15.07.2019-21.07.2019 • No: 220

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KYRGYZSTAN’S FREE ECONOMIC ZONE: POTENTIAL FOR COOPERATION WITH CHINA was the first post-Soviet country in such areas as tourism, “green economy”, However, these figures began to decline to enter the World Trade Organization in and key agricultural products, such as garlic, starting 2015, when the legislation of Kyr- 1998. Later the country joined the Eurasian honey, meat, as well as the transfer of inno- gyzstan was changed requiring prior regis- Economic Union (EAEU) and China’s Belt vations and administrative know-how that tration with the Ministry of Justice and in- and Road Initiative. That broad transpar- by and large comes with FDI, which can be stallation of security equipment for FEZ res- ency is also supported by the creation of five the main source of improvement of the idents. As a result, there was a sharp decline Free Economic Zones (FEZ) in Kyrgyzstan, country’s total factor productivity. The in the number of NFEZ residents to three in which mostly seek to diverse the Kyrgyz NFEZ, established in 1998, is both Kyrgyz- 2019, with only 15 jobs created. Addition- economy by increasing cooperation with stan’s attempt to enhance integration with ally, a clear lack of data on the NFEZ oper- neighboring countries. However, among the China, as well as a new pattern of the Kyr- ation was noted by researchers, which five FEZs, only the ones in and gyz economic policy in the largest and un- means that policies concerning FEZs are be- Naryn keep up a few levels of operations, derdeveloped region of the country. The ing made largely in the dark. The govern- mostly because the other three need an ade- project advocates the construction of land- ment plans to create a new transportation quate infrastructure base. line transportation routes linking China with and logistics center near Torugart, as well as Kyrgyzstan is a relatively poor country. Its the EAEU. The Kyrgyz government per- an industrial zone with the FEZ status. Cur- economy is not well-endowed with natural ceives a pivotal role of the NFEZ as a transit rently, the lack of competitive advantages in resources; labor is the main export commod- line for Chinese goods heading to the Kyrgyz industrial production also deter- ity of the country, which transfers about EEAU. It is worth noting that on June 12- mines the inefficiency of the creation of a 30% of the GDP. At the same time, the 13, 2019, in the framework of the state visit FEZ in Kyrgyzstan. country has no direct access to seaports. of Chinese President Xi Jinping, a Kyrgyz- Kyrgyzstan has tried to reduce economic de- Neighboring China is the main economic Chinese business forum was held, and a pendence on Russia by enhancing interna- partner of Kyrgyzstan, as well as the closest number of bilateral agreements on invest- tional cooperation and practicing a balance- major logistics hub and global market. ment and certification standards in agricul- based multilateral external economic policy. China remains the main investor in Kyrgyz- tural trade were signed. However, it seems that by implementing this stan’s economy during the past five years. In legal and geographic terms, the NFEZ ac- policy Bishkek has gradually increased its According to the Center for Global Devel- tually covers the entire . Its to- opment, Kyrgyzstan could even suffer from tal area is 45,200 sq. km populated by 271 dependence on Beijing. Moreover, the debt distress due to financing from the Ex- 000 people. The city of Naryn is 180 km amount of the Kyrgyz debt to China is much port-Import Bank of China (EXIM), which from the border city of Torugart, so the more voluminous and comprehensive than is the largest creditor of the country. Thus, NFEZ offers easy connectivity to the west- the one owed to Russia. By the end of 2017, the bank’s credits are estimated at $1.5 bil- ern and central Chinese provinces. The Kyr- Russia canceled $240 million debt of Kyr- lion by the end of 2016, or about 40% of the gyz government contributes to the Naryn re- gyzstan. In March 2018, Chinese Ambassa- country’s total external debt. In 2018, the gion’s infrastructure by remodeling the road dor to Kyrgyzstan Xiao Tsinghua stated that Kyrgyz parliamentary official stated that to the Chinese border and by building a rail- China would not consider any debt cancel- China’s share in Kyrgyzstan’s foreign debt way line from Kara-Keche (, lation. Since closer investment-debt cooper- has grown from 2% to 44% during 2013- Naryn region) to (Issyk-Kul re- ation with China has developed in recent 2018. As of October 1, 2018, Kyrgyzstan’s gion). The NFEZ has been looking for long- years, Kyrgyzstan and China are currently foreign debt amounted to $3 billion 764 mil- term cooperation with China and Kyrgyz- lion, including $1.7 billion owed to EXIM. stan’s EEAU partners. In 2015, a tripartite building in-depth bilateral financial rela- The main areas of the bilateral investment agreement was signed to promote coopera- tions, including its legislative, political and and cooperation policy are energy and infra- tion among Vitebsk (Belarus), Kashgar public sides. structure construction, including hydro- (China), and the NFEZ. In view of Kyrgyz- The Kyrgyz government does not appear to power plants, the China-Kyrgyzstan-Uzbek- stan, its EEAU membership could turn the have a vision regarding the FEZ advance- istan railway – a part of the southern corri- NFEZ into a land bridge between Kashgar, ment. While Kyrgyzstan seeks to develop dor of the Eurasian transcontinental railway, which is in China’s Xinjiang Uyghur Auton- intensive economic cooperation with China highway construction, and the completion omous Region, on one side, and its EEAU through the NFEZ, the public perception re- of the Central Asia-China gas pipeline. In partners, on the other. After Kyrgyzstan mains anti-Chinese, thereby not only giving 2018, Kyrgyzstan did not receive $100 mil- joined the EEAU in 2015, the NFEZ re- rise to alarmist concerns but also forcing the lion of pledged grant funds from China. ceived several Chinese delegations inter- Some analysts consider this a result of the ested in discussing possible investment op- government to maintain control over Chi- strengthening of the anti-Chinese public dis- portunities. Despite the fact that the NFEZ nese labor migration to the NFEZ and its op- course and the criminal cases related to the was formed in 1998, its present cooperation eration through changing the relevant legis- project implemented by the Chinese TBEA with Kashgar began only in 2009 after the lation. Such a policy leads, in turn, to re- company. According to the National Bank latter received the status of a special eco- duced activities within the NFEZ. It is obvi- of Kyrgyzstan, the country’s total foreign nomic zone. Since then, the NFEZ manage- ous that Kyrgyzstan is reluctant to fully direct investment inflow in 2018 is esti- ment made a number of visits to Kashgar to open up in cooperation with China, for ex- mated at $569.8 million, including $245.4 exchange experience and establish coopera- ample, in people-to-people ties, while show- million of Chinese investments. In this con- tion. In 2014, the NFEZ opened an office ing a greater openness in cooperation with text, Kyrgyzstan can use the Naryn Free and a trading house in Kashgar. the EEAU. At the same time, the NFEZ re- Economic Zone (NFEZ) to fully develop the The current state of affairs in the NFEZ can- mains one of the options for diversifying co- potential of economic cooperation with not be called positive. At the very begin- China. ning, the zone had 24 companies from operation with China, and, if successful, this One of the major goals of the NFEZ is to China, the Netherlands, and Russia, and the may serve as a model of “win-win” cooper- pull in new foreign direct investment (FDI) number of jobs created amounted to 1,000. ation. Written by Azhar Serikkaliyeva, Eurasian Research Institute, Kazakhstan

Politics, Foreign Affairs, and Security Economy, Finance, and Energy Society and Culture  Speaking on the occasion of the third  Prime Minister of South Korea Lee  A thematic event devoted to discussing anniversary of the 2016 treacherously Nak-yon paid visits to and the model of cooperation between the attempted coup, Turkish President Tay- Kyrgyzstan, becoming the first South UN and the International Fund for Sav- yip Erdogan stated that the Russian S- Korean leader to visit these Central ing the Aral Sea in ensuring sustainable 400 air defense systems, parts of which Asian states. In Dushanbe, he held talks development in Central Asia was held at were delivered to Turkey, would be with President Emomali Rahmon and the UN Headquarters in New York. The fully deployed by April 2020. Ankara’s his Tajik counterpart Kokhir Rasulzoda. event focused on ways of strengthening purchase of the Russian military equip- In Bishkek, Lee Nak-yon met with Pres- collaboration in resolving the Aral Sea ment raised tensions with its NATO al- ident Sooronbay Jeenbekov and Prime problem and eliminating negative ef- lies, particularly the United States, Minister Muhammetkaliy Abylgaziev. fects of climate change. which warned Turkey that it would re- In both capitals, the parties discussed  The OSCE Program Office in Dushanbe spond with sanctions. ways to boost mutual trade and eco- organized training courses on prevent-  Kyrgyzstan held negotiations with Ta- nomic cooperation. ing violent extremism and terrorist rad- jikistan and Uzbekistan on border de-  The delegation of Uzbekistan headed by icalization among youth in 12 districts limitation issues in the Tajik city of Is- Foreign Minister Abdulaziz Kamilov of Tajikistan’s Sughd and Khatlon re- fara and the Kyrgyz city of , respec- paid a week-long working visit to the gions. 320 representatives of local gov- tively. In both cases, the relevant work- United States to attend a number of ernments, teachers, and people, whose ing groups discussed proposals on the events and meetings aimed at develop- relatives travelled to conflict zones as delimitation of remaining sections of ing bilateral trade, economic, financial foreign terrorist fighters, participated in the border and reached agreements on and investment relations. During the the courses. conducting joint field reconnaissance. visit, Uzbek officials and businessmen  The 21st regional Central Asia media  The Sary-Tash 2019 special tactical ex- negotiated with representatives of U.S. conference titled “Media freedom and ercise was held in the of government agencies, the World Bank, pluralism in times of digital transfor- Kyrgyzstan’s . T he units of large U.S. corporations, hedge funds, mation” was held in Bishkek. During the State Border Service, the Ministry of investment banks and financial institu- the two-day event, 100 journalists, offi- Internal Affairs, the State Committee tions. cials and civil society activists from the for National Security and the Ministry  The first meeting of the Uzbekistan-Af- five Central Asian states and Mongolia of Emergency Situations practiced their ghanistan joint commission on trade and discussed issues related to the develop- coordination in conducting a combat economic cooperation was held in Tash- ment of new media technologies, the operation to block and destroy illegal kent. The sides agreed to accelerate regulation of the online media and the armed groups. trade, launch industrial projects, and protection of freedom of expression in  During his visit to Washington to attend build a new electricity line from Uzbek- the region. the Second Ministerial to Advance Re- istan to Afghanistan. UzAuto, Uzbeki-  At a meeting devoted to the improve- ligious Freedom, Foreign Minister of stan’s car producer, also announced a ment of the national system of continu- Uzbekistan Abdulaziz Kamilov met plan to set up a joint assembly of cars in ous professional education, Uzbek Pres- with U.S. National Security Advisor Kabul. ident Shavkat Mirziyoyev instructed re- John Bolton and U.S. Special Repre-  According to a report by the Tajik state sponsible officials to finalize proposals sentative for Afghanistan Reconcilia- natural gas distributor Tojiktransgaz, regarding the establishment of a new tion Zalmay Khalilzad. The parties dis- over the first six months of 2019, Tajik- vocational training system. Currently, cussed prospects of bilateral relations istan significantly increased imports of as Uzbekistan undertakes large-scale re- and the peaceful political process in Af- natural gas from Uzbekistan, purchas- form efforts, the country’s labor market ghanistan. ing about 70 million cubic meters worth needs qualified personnel of working th professions.  The 8 meeting of the India-Uzbekistan more than $8.7 million. The Tajik Alu- th joint working group on counterterror- minum Company is the largest con-  The 29 session of the CIS Health Co- ism was held in New Delhi. The delega- sumer of the Uzbek gas in Tajikistan ac- operation Council was held in Ashgabat counting for 80% of the imports. as part of Turkmenistan’s CIS presi- tions exchanged views on effective dency. Heads and leading specialists of methods of countering radicalization,  ArcelorMittal Temirtau, Kazakhstan’s healthcare agencies from the CIS mem- combating terrorism financing, prevent- largest mining and metallurgical com- ber countries, as well as relevant inter- ing the use of Internet for terrorist pur- pany, terminated its contract with Nik- national organizations, attended the fo- poses, and dealing with returnee foreign Oil, Gazprom’s official distributor in rum to discuss issues related to the pre- terrorist fighters. The parties also dis- Kazakhstan, over fears that dealing with vention and treatment of diabetes, tu- cussed ways to strengthen bilateral co- a sanctioned company would damage berculosis and other diseases. operation through capacity building and the reputation of its leadership. This is  According to a poll conducted by the sharing of information and best prac- the first time a sanctioned Russian com- Rating sociological group, 58% of tices. pany operating in Kazakhstan has run Ukrainians are satisfied with the perfor-  The OSCE and the UNODC organized into problems. mance of President of Ukraine Vo- a three-day train-the-trainer course on  Russian President Vladimir Putin and lodymyr Zelensky, whereas 19% hold countering terrorist financing for Uzbek his Belarusian counterpart Alexander th the opposite opinion. Over 80% of re- participants in Vienna. The curriculum Lukashenko attended the 6 Forum of spondents are dissatisfied with the covered areas such as sources of infor- Russian and Belarusian Regions held in Verkhovna Rada, and only 7% approve mation; national, regional and interna- St. Petersburg. Participants included its work. 41% of respondents believe tional threats; requirements of a terrorist more than 1,000 delegates from the two that the situation in Ukraine is develop- organization; money flows; and na- countries, including officials, business- ing in the right direction, while 37% tional case studies. Upon their return to men, experts and journalists. Apart from think it is developing in the wrong di- Uzbekistan, the course participants will economic cooperation, this year’s fo- rection. deliver training courses at the national rum focused on interregional ties as a  The Ministry of Education and Science level jointly with international experts. foundation for the two nations’ common of Kyrgyzstan organized the interna-  During its regular plenary meeting in cultural and humanitarian space. tional ethnic carnival “The Issyk-Kul Vienna, the OSCE Forum for Security  The Board of the Eurasian Economic Gathers Friends” at Lake Issyk-Kul, Cooperation discussed opportunities for Commission approved a draft agree- bringing together more than 400 chil- strengthening cooperation between the ment on the Advisory Board for Ex- dren from Kazakhstan, Kyrgyzstan, OSCE and the CSTO in Central Asia. change Policy of the EAEU States, de- Russia and Uzbekistan. The event’s ob- Given the similarity of the issues tack- termining its tasks, functions, composi- jective is to study, revive and preserve led by the two organizations, the partic- tion and powers. If created, the body ethno-cultural peculiarities of the CIS ipants emphasized the need to specify composed of the heads of national and other countries, as well as to de- areas of their potential interaction in the banks will coordinate exchange rate velop artistic, musical, vocal and chore- region. policies of the member states. ographic skills of participating children.

Prepared by Dauren Aben and Kanat Makhanov