazar-i-Sharif 11. Despite these benefits, it is not clear that its construction would have  BAHODIR GANIEV 70 TIR carnets between China and Afghanistan along the TIR carnets The China-Uzbekistanroad transportagreement that was Afghan-Uzbek border (Podrobno.uz 2018e).InApril2018, Afghanistan. In mid-2018, Uzbek-Chinese joint venture Silk China-Kyrgyz Republic-Uzbekistancorridorandtheroad China-Kyrgyz Republic-UzbekistanRoadCorridor 2017 entered intoforce on1January2018.Theagreement (Podrobno.uz 2018d).The averagetransporttimeforship expected toreduce considerablythetransportcostand of cargoinAndijan(Podrobno.uz 2018f).Thisroute is center isbeingbuiltinAndijan tofacilitatetransshipment connecting AndijanwiththeUzbekcityofTermez nearthe via Kazakhstan(Yue 2018). corridor is 2 days, as against 8 days for shipments by rail costs andtimesforshipmentsbetweenChinaUzbeki of Transport (for Uzbektrucks)(Yue 2018). enter andtransittheterritoryofothercountryusing could notenterChina’s territory. operational until recently because Chinese trucks were not corridor have existed for years, the corridor was not fully ends inUzbekistan’s capitalcityofTashkent. Itstotallength corridor includes the China-Kyrgyz Republic-Uzbekistan and China, whereby cargo would be transported by rail and RiverTransport (forChinesetrucks)orChina’s Ministry allowed to enter Uzbekistan’s territory and Uzbek trucks stan. The transport costs for cargo shipments between special permitsissuedbyUzbekistan’s AgencyforRoad signed duringPresident Mirziyoyev’s visittoChinainMay time forshipmentsbetween AfghanistanandChina. to startmultimodalcargoshipmentsbetweenAfghanistan ofUzbekistanandAfghanistanagreedthe governments the transport costs of shipments by rail via Kazakhstan road betweenAndijanandKashgar. Amultimodal logistics ments alongtheChina-KyrgyzRepublic-Uzbekistanroad road corridor. ThiscorridorstartsinKashgarChina’s Xin railway, theEastAsia-CentralAsia-West Asiatransport Road International begantransportation ofcargounder Road International andTashkent alongtheChina-KyrgyzRepub Uzbekistan,and Kyrgyz RepublicandAndijanineastern is nowbeingusedalsoforshipmentsbetweenChinaand is about900km(Yang 2017).Althoughtheroads alongthe jiang Autonomous Region, passes through Osh in southern jiang AutonomousRegion,passesthrough Oshinsouthern between Mazar-i-Sharif (Afghanistan)andAndijanby has enabledtrucksregistered inChinaorUzbekistanto lic-Uzbekistan road corridorisabout20percent lowerthan The China-KyrgyzRepublic-Uzbekistan road corridor The corridor has significantly reduced the transport The corridorbecamefullyoperationalinearly2018. Apart from theChina-KyrgyzRepublic-Uzbekistan - - - - The capacity of this line will be 30 billion cubic meters per 16. Dataontransitincomethatthepipeline generatesforUzbekistanare 15. Uzbekneftegaz,astate-owned oil andgascompany, operates 14. LinesAandBwere commissionedin2009and2010,respectively. The constructionoflineCbeganin2012, andthelinebecameoperational Asia-China pipeline.Mostlikely, itwillalsooperateandmaintainthe Uzbek financing and thelowquality ofmaintenanceservices. Itis 2018-2020 (UzDaily.com 2017b). completed and the construction of the third line, Line C, ered tobeaBRIproject eventhoughtheconstruction of cubic metersofnaturalgastoChinaeveryyearduring ered toChinaviaLineD. year (ASIA-Plus2018).WhileKazakhstan,Turkmenistan completed in2020,willrun1,000kmfrom Turkmenistan combined capacityofthelinesis55billioncubicmeters along theChina-KyrgyzRepublic-Uzbekistan-Afghanistan and generatetransitincomeforthecountry. agreements. Notably, NewSilkRoadOil&GasCompany, agreement stipulatesthatUzbekistanwillexport10billion and C,onlyTurkmen and(possibly)Uzbekgaswillbedeliv and UzbekistansupplygastoChinathrough LinesA,B stan to China through Uzbekistan and Kazakhstan. The stan indevelopingitsgasfieldsunderproduction sharing stan toexportnaturalgasChina,andgeneratestransit Shipments alongtheroute willcreate jobsinUzbekistan and maintainstheUzbekpartsof existingthree linesofthe Central whose constructionstartedin2014andisexpectedtobe three lines ofthepipelinerun1,830kmfrom Turkmeni the firsttwolinesofpipeline,LinesAandB,hadbeen to keep the roads along the corridor ingood condition. to China in May 2017,Uzbekistan and China signed a to ChinaviaUzbekistan,Tajikistan andtheKyrgyzRepublic. 2.2. Oil,GasandPetrochemicalIndustries Unfortunately, roads inUzbekistanare generallynotwell maintaining gaspipelines. part ofLineD.Uzbekneftegazhasagood trackrecord inoperatingand not availableinthepublic domain. road corridorare properly maintained. made anyspecialarrangementstoensure thattheroads maintained for a variety of reasons, including insufficient medium-term agreement onsupplyofnaturalgas.The per annum(Podrobno.uz 2016a).Thefourthline,LineD, not clearifUzbekistanandtheneighboringcountrieshave income for Uzbekistan. During President Mirziyoyev’s visit had begunbefore thelaunchofBRI. in 2014. lic-Uzbekistan-Afghanistan road corridor, itisimportant To maximize the benefits ofthe China-KyrgyzRepub The Central Asia-China pipeline has enabled Uzbeki TheCentralAsia-Chinagaspipelineiswidelyconsid Within theBRI framework, China is assisting Uzbeki Within 15

16 14 Theexisting ------THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  71 ------20 Chinese investments investments Chinese 22 As of mid-2017, Chinese investments As of mid-2017, Chinese investments 21 Uzbekistan has been keen to cooperate with China in Uzbekistan has been keen to cooperate China is helping Uzbekistan to modernize Uzbekistan to China is helping its irrigation be properly maintained and these BRI projects will increase Uzbekistan’s Uzbekistan’s will increase maintained and these BRI projects be properly in offices bekistan. In addition, 73 Chinese companies had representative loans totaling US$3.0 billion for irrigation and hydropower billion for irrigation and hydropower loans totaling US$3.0 including 80 companies fully owned by Chinese investors, operated in Uz Uzbekistan (Podrobno.uz 2018h). Data on how many of these companies 2018h). Data on how many of these Uzbekistan (Podrobno.uz have been set up in Angren FEZ. Angren in up set been have in Jizzak FEZ exceeded US$90 million. They created over in Jizzak FEZ exceeded US$90 million. They created will help of Tashkent outside FEZs parks and industrial in ident Mirziyoyev’s visit to China in May 2017, the countries visit to China in May 2017, the countries ident Mirziyoyev’s The (Gazeta.uz 2017a). stations pumping 299 water ing of of Uzbekistan the President in Uzbekistan. Subsequently, on the implementation of this agree issued a resolution September 2018). well maintained in Uzbekistan. Therefore, there is a high risk that the mod there well maintained in Uzbekistan. Therefore, Ministry of Commerce of China signed an agreement on on China signed an agreement of Ministry of Commerce 21. As of 21 March 2018, more than 700 companies with Chinese capital, 2018, more 21. As of 21 March FEZ (accessed 12 Economic Zone. Residents of Angren Free 22. Angren 20. Like roads, irrigation infrastructure and hydropower stations are not are stations hydropower and infrastructure irrigation roads, Like 20. province in 2013 (Podrobno.uz 2013). Many companies 2013). Many companies (Podrobno.uz in 2013 province park. They enjoy significant tax and other privileges (Bob than a dozen companies with Chinese investment more ments, the Chinese entities made commitments to provide made commitments to provide ments, the Chinese entities upgrad the is projects these of One Uzbekistan. in projects and of Uzbekistan ment. In November 2018, Turonbank the Export-Import Bank of China will provide ment whereby equipment Chinese of purchase the for company, power public domain. Uzbekistan expand the production and export of goods and export of goods Uzbekistan expand the production 2.4. Industrial Parks for small hydropower stations (Gazeta.uz 2018c). for small hydropower technology goods. One such park was founded within the within founded was such park One goods. technology to begin after 2020 (Pozrobno.Uz. 2018g). 2020 (Pozrobno.Uz. to begin after a loan agree the Export-Import Bank of China concluded the state-owned hydro this money to Uzbekgidroenergo, with Chinese investment have been set up in this industrial with Chinese investment have been set up and representative offices are based in Jizzak FEZ are not available in the based in Jizzak FEZ are are offices and representative ernized stations will not water pupping stations and the new hydropower without generating adequate returns. external debt burden State Committee on Investment of Uzbekistan and the Investment of Uzbekistan and the State Committee on system and increase hydropower generation. During Pres generation. During hydropower increase system and a US$58.5 million loan to Turonbank. The latter will on-lend a US$58.5 million loan to Turonbank. establishing joint industrial parks for the production of high establishing joint industrial parks for the production okhonov 2017). concluded several agreements in these areas. In the agree in these areas. concluded several agreements stations of small hydropower collaboration in construction Jizzak Free Economic Zone (FEZ) in Uzbekistan’s Jizzak Jizzak Economic Zone (FEZ) in Uzbekistan’s Jizzak Free The production of tea and its exports to Europe is expected is Europe and its exports to of tea The production 1,300 jobs for Uzbek workers (Shustov 2017). In addition, ------These proj 19 In late 2017, CNPC In late 2017, 17 18 Uzbekistan and China are collaborating in agriculture collaborating in agriculture Uzbekistan and China are Uzbekistan and China are implementing or planning or planning implementing are Uzbekistan and China power Generation billion cubic meters of natural gas per year to China via via to China year per gas natural of meters cubic billion in Bukhara province of Uzbekistan. province in Bukhara Mirziyoyev’s visit to China in May 2017, Uzbekistan and visit to China in May 2017, Uzbekistan and Mirziyoyev’s National Petroleum Corporation (CNPC), is developing is developing Corporation (CNPC), National Petroleum Development Bank signed an agreement on co-financing Development Bank signed an agreement understanding on cooperation in tea production. Bay Tea Bay Tea understanding on cooperation in tea production. ridor for exports of horticulture and food products from from products food and horticulture of exports for ridor mation on the terms at which China Development Bank and the SRF will Uzbekistan to China (Gazeta.uz. 2018b). In September Uzbekistan to China (Gazeta.uz. 2018b). In September 2.3. Agriculture, Food Industry, Irrigation, and Hydro 2.3. Agriculture, Food Industry, finance the oil, gas and synthetic liquid fuel projects in Uzbekistan. finance the oil, gas and synthetic liquid fuel projects food products from Uzbekistan to China and other coun from food products tries. In May 2017, Uzbekistan and China’s quarantine quarantine China’s and Uzbekistan 2017, May In tries. cor the establishment of a joint laboratory and a green the Central Asia-China pipeline (South China Morningthe Central Asia-China Post in Uzbekistan’s other joint projects to implement several three natural gas fields (jointly referred to as Block) to as Karakul Block) referred (jointly natural gas fields three work agreement on co-financing other oil/gas projects on co-financing other oil/gas projects work agreement 2017a). In June worth a total of US$1.0 billion (Gazeta.uz which is a joint venture between Uzbekneftegaz and China Uzbekneftegaz between joint venture which is a ed exporting gas to China. agencies signed a cooperation agreement (UzDaily.com. (UzDaily.com. agencies signed a cooperation agreement and the food industry to boost exports of horticultural and agreement whereby the SRF will finance several oil and the SRF will finance several oil and whereby agreement industry. and develop its petrochemical a project to produce synthetic liquid fuel, with the total cost synthetic liquid fuel, with the to produce a project frame Bank also concluded a and China Development announced that the first phase of the development of Kar announced that the been completed and New Silk Roadakul Block had almost gas projects in Uzbekistan. The SRF financing will be in US in gas projects oil and gas output ects will enable Uzbekistan to increase of the project estimated at US$1.2 billion. Uzbekneftegaz of the project of natural gas). In particular, Uzbekneftegaz and China Uzbekneftegaz and China of natural gas). In particular, oil, gas and petrochemical industries. During President President During industries. petrochemical and gas oil, Oil & Gas Company would soon begin exporting about 1 Oil & Gas Company (in addition to the medium-term agreement on supply on supply (in addition to the medium-term agreement 2018, Uzbekistan and China signed a memorandum of 2018, Uzbekistan and China signed a memorandum of 2017a). In April 2018, the agencies held consultations on 2018, Uzbekneftegaz and the SRF signed a framework a framework 2018, Uzbekneftegaz and the SRF signed 2017). Group will be Uzbekistan’s strategic partner in this area. area. this in partner strategic Uzbekistan’s be will Group dollars and Chinese yuan (Jia 2018, Ye 2018). dollars and Chinese yuan (Jia 2018, Ye China signed nine agreements relating to these industries to these industries relating China signed nine agreements 17. CNPC has made a commitment to invest US$200 million in this project. 17. CNPC has made a commitment to invest US$200 million in this project. 18. As of mid-2018, New Silk Road Oil & Gas Company had not yet start infor 19. None of the Uzbek and Chinese entities involved has released  BAHODIR GANIEV 72 Two monthslater, theNBUsignedacontractwithChina April 2018,AsakabankofUzbekistanandtheIndustrial China’s Export-Credit AgencySinosure willguaranteethe China will provide Asakabank with loans for on-lending to design the cultural tourism complex (Podrobno.uz 2018h). Chines firmwilldevelopamasterplanofSamarkandand Construction Engineering Design Group, whereby the 2018, the NBU and the China Development Bank signed (NBU) and the SRF signed a cooperation agreement to extend loanstothemforon-lendingUzbekfirms.In oping tourismwillhelpUzbekistanincrease touristarrivals construction ofhotelsalongtheserailroads. Theprojects of aculturaltourismcomplexinSamarkand(Ye 2018). of theRepublicUzbekistanforForeign EconomicActivity tourismisoneofthepriorities expansion ofinternational agreement whereby theIndustrialandCommercial Bankof and Commercial Bank of China concluded a framework and tourismrevenue. agreement envisagesanumber ofprojects intourismand ation for CulturalExchange in Arts and Design signed a small andmedium-sizedenterprises(SMEs)inUzbekistan. eign direct investmentorthrough borrowing. external with highvalueadded,create jobs,andreduce (with with Chinesebanks,whereby theChinesebankswill will befullyfinancedthrough foreign investments(Gazeta. the BRI,UzbekistanandChinaare tryingtoincrease col for tour trains in Tashkent and Samarkand regions and the framework agreement on collaboration in tourism. The 2.5. Tourism 2.6. Finance Uzbekistan, BeijingJiufangGrandMoveTransportation In September2018,theStateCommitteeonTourism of ment andservicesfrom China(Gazeta.uz2018e).InJune related transport, including the construction of a railroad uz 2018d). 25. Theamountsand thetermsofloanshavenotbeen announced. 24. Thecostofandtheimplementation datesfortheprojects have not hotels,cottages,entertainmentand 23. Thecomplexwillincludemodern Equipment CompanyandtheGerman-ChineseAssoci trade establishments.Theconstruction ofthecomplexistobecompleted invite Chinese companies to participate in the construction invite Chinesecompaniestoparticipateintheconstruction in-country) regional imbalancesinlivingstandards. high prioritytothedevelopmentoftourismandthat loans. Theloanproceeds willbeusedtoimportequip laboration inthissector. InJune2018,theNationalBank been announced,anditisnotclearif the projects willbefinanced byfor by end-2019(Dolukhanov2018). Two Uzbek banks have recently signed agreements Given that the government ofUzbekistannowgives Given thatthegovernment 24 ChineseassistancetoUzbekistanindevel 23 25 ------

TUIT studentswere selectedtoparticipateintheprogram. They agreed tocollaborationinproviding traininginbusi As pertheagreement betweenHuaweiandTashkent Uni Chinese investmentandadvancedtechnologiesto on collaboration in improving the quality of education in education andvocationaltrainingprojects thatfallunder equipment from China(Gazeta.uz2018f).Hence,thecol culture, calligraphy and traditions. The students also visited versity of Information Technologies (TUIT), the ten best and theCenterforStudy of Uzbekistan has beenset and enablethemtoimportChineseequipment. a loanagreement, whereby theChinaDevelopmentBank a commitmenttohelptheCenterforTraining inBasicsof and Uzbekistan’s CenterforTraining inBasicsofEntre stan (Trend NewsAgency2018). Seeds fortheFuture program inUzbekistan in 2017.The will provide theNBUwithaUS$250millionloan.Theloan tional institutions have begun teaching the tional institutionshavebegunteachingtheUzbeklanguage the scopeofBRI(thoughsomethemwere launched the availability of credit for Uzbek firms (especially SMEs) the Huaweiheadquarters,where Huaweistaff gavethem tion technology (ICT) and the enterprise culture of Huawei. themselves with advanced information and communica for trainingprograms inbusinessadministration and 2.7. Education,Vocational Training, andScience Uzbekistan. TheUzbek-ChineseTrade Associationmade Uzbekistan’s secondaryschools(Gazeta.uz2017a). In May2017,UzbekistanandChinasignedagreements In May 2017, these students attended atwo-week train proceeds willbeon-lenttoUzbekfirmsandusedimport program aimedtohelpUzbekistan’s studentsfamiliarize research ondevelopmentofentrepreneurship inUzbeki preneurship concludedafive-year cooperationagreement. up at Shanghai University (The Times of Central Asia 2018). ofCentralAsia2018). up atShanghaiUniversity(TheTimes ness administrationtoUzbekentrepreneurs andattracting 26. Oneoftheinstitutesislocatedin Tashkent, whiletheotheroneisin Entrepreneurship getagrant—withintheBRIframework— Samarkand. ing courseinChina,whereChineselanguage, theylearned knowledge aboutChinaandteachChineseasaforeign been establishedinUzbekistan. before the BRI). Notably, two Confucius Institutes have language (Box1).Furthermore, fourChinesehighereduca laboration between Uzbek and Chinese banks will improve Uzbekistan and China are implementing a number of In July 2018, the Uzbek-Chinese Trade Association Huawei Technologies Co., Ltd conducted a Huawei 26 Theinstitutesprovide ------THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  73 ------At the same time, the BRI can help Uzbekistan diversify Now, the situation is vastly different. After 10 years of After 10 years of is vastly different. the situation Now, student of Chinese, visited China as a 17-year-old Nasyrova China Daily (2017b) Source: labor-intensive goods and services. labor-intensive large BRI projects in Uzbekistan’s oil and gas sectors (such sectors gas and oil Uzbekistan’s in projects BRI large ing Uzbekistan develop human capital, the BRI projects ing Uzbekistan develop human capital, the BRI projects in education will help the country boost exports of skilled industries, and primary commodities will continue to dom industries, and primary commodities will exports, including its exports to China. inate Uzbekistan’s primary commodities and towards its exports away from port will help the country integrate into global value chains more likely that large proportions of Uzbekistan’s scarce scarce of Uzbekistan’s likely that large proportions more capi human and resources financial as (such resources to the vagaries modities will keep Uzbekistan vulnerable and agribusiness industries, as well as those rochemical tion of the Central Asia-China gas pipeline) will make it will make it tion of the Central Asia-China gas pipeline) primary of production in the used be to continue will tal) in the pet this purpose. For instance, the BRI projects development, large numbers of attend the Tashkent attend the Tashkent large numbers of Uzbeks development, 8 students—aged 1,200 than more and Institute, Confucius to according year, every classes Chinese its 60—attend to director. Uzbek the institute’s Saodat Nasyrova, language in 2003. She said study and began teaching the popular in Central Asia. increasingly ing Chinese has become a new building in 2016, gaining more “The institute moved into many However, seating capacity. and greater classrooms than we can office coming to the admissions people are more accept,” she said. seeking to create industrial parks, will help Uzbekistan industrial parks, will help Uzbekistan seeking to create stan’s exports to China (Figure 3). There is a risk that the 3). There exports to China (Figure stan’s and to Uzbekistan, the BRI projects in rail and road trans in rail and road and to Uzbekistan, the BRI projects By help products. of manufactured exports and increase attract modern develop the processing technologies and as the development of new gas fields and the construc as the development of new gas fields commodities. This will hinder the development of other of other commodities. This will hinder the development country’s the hinder and goods these for prices world of economic development. goods and services with high valued added. Indeed, many section serve in the previous reviewed of the BRI projects transport raw materials. By reducing of locally produced costs and transport times for international shipments from exports (Figure 2). They also make up the bulk of Uzbeki exports (Figure The continued concentration of its exports in primary com The continued concentration of its exports - - - - - The institute opened in 2005, and only 30 to 50 students 2005, and only 30 to 50 students The institute opened in Uzbekistan was the first nation to sign an agreement with with sign an agreement was the first nation to Uzbekistan Uzbekistan and China have recently begun collab Uzbekistan and China have recently While BRI projects have considerable benefits for have considerable benefits for While BRI projects The BRI may perpetuate Uzbekistan’s current status status current Uzbekistan’s perpetuate may BRI The and promotions in the community before parents brought their brought parents in the community before and promotions to the institute.” children enrolled in the first year. At the time, few Uzbeks knew anything At the time, in the first year. enrolled to Di Xiaoxia, according and culture, about China, its language the “In Institute. Confucius Tashkent the of director Chinese the Uzbeks the because effort of lot a expend to had we beginning, to said she taught,” we what or were we what of idea no had had to place a lot of ads “We of China Daily. a correspondent China to set up a Confucius Institute. In June 2004, Lanzhou In June 2004, Lanzhou up a Confucius Institute. China to set the Tashkent and capital of Gansu province, in the University, to set Studies signed an agreement State Institute of Oriental Institute in the Uzbek capital, assisted up the first Confucius Chinese as a Foreign Teaching for by the China National Office Language. Box 1: Confucius Institute in Tashkent Institute Box 1: Confucius kadarya province and built a solar power station in the and built a solar power station in the kadarya province its efforts to expand the production and export of goods goods of export and production the expand to efforts its including numerous species of onion and garlic (Chinese species of onion and garlic (Chinese including numerous manage them effectively. manage them effectively. measures that Uzbekistan has taken, or needs to take, to measures ming Center) at Kunming Institute of Botany of the Chineseming Center) at Kunming Institute of Botany Uzbekistan, they also entail certain risks for the country. country. the for risks certain entail also they Uzbekistan, Uzbekistan launched a joint Global Allium Garden (Kun Garden Uzbekistan launched a joint Global Allium for about three-fourths of the country’s total merchandise total merchandise of the country’s for about three-fourths the telescope (Podrobno.uz. 2016b). In 2017, China and the telescope (Podrobno.uz. of Uzbekistan’s tute of Botany and the Institute of Botany telescope of Maydanak observatory in Uzbekistan’s Kash telescope of Maydanak observatory in Uzbekistan’s training in network security, building of 3G and 4G base building of 3G and 4G base training in network security, with high value added, Uzbekistan’s exports remain con remain exports Uzbekistan’s added, value high with 3.1. Risk of Remaining a Supplier of Raw Materials 3. Risks Posed by the BRI stations, and other aspects of modern ICT (Huawei 2017). centrated in raw materials. Primary commodities account of a supplier of raw materials to world markets. Despite of a supplier of raw materials to world markets. Despite exhibit over 90 percent of the Allium speciesexhibit over 90 percent of the world, orating in science. In 2016, China modernized the main uninterrupted power supply for observatory to ensure first Allium garden. It is intended to collect, conserve and Academy of Sciences, Kunming Center is the world’s Academy of Sciences 2017). Academy of Sciences. Co-constructed by Kunming Insti Kunming by Co-constructed of Sciences. Academy This section discusses some of these risks, as well as the  BAHODIR GANIEV 74 enterprises, curtailstateintervention ineconomicactivity, education, andtheefficiency oflabormarkets.Italsoneeds country needstoimprove(includingthepro governance value added,Uzbekistanneedstoimplementabroad to furtherliberalizeforeign trade,restructure state-owned tection ofproperty rights),thequalityofhealth care and modernize thetaxsystem andcustomsadministration, modernize range ofeconomicandinstitutionalreforms. Notably, the BRI forboostingexportsofgoodsandserviceswithhigh Figure 3:CommodityCompositionofUzbekistan’s Merchandise ExportstoChina,2016 Figure 2:CommodityComposition ofUzbekistan’s Merchandise Exports,2016 Source: Source: To takeadvantageoftheopportunitiescreated bythe Observatory of Economic Complexity Observatory of Economic Complexity Observatory 9 3 4 . . 0 . 7 1 % % 1 9 % 5 . 4 . 3 1 . % 0 1 % % 8 . 2 % 1 0 1 . 3 0 . % 4 % 2 2 . 8 8 % . 4 % 4 1 . 0 % 4 1 . 0 - % According totheIMF’s Direction ofTrade Statistics,China over-connected toChinaintermsoftradeandcapital capital andcreate anenablingenvironment fortheprivate enhance market competition,anddevelopthefinancial sector toutilizethiscapitalefficiently. sector. More broadly, Uzbekistanneedstobuildhuman 3.2. RiskofBecomingOver-Connected toChina inflows. Chinaisalready Uzbekistan’s top trading partner. There isariskthattheBRIwillmakeUzbekistan ya O R Ve R Pe O Pre a a t t rn h h d w g t ro ci e e e i

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p t u t re o n THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  75 - - - 27 3.1 41.3 24.5 19.2 13.6 2017 1.4 2.9 4.3 15.3 23.9 20.2 2017 1,391.1 2,932.6 2 5.2 n.a. 20.3 20.3 2016 1.2 2.4 3.6 18.4 21.9 20.6 2015 1,195.1 2,371.1 9.3 4.7 1.7 n.a. 18.5 2015 1.2 1.2 2.5 18.2 14.3 16.0 2010 1,225.7 1,248.8 0.4 0.2 7.1 0.7 9.4 11.5 However, Uzbekistan’s debt burden will increase con will increase debt burden Uzbekistan’s However, 2005 At present, Uzbekistan has relatively low stocks of low stocks of has relatively Uzbekistan At present, 425.5 244.0 into account the government’s contingent liabilities. into account the government’s the occurrence of particular events (e.g. a failure of a state-owned bank or bank state-owned a of failure a (e.g. events particular of occurrence the Most of the PPG external debt was on concessional terms. 27. A contingent government liability is a fiscal obligation contingent on more broadly would help Uzbekistan diversify its direction its direction diversify would help Uzbekistan broadly more IMF and the World Bank in 2018 concludes that Uzbeki that concludes in 2018 Bank World the and IMF to finance BRI projects and these projects don’t lead to to lead don’t projects these and projects BRI finance to tion agreement and improving the business environment environment business the improving and agreement tion to China. over-connected the risk of becoming (GDP) domestic product the ratio of external debt to gross was 41.3 percent (Table 2). The ratio of public and publicly (Table was 41.3 percent government the with debt. domestic outstanding no having 3.3. Risk to Debt Sustainability siderably if the country extensively borrows from China China from siderably if the country extensively borrows stan has a low risk of external debt distress. The analysis The externalrisk of has a low stan distress. debt agricultural products and other manufactures not only to not only to and other manufactures products agricultural externalassumes modest fiscal deficits and borrowing Organization (WTO), implementing the WTO trade facilita the WTO trade (WTO), implementing Organization and further mitigate of capital inflows of trade and sources external and publicly guaranteed debt. In 2017, and public guaranteed (PPG) external debt to GDP was 24.5 percent, it does not take over the medium term (IMF 2018). And China, but also to other countries. Joining the World Trade Trade Joining the World also to other countries. China, but company to service its external debt). The debt sustainability analysis made by the staffs of the of the the staffs The debt sustainability analysis made by - 0.0 0.5 0.0 2.1 0.1 1.2 11.4 41.8 2000 0.1 2.0 0.1 2.4 0.1 1.7 64.2 52.3 1995 IMF (2018) IMF’s Direction of Trade Statistics Trade Direction of IMF’s The considerable increases in the debt burden indicators in 2016-2017 are due largely to the devaluation of the official exchange rate. of which: Public and publicly guaranteed (PPG) debt (% of GDP) In US$ billions As a % of total imports In US$ billions As a % of total trade In US$ billions As a % of total exports This risk is mitigated by the fact that Uzbekistan is usingThis risk is mitigated by the fact that Uzbekistan Table 2: Selected Debt Indicators for Uzbekistan, 2015-2017 Table Table 1: Uzbekistan’s Merchandise Trade with China, 1995-2017 Trade Merchandise 1: Uzbekistan’s Table Note: Source: Present value of PPG external debt (% of GDP) Present Ratio of external debt service to exports (% of exports of goods and services) (% of governmentRatio of PPG debt service to government revenue) revenue External debt (% of GDP) Source: Total trade with China Total Exports to China China Imports from istan, shorten the railway distance between Uzbekistan Uzbekistan istan, shorten the railway distance between increase in Uzbekistan. This will make Uzbekistan highly Uzbekistan highly in Uzbekistan. This will make increase is also one of the top sources of investment inflows to inflows to of investment top sources is also one of the to 7.8 billion (Gazeta.uz 2017a). in Uzbekistan amounted Economic Complexity) suggest that China accounts for for that China accounts Complexity) suggest Economic parks will help Uzbekistan increase exports of processed exports of processed parks will help Uzbekistan increase Inasmuch as BRI projects attract more Chinese investment attract more Inasmuch as BRI projects Uzbekistan expand trade with Afghanistan and countries countries and Afghanistan with trade Uzbekistan expand Uzbekistan. As of May 2017, total Chinese investments investments Chinese total 2017, May of As Uzbekistan. from Uzbekistan) (Lain 2018). Uzbekistan) from the BRI and other mechanisms to expand trade with, and the BRI and other mechanisms to expand to Uzbekistan and improve transport links between the two transport to Uzbekistan and improve trade in 2017, compared with 1.2 percent in 2000 (Table (Table in 2000 with 1.2 percent compared trade in 2017, and Iran’s Bandar Abbas and Chabahar seaports, and help and Iran’s attract investment from, not only China, but also other not only China, but also other attract investment from, Afghan via Iran and Uzbekistan between link railroad a an even larger proportion of Uzbekistan’s trade. China China trade. Uzbekistan’s of proportion larger even an accounted for 20.2 percent of Uzbekistan’s merchandise merchandise of Uzbekistan’s for 20.2 percent accounted of Middle East. BRI projects in agribusiness and industrial of Middle East. BRI projects countries. As mentioned above, Uzbekistan is holding is holding Uzbekistan above, As mentioned countries. construction consultations with Afghanistan on the joint which would establish railroad, of the Mazar-i-Sharif-Herat countries, China’s share in trade and capital inflows may may capital inflows and trade in share China’s countries, in the economic situation in China vulnerable to changes (e.g., a slowdown in economic growth or an increase in in or an increase (e.g., a slowdown in economic growth domestic output of goods that China currently imports imports domestic output of goods that China currently 1). Data from other sources (such as the Observatory of of as the Observatory (such other sources 1). Data from  BAHODIR GANIEV 76 Transparency ranked Uzbekistan157thout International detailed data on external andPPGdebt.Theanalysis detailed dataonexternal debt sustainability at risk or even caused adebt distress China (inparticular, tofinanceBRIprojects) haveputtheir 2018). Another reason is that Uzbekistan’s public procure (TI 2018).Uzbekistan’s rankintheWorld Bank’s gover (Jaborov 2018; Hurley, MorrisandPortelance 2018, The One reason isthatthepreparation andimplementationof corruption thanUzbekistan. of 180countriesinitsCorruptionPerceptions Index2017 corruption remains aseriousproblem inUzbekistan. shouldavoid—as andPPGdebt.Thegovernment external revenueexports andgovernment more thanthecountry’s commensurate increases inGDP, exportsandgovernment accountability anddelays;lowskills/capacityamong and non-transparent procurement practices;weakcapac and other countries whose extensive borrowing from should take into account the government’s contingent lia sis and publish the results of the analysis together with should also regularly carry out—in collaboration with the staff handlingpublic procurement at every level (World 3.4. GovernanceRisks within theBRIframeworkare spentefficiently, Uzbekistan which means that almost90percent of the 209countries tion inUzbekistanandtoensure thatthefundsborrowed ticular inconnectionwithBRIprojects. Thegovernment from Chinaalsoneedstobe published. IMF andtheWorld Bank—adebtsustainabilityanaly review/approval ofbidevaluationreports, leadingtolow ment systemhasmanyweaknesses,includinginefficient much aspossible—incurringcontingentliabilities,inpar revenue. This risk is highlighted by the cases of Tajikistan needs tostrengthen itspublicprocurement system, nities for rent-seeking and fuel corruption in Uzbekistan. nance indicatorforcontrol ofcorruption was10.1in2016, needs toselectBRIprojects carefully andborrow (prefera 28. Theenactment ofthelawonpublicprocurement inApril2018is a Bank 2016). BRI projects generallylacktransparency andaccountabil FDI cannot be attracted and that are likely to increase GDP, Economist 2018).To avoidsuchascenario,Uzbekistan ity forreview ofbidders’complaints;complicatedinternal ity (Jaborov 2018,LainTheEconomistTian included intherankinghadabetterscore forcontrol of bilities. Detailed information about theterms of borrowing bly on concessional terms) only for those projects for which There isahighriskthattheBRIwillcreate opportu Despite therecent progress ininstitutionalreform,

To reduce theriskthat the BRIwillfuelcorrup 28 ------

This maycauseproblems inthefuture, ashashappened dence indicatingthattheenvironmental risksassociated (including state procurement under these projects) trans ects, Uzbekistanneedstoensure thattheenvironmental of ChineseworkersinUzbekistanissmall(especiallyrela ers, and there have never been plans to do so. The number of BRI projects and accountability of all involved parties oped financial and implemented. Involving international an appropriate riskmanagementplanneedstobedevel serious environmental risks. There is currently little evi such abacklash.Thenumberofprojects withChinese 3.5. EnvironmentalRisks 3.6. SocialRisks with BRIprojects are properly assessedandmanaged. would alsohelpprevent these projects from causingenvi the World Bank)inthepreparation andimplementation of tive tothesizeofpopulation). there hasbeennopublicbacklash againstChineseinvest Uzbekistan shouldalsotrytoinvolve—asmuchaspossi major stepintherightdirection. ronmental risk ofaBRIproject isfoundtobesignificant, risks ofallBRIprojects are properly assessed.Ifanenvi mitigate theenvironmental risksassociatedwithBRIproj preparation andprocurement procedures (e.g.ADBand parent, andintroduce ex-post evaluation ofBRI projects. make the preparation and implementation of BRI projects popular discontentwiththeBRI mayalsorise. pleted or are at the implementation stage rises, the risk of resettlement ofalargenumberlocalpeople.Agricultural mented isstillquitesmall.NoChineseinvestmenthas ment inUzbekistan.Indeed,there hasbeennoreason for ronmental problems. risks posedbytheseprojects. Enhancingtransparency projects wouldhelpidentifyand manageenvironmental 29. China’s experienceofinvestinginAfrica, and,more recently, inSriLan BRI projects. Sinophobia are tobeexpectedinresponse torapidlyexpandingChinese in someotherCentralAsiacountries(Wolters 2018).To investment thathavebeencompletedorare beingimple institutions withrigorous environmental safeguards inBRI ble—international institutions with relativelyble—international rigorous project had majoradverseenvironmental impactsornecessitated lines, railways,roads andhydropower stations)maypose land hasnotbeenleased,letalonesold,toChinesefarm ka and Thailand, reveals that public protests, anxieties, and expressions of Some BRIprojects (suchastheconstructionofpipe Unlike inKazakhstan,KyrgyzRepublicandTajikistan, However, asthenumberofBRIprojects thatare com 29 Therisk ------THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  77 ------BRI projects have many benefits for Uzbekistan. In par have many benefits BRI projects At the same time, the BRI poses a number of risks for help Uzbekistan use its water resources more efficiently, efficiently, more help Uzbekistan use its water resources being implemented or considered) in many sectors of the sectors of in many considered) implemented or being attract Uzbekistan help will industries food and business increase human capital would not only mitigate some of human capital would not only mitigate some of increase increase power generation and improve the supply of of the supply power generation and improve increase create and tourist arrivals and tourism revenue increase international organizations (such as ADB and the World in May 2017. There are now BRI projects (completed or or (completed now BRI projects are There in May 2017. Bank) to increase the benefits of the BRI projects. To fully the benefits of the BRI projects. Bank) to increase and sus essential for the effectiveness or are BRI projects, involve—as much as possible—international BRI projects; economic, financial, envi ex-ante introduce BRI projects; BRI projects in irrigation and hydropower generation will generation will and hydropower in irrigation BRI projects ness environment, enhance market competition and enhance market competition and ness environment, needs to strengthen its procurement system and debt man its procurement needs to strengthen ronmental and social impact assessments and ex-post ex-post and assessments impact social and ronmental the busi corruption, improve that would reduce reforms many tourism-related jobs. Uzbekistan is closely collab many tourism-related Uzbekistan needs to the benefits of the BRI projects, reap rochemicals, agriculture, food, finance, hotels, education hotels, education finance, food, agriculture, rochemicals, imbalances, integrate into global (within-country) reduce modern technologies and develop manufacturing. The Uzbekistan. To manage these risks effectively, Uzbekistan effectively, risks these manage To Uzbekistan. Uzbek economy, including railway transport, energy, pet energy, railway transport, including Uzbek economy, ture assets that have been created or upgraded through through upgraded or created been have that assets ture tainability of BRI projects. ticular, the BRI projects in transport can help Uzbekistan can help Uzbekistan in transport the BRI projects ticular, agri in the petrochemical, The BRI projects the country. with China and other countries in fighting transnational with China and other countries in fighting transnational within the BRI framework. within the BRI framework. and diversify the composition and with high value added stan and foster the development of logistics services in services in stan and foster the development of logistics agement; enhance the transparency and accountability of agement; enhance the transparency and science. An industrial park and many enterprises with and science. An industrial can and times for international shipments. These projects Uzbeki for income transit considerable generate also evaluation of BRI projects; and collaborate more closely closely and collaborate more evaluation of BRI projects; institutional and economic further Implementing crimes. electricity. The BRI projects in tourism will help Uzbekistan in tourism will help Uzbekistan The BRI projects electricity. other countries orating not only with China, but also with operation and maintenance of the infrastruc proper ensure of implementation and preparation the in organizations value chains, boost the production and exports of goods the production value chains, boost the transport costs ous parts of the country and reducing (e.g. Afghanistan and Kyrgyz Republic) as well as with as well as with (e.g. Afghanistan and Kyrgyz Republic) Chinese investment have been established in Uzbekistan Chinese investment links among vari transport of trade by improving direction ------For Uzbekistan, the BRI is a useful framework for for framework useful a is BRI the Uzbekistan, For By improving regional connectivity, the BRI may lead to the BRI connectivity, regional By improving The number of BRI projects in Uzbekistan increased in Uzbekistan increased The number of BRI projects leading illicit producer of opium (Diener 2015). To manage of opium (Diener 2015). To leading illicit producer investments and China’s role in a country’s economic development (Dave in a country’s role investments and China’s have a coherent medium-term development strategy and have a coherent bilateral cooperation with China, as well as multilateral bilateral cooperation with China, as well as multilateral BRI to achieve its development objectives. In particular, particular, In objectives. development its achieve to BRI 2018). markedly following President Mirziyoyev’s visit to China China to visit Mirziyoyev’s President following markedly mechanisms, such as the SCO. ple” contacts between Uzbekistan and China can also helpple” contacts between Uzbekistan and China popular and misunderstandings, misperceptions prevent may rise considerably if any BRI project causes a major causes a major project if any BRI may rise considerably Uzbekistan’s development priorities and the BRI coop Uzbekistan’s BRI projects—Chinese Uzbekistan is attracting—through the security risks effectively, Uzbekistan needs to continue effectively, the security risks terrorism, money laundering and cybercrime. The risk of risk of The and cybercrime. money laundering terrorism, tation of BRI projects to employ local labor. Cultural and Cultural and to employ local labor. tation of BRI projects the preparation and implementation of BRI projects; ensure ensure of BRI projects; and implementation the preparation with key in consultation prepared are that BRI projects the perception spreads that only China and corrupt Uzbek only China and corrupt that spreads the perception that BRI projects the likelihood reduce To these projects. will cause popular discontent, the government the discontent, Uzbeki popular of cause will 3.7. Security Risks stan, given its proximity to Afghanistan, which is the world’s to Afghanistan, which is the world’s stan, given its proximity stan needs to enhance transparency and accountability in accountability and transparency stan needs to enhance civil society); and as local communities (such stakeholders advantage of the high degree of congruence between of congruence between advantage of the high degree and other countries through both bilateral and multilateral and other countries through an increase in transnational crime, such as drug trafficking, in transnational crime, such as drug trafficking, an increase is especially high for Uzbeki in drug trafficking an increase and encourage Chinese firms involved in the implemen and encourage Chinese omy. Uzbekistan’s case suggests that the countries case suggests that the countries Uzbekistan’s omy. the BRI if they from by the BRI can benefit more covered aligned with this strategy. are that their BRI projects ensure cooperation with China and other countries. Taking the the cooperation with China and other countries. Taking eration priorities, Uzbekistan is trying to leverage the collaborating on security issues with Afghanistan, China China Afghanistan, with issues security on collaborating educational exchanges and other forms of “people-to-peo and other exchanges educational or an influx of Chinese workers. The risk will also rise if if rise also will risk The workers. Chinese of influx an or projects, while from BRI benefiting are government officials of costs the bearing are Uzbekistan in people ordinary environmental problem, forced resettlement of local people resettlement forced problem, environmental financing and know-how into priority sectors of the econ discontent with BRI projects in Uzbekistan (Dave 2018). discontent with BRI projects 4. Concluding Remarks  BAHODIR GANIEV 78 AzerNews (2018). ASIA Plus(2018). Asian DevelopmentBank(2009). Asian DevelopmentBank(2006). Arabov, A.(2017).“ Anhor.uz (2018). Abduvakhitov, A.(2018). CA-News.org (2018). the benefitsofBRI. the majorrisksposedbyBRI,butalsohelpmaximize for theEMFstudyonBRIinCASC: Bobokhonov, A.(2017). “ Beshimov, B.,andR.Satke(2013). “ References The followingthree research questionsare proposed Transport and Trade through RegionalCooperationinTrade Policy, Joint ImplementationofOneBelt, Узбекистан? финансовые возможности ж/д путей в Кыргызстан иКитай в Кыргызстан ж/д путей путь» визит в Ташкентвизит 1. Visit Visit dation ofthePresident totheBoard ofDirectors on on CentralAsia the Proposed AsianDevelopment FundGranttothe for Uzbekistan) ‘ChinaandUzbekistan:Prospectsference for Titled Iran Soon Islamic RepublicofAfghanistanfortheHairatanto Electrification Project are Importantto Uzbekistan) Mazar-e-Sharif istan--China GasPipelineStarts,Says 2. 3. growth inChinaforBRIprojects inCASC? organizations inBRIprojects thatUzbekistanand What are theimplicationsofgrowing protectionism What are the most effective feasible mechanisms tries userecent advancesinICTandartificial the benefits of BRI projects and mitigate the risks the othercountriesofCASCcouldusetoincrease for the involvement of international andregionalfor theinvolvementofinternational more benefitsfrom theBRI? posed bytheBRI? How canUzbekistanandtheotherCASCcoun in theworldandslowdown and rebalancing of intelligence (e.g.block-chaintechnology)toget to Tashkent) (Financial CapabilitiesofOneBelt,Road . Глава «Талибан» прокомментировал свой (One Belt, One Road—What are Benefits Construction ofTajik SectionofTurkmen

Khaf-Herat Railroad tobeLaunchedin of Customs Transit «Один пояс, один путь» — что получит «Один получит —что пояс, один путь» .” Podrobno.uz. .” Railway Project

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The Economist (2018). Chinese AcademyofSciences(2017). China Daily(2017b). China Daily(2017a). Gazeta.uz (2018e). Gazeta.uz (2018d). Gazeta.uz (2018c). Gazeta.uz (2018b). Gazeta.uz (2018a). Gazeta.uz (2017a). Ergashev, B.(2018).“ Dolukhanov, F. (2018). “ Diener, A. (2015). “Parsing Mobilities in Central Eurasia: Dave, B.(2018).“SilkRoadEconomicBelt:Effects ofChi Executive CommitteeoftheCommonwealthIndepen Transport Strategy) с крупнейшим банком Китая с крупнейшим соглашение с Эксимбанком Китая из Узбекистанасельхозпродукции Agreement with транспортную стратегию Центральной Азии Центральной стратегию транспортную пояс — один путь» Шелкового Независимых документов Geography andEconomics56(4):376-404. Global AlliumGarden (KunmingCenter)Launched dent States (2016). (Uzbekistan Proposed Developing of One RoadProject рельсовый транспорт в городах Узбекистана городах в рельсовый транспорт sity, CentralAsiaProgram. 97-108. Uzbek Cities Imports ofAgricultural Independent States). na’s Soft Power Diplomacy in Kazakhstan.” China’s nese CompanyIntendstoIntroduce RailTransport in Border ManagementandNewSilkRoads.”Eurasian Ed. MarleneLaruelle.TheGeorgeWashington Univer Belt andRoadInitiativeItsImpactinCentralAsia. Road Forumfor Bilateral Agreement withChina’ Belt Project: Prospects oftheCommonwealth News Agency. in Kunming be welcomed—and lish Modern Touristlish Modern ZoneinUzbekistan

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bekistan Railway: Only Issues in Transshipment of of bekistan Railway: Only Issues in Transshipment be Extended) Maydanak Observatory) Kygyzstan and China Practically Agree on Parameters Kygyzstan and China Practically Agree Kyrgyzstan-- Built Kamchik nology Goods ments pleted Modernization Equipment of Astronomical to China Signed 14 Agreements on Production of High Tech on Production Agreements Signed 14 and of Construction of Quarter, Countries of Central Asia Increased Supply Supply Central Asia Increased Countries of Quarter, of Gas to China (UNESCAP is Ready to Help Uzbekistan with Railway Cargo Remain to Commission: Railway from Кыргызстан — Узбекистан»: осталось Кыргызстан Узбекистан»: — решить Китай о параметрах практически договорились модернизацию астрономического оборудования модернизацию возки грузов в Афганистан новому транспортному по вопросы перевалки грузов в проекте в Китай ж/д дороги через Кыргызстан вопросы международным по перевозкам валом Камчик производств в СИЗ “Джизак” увеличили поставки газа в Китай новую железную дорогу «Узбекистан — Кыргызстан «Узбекистан железную дорогу новую коридору обсерватории Майданак Узбекистан будет продолжена Узбекистан свои грузы в Китай через Узбекистан и Кыргызстан и грузысвои Китай в через Узбекистан строительства ж/д линии совместной 10 км нового железнодорожного тоннеля под пере под тоннеля железнодорожного нового км 10 — Китай”— Podrobno Podrobno Podrobno.uz (2017b). (2017b). Podrobno.uz (2018a). Podrobno.uz (2018b). Podrobno.uz (2018c). Podrobno.uz Podrobno Podrobno (2016a). Podrobno.uz (2016b). Podrobno.uz (2017a). Podrobno.uz

------. Bank Exam . Vision and Visionand .” Center for .” Center for (National . . Comprehensive Comprehensive Republic of Uzbeki Strategy of Actions Actions of Strategy Shipment Routes . Economic Belt Silk Road .” Seeds for the Future. . Узбекистан и Китай и подписали Узбекистан «Один пояс, один путь» один пояс, обогащает«Один of Uzbekistan .” Russian.china.org.cn. China) Узнацбанк подписал с Банком развития подписал с Банком Узнацбанк (One Belt, One Road Enriches the the Enriches Road One Belt, (One . Uzbekistan Reaps Benefits of Belt and and Belt of Benefits Reaps Uzbekistan Uzbekistan of Silk Road Fund to Support Uzbek Oil and Silk Road Fund to Support Uzbek Oil and China and Uzbekistan Sign Agreement on on China and Uzbekistan Sign Agreement .” Global Times. ity along the Silk Road Economic Belt.” China’s Belt Belt along the Silk Road Economic Belt.” China’s ity ining the Debt Implications of the Belt and Road and Road ining the Debt Implications of the Belt Marlene Laruelle. The George Washington University, University, Marlene Laruelle. The George Washington New Contents) Belt and Road Initiative and Its Impact in Central Asia. Belt and Road Initiative and Its Impact in Univer Ed. Marlene Laruelle. The George Washington Program of Improving Transport Infrastructure and and Infrastructure Transport of Improving Program Diversifying International Freight Construction of First Railway Road Initiative with Republic of Uzbekistan in 2017-2021 Republic of Uzbekistan ment Bank ment Bank Initiative from a Policy Perspective Initiative from for the Republic try of Foreign Affairs, and Ministry of Commerce of of Commerce of Ministry and Affairs, Foreign of try (2015). Republic of China the People’s Staff Report; and Statement by the Executive Director Director Executive the by Statement and Report; Staff sity, Central Asia Program. 34-40. Central Asia Program. sity, stan: 2018 Article IV Consultation--Press Release; Release; stan: 2018 Article IV Consultation--Press and 21st-Century Maritime and Road Initiative and Its Impact in Central Asia. Ed. opment Assistance or “Predatory Lending”?” China’s Lending”?” China’s opment Assistance or “Predatory of Uzbekistan Signed Loan Agreement with Develop with Signed Loan Agreement of Uzbekistan of Development of the on the Five Priority Directions (2015). Central Asia Program. 1-10. Central Asia Program. Cooperation between China and Uzbekistan with with Uzbekistan and China between Cooperation Gas Projects Global Development. Китая $250 млн на заемное соглашение Actions on Jointly Building Silk Road Economic Belt Actions on Jointly Building Silk Road Economic Belt Jointly Building the Silk Road сотрудничество новым Китая Узбекистана и содержанием 14 соглашений о создании высокотехнологичных о создании высокотехнологичных 14 соглашений Tunnel Ministry of Commerce of the People’s Republic of China Republic of China of the People’s Ministry of Commerce National Development and Reform Commission, Minis Reform Commission, and Development National Podrobno.uz (2013). Podrobno.uz Lain, S. (2018). “The Potential and Pitfalls of Connectiv Pitfalls and Potential “The S. (2018). Lain, Kurbanov, D. (2017). “ Kurbanov, Hurley, J., S. Morris, and G. Portelance (2018). “ Hurley, Huawei (2017). “ “ (2018). Z. Hui, International Monetary Fund (2018). Government (2017a). Uzbekistan of Government of Uzbekistan (2017b). Gazeta.uz (2018f). (2018f). Gazeta.uz Jia, C. (2018). Jaborov, S. (2018). “Chinese Loans in Central Asia: Devel Jaborov,  BAHODIR GANIEV 80 Trend NewsAgency(2018). Transparency (TI 2018). International ofCentralAsia(2018). The Times H.(2018).“China’sTian, ConditionalAidandItsImpact World Bank (2015). Wolters, A.(2018).“HegemonicorMultilateral?Chinese South China Morning Post(2017). South ChinaMorning Shustov, A.(2017).“ Shonazarov, U. (2018). “One Belt, One Road: Prospects of Sayfullin, R.(2017).“ UzDaily.com (2017b). UzDaily.com (2017a). Rong, G.(2017).“ Podrobno Podrobno Podrobno Textile стиля на 2миллиона долларовстиля Joint Actions.”UzA. 41-50. плантаций КНР поможет Узбекистану в создании собственных КНР поможет Узбекистану собственных в создании Engineering George Washington University, CentralAsiaProgram. George Washington University, CentralAsiaProgram. 21-33. (Tashkent FitIntotheSilkRoad) Will ( разработке strates ‘ChineseSpeed’ stan to theRepublicofUzbekistan foraPap—Angren tions Uzbekistan withinOneBelt, Uzbekistan Its ImpactinCentralAsia.Ed.MarleneLaruelle.The Investments andtheBRIInitiativeinTajikistan and Its ImpactinCentralAsia.Ed.MarleneLaruelle.The relations ural GasProject Readyto Railway Project Proposed LoanintheAmountofUS$195 Million Kyrgyzstan.” China’s Belt and Road Initiative and Exports Belt, OneRoadInitiativewith Beijing Turning intoMajorPartner Plan Engineering in CentralAsia.”China’s BeltandRoadInitiative Afghanistan

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Yue, L. (2018).“ Ye, S.(2018). Yang, L. (2017). “ World Bank (2018). World Bank(2017). World Bank(2016). Transport SystemTested Opens toTraffic Uzbek Projects Uzbekistan forthePeriodFY16-FY20 mentation Status& Silk RoadFundAnnouncesSupportfor China--Kyrgyzstan--Uzbekistan Highway China--Kyrgyzstan--Uzbekistan Freight Pap-Angren Railway (P146328): Imple . Worldwide .” BeltandRoadPortal. Country PartnershipFrameworkfor Results Report .” BeltandRoadPortal. Governance Indicators Governance . . . - THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  81 ------BRI Cooperation Priorities** BRI Cooperation systems; and improving industrial supporting capacity and the the and capacity supporting industrial improving and systems; industries. overall competitiveness of regional Expanding trading areas, improving trade structure, exploring new trade structure, improving Expanding trading areas, trade balance. of trade, and promoting areas growth cross-bor Making innovations in forms of trade, and developing and other modern models. business der e-commerce consolidate and Setting up a service trade support system to to develop efforts expand conventional trade, and strengthening modern service trade. invest investment and trade facilitation, and removing Improving business of a sound ment and trade barriers for the creation countries. and in all related within the region environment trade promoting Integrating investment and trade, and investment. through Expanding mutual investment areas. and conversion of cooperation in the processing Promoting exploited, they are at or near places where energy and resources and an integrated industrial chain of energy so as to create cooperation. resource information new-generation in cooperation in-depth Promoting materials new technology, energy new biotechnology, technology, and and other emerging industries, and establish entrepreneurial investment cooperation mechanisms. to build all forms of industrial parks such as together Working overseas economic and trade cooperation zones and cross-bor industrial der economic cooperation zones, and promote cluster development. to industries related and chain industrial entire the Encouraging and marketing develop in concert; establishing R&D, production Linking up unconnected road sections, removing transport bot sections, removing road Linking up unconnected management traffic safety facilities and road tlenecks, advancing network connectivity. road and improving facilities and equipment, for whole-course mechanism Building a unified coordination of customs clearance, connectivity transportation, increasing transport between countries; and grad and multimodal reloading transport rules, so as and standard ually formulating compatible international transport facilitation. to realize and optical cables of cross-border Advancing the construction interna trunk line networks, improving other communications an Information and creating connectivity, tional communications Silk Road. optical cable networks at a quicker Building bilateral cross-border information passageways to spatial (satellite) pace and improving expand information exchanges and cooperation. exchange, Enhancing customs cooperation such as information in and mutual assistance regulations, of mutual recognition law enforcement. bilateral and multilateral cooperation in the fields of Improving stan accreditation, and certification quarantine, and inspection and statistical information. measurement, dard the transparency barriers, jointly improving Lowering non-tariff and enhancing trade liberalization of technical trade measures, and facilitation. - - - Transport, ICT, Trade, Investment and Manufacturing Investment Trade, ICT, Transport, Uzbekistan’s Development Priorities* Development Uzbekistan’s Annex: Uzbekistan’s Development Priorities and BRI Cooperation Priorities and BRI Cooperation Priorities Development Annex: Uzbekistan’s * Based on Government of Uzbekistan (2017) Based** on National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China (2015). dards through accelerated development of less-developed regions. less-developed of development accelerated through dards Further modernization sector with accelerated of the industrial in particular the development of high technology manufacturing, deep pro of goods with high value added through production cessing of local raw materials. services, and small and medi of industry, the share Increasing um-sized enterprises in the national economy. stan living in imbalances regional (within-country) of Reduction Establishment of new free economic zones and industrial parks parks industrial and zones economic free new of Establishment of existing ones. and raising the efficiency modern of the enhancing and technologies Introduction and domestic in goods produced locally of competitiveness markets. foreign Liberalization and facilitation of exports, diversification of the of exports, diversification of the Liberalization and facilitation and effective of exports, increasing composition and direction of various industries and regions. utilization of export potential FDI. climate to attract more of the investment Improvement Further development of transport infrastructure. Further development and social sphere of ICT in the economy, Further introduction public management.  BAHODIR GANIEV 82 labor market. Training ofhighlyskilled workerstomeettheneedsof Further developmentofthesystemcontinuouseducation. Improvement ofthequalityandaccesstoeducation. duction ofnewfinancialproducts. Improvement ofthequalityexistingfinancialproducts andintro Development ofthesecuritiesstockmarket. and tosmallmedium-sizedenterprises. Improvement oftheavailabilitycredit forinvestmentprojects Safeguarding the soundnessandstabilityofthebankingsystem. Accelerated developmentoftourism. Faster developmentoftheservicessector. expansion offoodandtextileindustries. Increased local processing of agricultural products through Improved provision ofelectricitytothepopulation. Increased useofrenewable energy. ** Based on National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China (2015). China of Republic People’s the of Commerce of Ministry and Affairs, Foreign of Ministry Commission, Reform and Development National on ** Based (2017) Uzbekistan of Government on * Based Annex: Uzbekistan’s DevelopmentPrioritiesandBRICooperation Uzbekistan’s DevelopmentPriorities* Agriculture andProcessing ofAgriculturalGoods Overall ServicesSector Financial Sector Education Tourism Energy - and establishinganefficient regulation coordination mechanism signing ofMOUsoncooperationinbilateralfinancial regulation, Strengthening financial regulation cooperation, encouraging the and Road. convenient toapplyfortouristvisasincountriesalongtheBelt routes andproducts withSilkRoadfeatures; andmakingitmore other’s countries;jointlycreating tourist competitiveinternational holding tourismpromotion weeksandpublicitymonthsineach Enhancing cooperationinandexpandingthescaleoftourism; service industries. tries to each other toaccelerate the development of regional Increasing theopennessofBRIcountries’serviceindus manufacturing, andfarmproduce processing. Deepening cooperationinagriculture, agriculturalmachinery and otherclean,renewable energysources. Advancing cooperationinhydropower, windpower, solarpower and transformation. mission routes, andcooperatinginregional powergridupgrading building cross-border powersupplynetworksandpower-trans Promoting cooperationintheconnectivityof energy infrastructure, management andinotherareas ofcommoninterest. ment, socialsecuritymanagement,publicadministrationand employment, entrepreneurship training, vocational skill develop cooperation betweencountriesalongtheBeltandRoadonyouth Integrating existingresources toexpandandadvancepractical cooperation injointlyrunningschools. Sending more studentstoeachother’s countries,andpromoting funds toparticipateintheconstructionofkeyBRIprojects. encouraging commercial equityinvestmentfundsandprivate ereign wealthfundsofcountriesalongtheBeltandRoad, Giving fullplaytotherole oftheSilkRoadFundandthatsov the BeltandRoad. outside China,andusethefundsthuscollectedincountriesalong panies to issue bonds in both Renminbi and foreign currencies Encouraging qualifiedChinesefinancialinstitutionsandcom good credit ratingtoissueRenminbibondsinChina. Belt andRoadtheircompaniesfinancialinstitutionswith Supporting theeffortsofcountriesalong ofgovernments dicated loansandbankcredit. Carrying outmultilateralfinancialcooperationintheformofsyn credit ratinginstitutions. credit investigationregulators, credit investigationinstitutionsand Increasing cross-border exchange and cooperation between cross-border risksandcrises. ating anexchangeandcooperationmechanismofaddressing building aregional system,andcre financialriskearly-warning Improving thesystemofriskresponse andcrisismanagement, in theregion. BRI CooperationPriorities** ------THE BELT AND ROAD INITIATIVE IN UZBEKISTAN  83 - - BRI Cooperation Priorities** BRI Cooperation Increasing cooperation in science and technology, establish technology, and science in cooperation Increasing international centers) and technology (or research ing joint labs sci-tech personnel exchanges, coop transfer centers, promoting working together to and problems, erating in tackling key sci-tech sci-tech innovation capability. improve Road and Belt the along countries the in tanks think Encouraging and hold forums. to jointly conduct research investment and in conducting ecological progress Promoting conserving the eco-environment, cooperation in trade; increasing and tackling climate change. biodiversity, protecting Science Protection of Environment Protection Uzbekistan’s Development Priorities* Development Uzbekistan’s Annex: Uzbekistan’s Development Priorities and BRI Cooperation Priorities and BRI Cooperation Priorities Development Annex: Uzbekistan’s * Based on Government of Uzbekistan (2017) Based** on National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China (2015). Mitigation of adverse effects of global climate change and the the and change climate global of effects adverse of Mitigation basin. crisis in the Aral Sea environmental Support for scientific and innovative activities. scientific and innovative Support for