Finding Ground Zero for Central Eurasia trade

A freight train rolls through the countryside of Kazakhstan. The landlocked nation is embracing China’s One Belt, One Road initiative to bring more trading to the country.

Like we had explained earlier, China’s One Belt, One Road (OBOR) initiative and its foothold in Eastern Europe is rustling a few feathers in the EU. Concerns arise on the West’s waning influence in the region against rampant Chinese investment, as the $1 trillion OBOR project has extended to include 65 countries around the world and is scaling up further.

But apart from investing in shipping ports and buying stakes in transport hubs across Europe, China is also looking to integrate Eurasia into its grand scheme through extensive rail networking in the wilderness of Kazakhstan, Kyrgyzstan, and Tajikistan. And like with all global infrastructural developments, it is not without its fair share of geopolitical turmoil.

Take, for instance, the state of Kazakhstan. The country is relatively new in the picture, having been a part of the Soviet Union until 1991, and with an economy that is showing great prospects for growth in recent years. The country’s industrial sector depends extensively on its abundant reserves of oil and metals, which is extracted and exported across the world. Being a landlocked country, the country is in dire need of a rail network that can expedite transport and thus, the OBOR is an irresistible opportunity.

And this led to the creation of a new town named Nurkent, raised off the ground with the singular purpose of improving trade across the region. The town is the center for Chinese OBOR initiative in Kazakhstan, with it already handling over 100,000 standard containers and poised to handle five times that by 2020.

This insertion of China into Kazakh territory is similar to its advent into Hungary through the high-speed rail project connecting it with Greece – with overwhelming approval from the upper echelons of the local government. But with nationalists and pragmatic political pundits, the idea of development peddled by the Chinese is always to be taken with a pinch of salt.

Their concerns do hold water. The OBOR corridor that China undertakes on foreign soil is usually built by Chinese companies – which is obvious, considering that it is the Chinese banks that fund the projects. But then, these companies also tend to hire Chinese workers rather than the natives, which does no good to the employment prospects of the local demographic.

The Kazakh president Nursultan Nazarbayev, who maintains a cordial relationship with the Chinese, had announced legislation last year that allowed foreigners – read Chinese investors – to lease Kazakh land for extended periods. This was met with animosity from the locals, forcing the government to suspend the program, a short while after commencement.

Furthermore, the idea of building an extensive rail network in the middle of nowhere has been met with skeptic economists who question the timeline for the return on interest (RoI). Also, since Kazakhstan is landlocked and situated closer to the Arctic circle, the temperature variation is high, varying between -4 deg. F and 95 deg. F through the year. A lot of freight that travels through OBOR Kazakh network is perishable food and prone to damage, thus needing heated and refrigerated containers all through the year to counter adverse weather.  

China also exports more than it imports, leading to gauges returning empty for thousands of miles back to mainland China. The perplexed Western Chinese provinces are offering massive subsidies to local industries, cutting transportation costs and hoping it would help increase production and thereby fasten the rate of RoI.

When the discussion pertains to Eurasian infrastructural development, the looming presence of Russia in this region cannot be discounted either. Kazakhstan has long been an ally of Russia, with it retaining the Soviet Union’s flavor to date. But then, the rise of the Chinese influence in the country could mean that the tides might finally be changing. The OBOR could also mean that China could circumvent Russia in the future to trade directly with Europe via the Caspian Sea.

In the light of this, Russia created the Eurasian Economic Union (EEU) in 2015 with the countries of Belarus, Kazakhstan, and Kyrgyzstan – a Central Eurasian bloc modeled after the European Union – albeit smaller in size and diminished in function. Through the EEU, it is easier for partner countries to send goods to Russia with minimal customs intervention, which the latter believes could boost trade.

But the strategy seems to have backfired. The reason is quite evident – the volatility and the tanking of the value of Russian rouble against the U.S. dollar. This reduced the profit margins of exports from partner countries which also led to the devaluation of Kazakh tenge in the process.

Kyrgyzstan suffered as well, since remittances from labor migrants in Russia were valued less. Kyrgyz farmers were small-time, owning scattered pieces of land and thus, they also did not have the means to up their production capacity to supply goods to supermarket chains in Russia – thereby undermining the EEU system.

In essence, though, the EEU was founded to facilitate easier trade, it looks to have complicated the existing setup. China prefers to do bilateral agreements, and thus Russia’s idea of a united Central Eurasian bloc seems to be disintegrating. Post-OROB expansion, the usual Chinese game plan of flushing countries with cheaper goods to capture market share would be inevitable, ultimately undermining the Russian production facilities.

In-ground zero, the situation in Central Eurasia is a tussle between Russia and China, impacting the countries both economically and politically. As the influence sphere of the two potential superpowers clashes in the middle through the EEU and OROB, one can only hope that it brings out the best of both worlds, and in the end, improve the economic status of the countries caught in the middle.

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Vishnu Rajamanickam, Staff Writer

Vishnu writes editorial commentary on cutting-edge technology within the freight industry, profiles startups, and brings in perspective from industry frontrunners and thought leaders in the freight space. In his spare time, he writes neo-noir poetry, blogs about travel & living, and loves to debate about international politics. He hopes to settle down in a village and grow his own food at some point in time. But for now, he is happy to live with his wife in the middle of a German metropolitan.