Economic Management Journal June 2020, Volume 9 Issue 1, PP.1-7 The Influence of Uzbekistan's New Economic Policy on China-Uzbekistan Cooperation
Jiawan Zhou, Yufan Xu SILC, Shanghai University, Shanghai Email: [email protected], [email protected] Abstract
In December 2016, with the change of President Uzbekistan, its policies and systems have undergone tremendous changes. This article will focus on the specific content of FDI system, tax policy and exchange rate policy in Uzbekistan's economic reform. Taking the “Ohangaron Green City” project and the trade volume between Xinjiang and Central Asia as an example, this paper analyzes its positive impact on China-Uzbekistan cooperation and China-Uzbekistan in terms of prospects. Key words: Uzbekistan; New Economic Policy; China-Uzbekistan Cooperation
Since the announcement of the new president of Uzbekistan, Shavkat Mirziyoyev, at the end of 2016, a series of new policies have been implemented in Uzbekistan's judicial, diplomatic, economic and other fields. In terms of justice, improve the selection and appointment system of government personnel and call on the public to actively participate in political decision-making. From the perspective of diplomacy, solve diplomatic frictions with neighboring countries actively and deepen regional cooperation with these countries. As for economy, deregulate foreign exchange control and reduce tax rates of foreign enterprises[1]. This article will focus on the reform measures of Uzbekistan's economy and its impact. The first part of this paper will briefly introduce the background of Uzbekistan's new economic policy, the second part will specifically introduce the content of Uzbekistan's economic reform policy, the third part will analyze the positive impact of Uzbekistan's new policy on Sino-Ukrainian cooperation and the fourth part will explain the future of Sino-Ukrainian cooperation.
1 INTRODUCTION The Republic of Uzbekistan is a land-locked country in Central Asia with a population over 32 million, making it become the most populous country in this region. Uzbekistan's GNP accounts for about 25% of the region's total and is the second largest economy in Central Asia[2]. During the reign of the former president, Uzbekistan's foreign policy was more conservative, foreign investors were faced with a higher barrier to enter the domestic market, which led to a low degree of the integration between the domestic economy and the international economy and a slow development of the domestic economic market. After the new president Shavkat Mirziyoyev took office, he actively promoted the docking of the domestic market and international market, encouraged foreign enterprises to enter the domestic market, increased the degree of local economic openness to the outside world gradually and strengthened trade with other countries. As an important trading country on the ancient Silk Road, China’s initiative of the “One Belt One Road” policy is conducive to deepening the trade partnership between China and Uzbekistan, which is an important part of trade and economic development in both countries.
2 THE STRATEGIES OF UZBEKISTAN’S ECONOMIC REFORMATION 2.1 FDI Access — Reduce the Threshold for Foreign Enterprises to Enter the Market Due to the closed diplomatic policy of the former president of Uzbekistan, the limited communication and cooperation between Uzbekistan and the international community led to Uzbekistan's development lags behind that of the international community. In order to promote the development of domestic industry and technology, the new president
- 1 - www.ivypub.org/emj strongly supports foreign enterprises with advanced technology to enter the domestic market except for national monopoly industries. Table 1 shows the industries which are restricted and encouraged by the Ukrainian government.
TABLE 1 CATEGORY OF THE INDUSTRIES OF FOREIGN DIRECT INVESTMENT ACCESS IN UZBEKISTAN
Category Type of Industry In terms of national monopoly industries, for example, the development of energy and key mineral Restricted products (such as uranium) has equity restrictions that the share of foreign capital generally does industry not exceed 50%. In the fields of aviation, railway and other industries, it is completely monopolized by the government. As for the following industries: radio electronics, computer accessories, light industry, silk products, building materials, veterinary quarantine, pharmaceutical, packaging materials, Encouraged renewable energy utilization, machinery manufacturing, coal industry, metal processing, hardware industry products, machine tool manufacturing, microorganism industry, glass ceramics industry, toy manufacturing, etc., Uzbekistan’s government holds the view of support and exempt corporate profit tax, property tax and social infrastructure business build taxes.
(Data source：[3] An Analysis of Uzbekistan's Legal System of FDI Market Access -- aiming at Promoting China's Investment in Uzbekistan) According to the presidential decree, in joint enterprises, the minimum shareholding ratio of foreign investors has been reduced from 30% to 15%, and the minimum registered capital has been reduced from 76923 US dollars to 51282 US dollars. For foreign enterprises, the restrictions on the registered capital and time of enterprises have been relaxed, which has greatly reduced the threshold for foreign investors to enter Uzbekistan market[4]. 2.2 Tax — Specific Tax Relief Policies for Foreign Enterprises For foreign enterprises which have entered the market, the government of Uzbekistan has issued a series of preferential policies for them. Foreign enterprises can enjoy some privileges compared with domestic enterprises. Firstly, for foreign enterprises investing in specific projects and products, the Uzbekistan government shall implement the tariff free policy for them within five years except the customs fee. Secondly, for foreign enterprises investing in special economic fields, preferential policies such as tariff free and tax-free collection shall be implemented[5]. Thirdly, the Uzbekistan government promises not to interfere with the production activities of foreign enterprises which operate in accordance with the law and its assets will not be expropriated[6]. Figure 1 shows the situation of foreign direct investment in Uzbekistan from 2013 to 2017. It can be seen from the figure that the growth rate of foreign investment and loans in 2017 has greatly increased under a series of policies of encouraging foreign enterprises to enter and develop in Uzbekistan.
（Data Source: National Statistical Commission of Uzbekistan） FIG.1 FOREIGN DIRECT INVESTMENT TO UZBEKISTAN FROM 2012 TO 2017
- 2 - www.ivypub.org/emj 2.3 Exchange Rate — Unify Official and Black Market’s Exchange Rates Before Shavkat Mirziyoyev came to power, Uzbekistan had been implementing strict foreign exchange control. Although this strategy protects economy to develop stably to a certain extent, it has increasingly become a constraint for the sustainable development of Uzbekistan’s economy. The difference between the official exchange rate and the black-market exchange rate also leads to the fluctuation and risk in the exchange rate market. On September 3, 2017, Shavkat Mirziyoyev signed a document that the first detailed rules for the implementation of monetary policy liberalization in Uzbekistan, which will be implemented from September 5. From September 5 to September 15, the Uzbek exchange rate fell precipitously (as can be seen in figures 2 and 3, USD:UZS rose from 1:4184.9 to 1:8052.1). The exchange rate reform measures in the document are mainly as follows. Firstly, reduce the official exchange rate until it is consistent with the commercial exchange rate[7]. Secondly, cancel the exchange control and allow all legal persons and natural persons to exchange foreign currency freely[8].
FIG.2 USD: UZS ON SEPTEMBER 5, 2017
（Data Source: http://www.webmasterhome.cn/huilv/USD/USDUZS/） FIG.3 USD: UZS ON SEPTEMBER 15, 2017
3 THE IMPACT OF UZBEKISTAN’S ECONOMIC REFORM MEASURES ON CHINA- UZBEKISTAN COOPERATION 3.1 The Impact of Tax Exemption and Reduction and The Lower Threshold of FDI Access Rules on
- 3 - www.ivypub.org/emj China-Uzbekistan Cooperation A series of new policies for foreign companies to attract investment in Uzbekistan, including tax breaks, have eased capital inflow standards and lowered trade barriers between countries. The cooperation between foreign enterprises and Uzbek enterprises and even the Uzbek government has promoted the development of bilateral trade and further achieved a win-win situation. Since the relaxation of the FDI system, many Chinese companies have brought technology and capital into the Uzbek market and cooperated with local enterprises and the government. The project of "Ohangaron green city" is a typical example. 1) "Ohangaron Green City" Project "Ohangaron green city" is a cooperation project signed by JingTian group and the national energy conservation company of Uzbekistan in November 2017, focusing on electricity cooperation and energy conservation and environmental protection. In recent years, the supply and demand of electricity in Uzbekistan have been in a compact state. The main reasons restricting the sustainable development of this industry are as follows. Firstly, as a member of the former Soviet Union, most of the electric power facilities in Uzbekistan were used in the former Soviet Union until now. The equipment and technology were not updated synchronously while the machine was in a severe loss, which resulted in more energy input and lower actual output in the electric power industry[9]. Secondly, the overall openness of Uzbekistan is not high, and the domestic power industry is monopolized by its state-owned enterprises, making it difficult to change policies flexibly to face the growing demand [4]. Figure 4 reflects the phenomenon of vertically integrated monopoly of state-owned enterprises in Ukraine's power industry.
District power system Dispatch coordination center (tashkent) Dispatch coordination center
Coal-fired power Hydroelectric Thermal power Hydroelectric Power generation plants power station plant power station
Uzsuvenergo Power single buyer UE Transmission Energosotish Uzelectroset
Power distribution Uzbekenergo Regional supplier
The end users Power consumers
(Data source: [4] Analysis and Research on the Potential of Cooperation and Development in the Field of Electric Power in Uzbekistan, China) FIG.4 OPERATION MECHANISM OF ELECTRICITY MARKET IN UZBEKISTAN
After the agreement was signed, Ukraine for a particular project policy of tax breaks and technical advantage to assist Beijing day group itself Uzbekistan state energy company for electric power equipment and power grid renovation, focusing on the development and utilization of clean energy as the main input of the power industry, the energy efficiency, increasing the power output at the same time reducing the emissions of greenhouse gases such as sulfur hydride, which realized the environmental protection concept of "Ohangaron" green city project[10]. The success of the "Ohangaron green city" project has attracted the attention of the council of smart cities and emerging industries of Tashkent, Uzbekistan and the United Nations alliance of maritime and land silk road cities, and a relevant cooperation agreement was signed on April 18, 2018 to establish the Uzbekistan business and trade center in Chongqing. China-Uzbekistan cooperation takes the form of technology and capital provided by the Chinese side and energy and
- 4 - www.ivypub.org/emj land provided by the Uzbek side. The two countries complement each other in business cooperation. To be specific, for Uzbekistan, the presence of Chinese enterprises is conducive to the improvement of infrastructure, the protection of people's livelihood, the provision of more jobs, the improvement of residents' consumption level and the steady development of local economy. For China, the expansion of the international market of Chinese enterprises not only consumes the excess capacity, but also increases the influence of Chinese enterprises in international cooperation, providing a new development opportunity for the "One Belt and One Road" strategy of China. 3.2 The Impact of Exchange Rate Reform on China-Uzbekistan Cooperation The exchange rate reform in Uzbekistan is two-sided. On the one hand, the sharp decline in the exchange rate will cause a number of economic indicators in Uzbekistan which is equivalent to the us dollar to shrink significantly, and even cause price rise and inflation. On the other hand, depreciation of UZS is conducive to attracting more foreign investment, increasing exports and improving its competitiveness in the international market [11]. With the depreciation of the UZS, the trade volume between China and Uzbekistan increased. The Xinjiang Uygur Autonomous Region is a transportation hub between China and Central Asian countries, bordering Kazakhstan, Kyrgyzstan, Tajikistan and other Central Asian countries. Because of its unique geographical position, Xinjiang has become a major trading area between China and five Central Asian countries. Therefore, the changing trend of trade between Xinjiang and five Central Asian countries can reflect the changing trend of trade between China and five Central Asian countries to a certain extent [12]. The following is a chart of the trade volume between Xinjiang and four of the five Central Asian countries between 2014 and November 2018.
TABLE 2 IMPORTS AND EXPORTS OF XINJIANG UYGUR AUTONOMOUS REGION AND FOUR CENTRAL ASIAN COUNTRIES FROM 2014 TO NOVEMBER 2018
Kazakhstan Kyrgyzstan Tajikistan Uzbekistan Gross Share of Amount Uzbekistan 2018 Exports 4,292,216 1,678,903 540,493 343,999 6,855,611 5.02% Imports 865,424 26,782 8,344 112,345 1,012,895 11.09%
Gross growth rate -19.06% -40.19% -25.01% 14.06% -24.02% 2017 Exports 5,681,778 2,799,613 728,566 289,246 9,499,203 3.04% Imports 690,253 52,425 3,338 110,862 856,878 12.94%
Gross growth rate 52.23% 9.30% -12.78% 30.59% 30.42% 2016 Exports 3,799,292 2,567,196 835,523 204,495 7,406,506 2.76% Imports 386,490 42,199 3,617 101,896 534,202 19.07%
Gross growth rate 17.46% 29.65% -3.33% -6.08% 17.28% 2015 Exports 3,262,076 1,989,345 858,504 217,932 6,327,857 3.44% Imports 301,541 23,308 9,507 108,291 442,647 24.46%
Gross growth rate -42.73% -20.05% -29.78% -30.54% -35.18% 2014 Exports 5,398,420 2,494,132 1,229,657 306,717 9,428,926 3.25% Imports 824,042 23,334 6,415 162,910 1,016,701 16.02% (Data Source: Xinjiang Uygur Customs Statistics Bureau: www.xjtj.gov.cn)
From the Table 2, the import and export volume between Uzbekistan and Xinjiang showed a declining trend from 2014 to 2017. However, since the implementation of the new policy in 2017, the proportion of Uzbekistan's import and export volume in the import and export volume of the four Central Asian countries increased significantly in 2018 and exceeded the level in 2014. Additionally, the depreciation of the UZS caused by the exchange rate reform did not have a great impact on the import value of Ukraine, while the export value increased to a certain extent. The increase in imports and exports reflects the increased competitiveness of Ukraine in the international market for oil and gas, which is conducive to Ukraine's exports and increases its foreign exchange reserves [13]. Meanwhile, as a major importer of
- 5 - www.ivypub.org/emj China's oil and other energy, the decline in the exchange rate will lead to the decline of China's energy import costs, which are conducive to the reasonable redistribution of capital and resources.
4 CONCLUSIONS AND PROSPECTS To sum up, the implementation of the new policy of Uzbekistan has a positive impact on both domestic and China- Uzbekistan trade. For Uzbekistan itself, a more open policy and a lower exchange rate are conducive to attracting more foreign enterprises into the domestic market, thus accelerating technological innovation, improving infrastructure construction and producing more job positions. From the perspective of trade between China and Uzbekistan, the new policy has accelerated the exchange of capital, technology and energy, strengthened the cooperation between the two sides and achieved a win-win situation through mutual benefit. Uzbekistan has adopted an open attitude to docking with the world market through the new policy. China, as an important partner of Uzbekistan for a long time, should actively encourage enterprises carrying high and new technologies and capital. For instance, Huawei, Zte and other companies settled in the local industrial park, providing more jobs and promoting the innovation of local high-tech. In addition, since the “One Belt and One Road” initiative, China has contracted for infrastructure projects in many neighboring countries, while the railway and other infrastructure projects in Uzbekistan are relatively backward, which provides new opportunities for China-Uzbekistan cooperation.
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- 6 - www.ivypub.org/emj AUTHORS 1Jiawan Zhou, born in Changsha, Hunan, study in SILC, Shanghai University.
2Yufan Xu, born in Shanghai, study in SILC, Shanghai University.
- 7 - www.ivypub.org/emj