The New Era of Central Asia-China Cooperation: The Case of the China-Kyrgyzstan-Uzbekistan Railway

On June 6, 2024, the intergovernmental agreement on the construction of the China-Kyrgyzstan-Uzbekistan (CKU) railway was signed in Beijing. Presidents of Kyrgyzstan, Uzbekistan and China sent to the participants of the meeting congratulatory video messages. According to Kyrgyzstan’s President Sadyr Japarov, the CKU railway is one of the important components of China’s Belt and Road Initiative (BRI) and will become a symbol of cooperation within the comprehensive strategic partnership in the new era between the three countries. The President of Uzbekistan Shavkat Mirziyoyev mentioned that the railway would become the shortest land route connecting China with Central Asia and would allow access through the promising Trans-Afghan corridor to the capacious markets of South Asia and the Middle East (Azattyk, 2024). According to Chinese President Xi Jinping, the railway is a strategic project, ‘demonstrating to the world the firm determination of the three countries to promote cooperation and seek development together’ (Xinhua, 2024). All Presidents pointed out the economic effects of the project such as boosting regional trade, industrial cooperation, and higher standards of living.

The project was first proposed in the 1990s, and the three countries signed a memorandum of understanding on the railway in 1997. However, due to technical and political issues, the railway construction was postponed several times (Zhen, 2024). Financing of the project was another important obstacle. Hence, the final steps before the start of the implementation of this infrastructural project raise a key question: what are the main factors that pushed the countries to start the construction of the railway? Hence, this commentary distinguishes the main reasons from the perspectives of each country.

China’s Interests: Transit, Trade and Xinjiang Pilot Free Trade Zone

Through the implementation of the new railway, China can diversify its transit routes, reduce its dependence on both Russia and Kazakhstan and maintain sustainable rail trade with EU and Middle Eastern countries in the long term. It is worth mentioning that the CKU railway will be one of the shortest routes and will save seven or eight days in shipping time. Moreover, the new railway will contribute to the economic growth and development of China’s central and western regions, in particular Xinjiang by the growth of the manufacturing industry (Sharifli, 2022).

In November 2023 China launched the Xinjiang Pilot Free Trade Zone (FTZ), the first in China’s northwestern border regions, which includes areas in Urumqi, Horgos and Kashgar and covers nearly 180 square kilometers. It is expected that the FTZ will substantially contribute to Xinjiang’s integration into the domestic and international markets. It is important to mention that the FTZ has greater autonomy in reform, and will cultivate and expand industries unique to Xinjiang or in which Xinjiang has advantages (State Council of the People’s Republic of China, 2023). Xinjiang’s foreign trade shows promising results. In the first 10 months of 2023 trade surged by 40% to a record $409.2 billion, while shipments from January to October exceeded the total value of trade in 2022 despite the sanctions imposed by Western governments in response to reports of forced labor. Kazakhstan, Kyrgyzstan and Tajikistan had the largest share of the transactions. Thus, Chinese officials plan to transform Xinjiang into an export gateway to neighboring countries and the government hopes the zone will attract foreign investors from nearby countries, who are all members of the BRI, and increase the use of the yuan in cross-border trade settlement (Nikkei Asia, 2023). It is worth mentioning that since the unveiling of the Kashgar subzone, a total of 86 companies have registered with an investment of $1.75 billion. China improved its logistics efficiency and cargo inspected at Kashgar Customs will be able to pass Turgart port directly to avoid a second inspection. Moreover, China established an industrial park built for Kyrgyzstani companies in Kashgar. As a result, Kashgar’s foreign trade surged 71.2% in 2023, contributing 23.4% to regional foreign trade (China Daily, 2024). According to Chinese experts, the CKU railway is a crucial part of the New Eurasian Land Bridge, which will change the transport structure in Xinjiang and will form the southern part of the Second Eurasian Land Bridge. The CKU railway will make trade and economic relations between China and Central Asia even closer. Rail transport is cheaper, operates stably and is not subject to seasonal restrictions. Hence, transport costs will decrease significantly, and commodity prices will decrease accordingly, contributing to the rapid growth of mutual trade (Xinhua, 2024). Thus, the CKU railway will diversify China’s trade and transit routes, contribute to the rise of Xinjiang’s economic capacity, and, as a result, strengthen China’s role in Central Asia.

Kyrgyzstan’s Interests: New Railway Network and Transit Revenues

Kyrgyzstan is interested in the development of its internal infrastructure. The length of Kyrgyzstan’s railways is only 424 km long. The country’s railway infrastructure consists of unconnected routes in the north and south that provide access to the railway networks of Kazakhstan and Uzbekistan. Hence, the CKU railway is an opportunity for Kyrgyzstan to connect the north and south of the country as since independence it has not built railways. The second task that Kyrgyzstan’s government tries to solve is to obtain access to global markets and become a part of global production chains (Institute of Strategic Analysis and Forecast, 2024). According to the Prime Minister of Kyrgyzstan Akylbek Zhaparov, the China-Uzbekistan-Kyrgyzstan railway will become the “road of life”, which will turn Kyrgyzstan into a large commercial and industrial center (Kazinform, 2024). Recently, Kyrgyzstan’s Parliament Jogorku Kenesh approved agreements between the governments of Kyrgyzstan, China and Uzbekistan on cooperation in jointly promoting the transcontinental railway project. The countries are establishing a trilateral project company, which will be the main operator of the railway. The construction of the CKU railway requires $4.7 billion, and China will allocate more than $2.35 billion in the form of a loan. Kyrgyzstan and Uzbekistan should invest $700 million each. The shares of participants in the project will be distributed accordingly: “Chinese Railways” will have 51%, while “Kyrgyz Temir Zholu (railways)” and “Uzbekistan Temir Yollari (railways)” will each own 24.5%. Almost 312 km (out of a total of 486 km) of the railway will pass through Kyrgyzstan. It is planned to construct 18 railway stations, 81 bridges with a total length of 26.1 km and the drilling of 41 tunnels with a length of more than 120 km. It is expected that for the transit of goods alone, the budget of Kyrgyzstan will receive about $200 million (Kabar, 2024). Thus, Kyrgyzstan will benefit in terms of the development of the internal rail network, will obtain access to international markets and gain from transit revenues. At the same time, the CKU railway implementation can positively influence the country’s labor market by increasing employment and revenues.

Uzbekistan Interests: Penetration of New Markets

Uzbekistan’s foreign policy under Shavkat Mirziyoyev is characterized by openness towards the inclusion of Uzbekistan into global and regional integration processes. Uzbekistan actively participates and supports China’s BRI, has an observer status in the Eurasian Economic Union and strengthens economic cooperation with South Asia. Uzbekistan’s foreign economic policy aims at the penetration of new markets, including China, Russia, and South Asia. It is worth mentioning that Uzbekistan will open 21 trading houses in more than 10 cities in China. This will be implemented within the framework of the April document, which was adopted by the President of Uzbekistan, and aimed at increasing the export of agricultural products to China (Kursiv, 2024). Hence, Uzbekistan proposes new infrastructure projects such as the Trans-Afghan railway and is interested in the implementation of the CKU railway. The project can bring substantial gains for Uzbekistan: besides penetration of Chinese and other new markets, it is expected that the country can receive revenues from cargo transit of $150-200 million annually (UzDaily, 2024). Uzbek entrepreneurs trading with China complain that it can take from 45 to 70 days to move goods by train from China through Kazakhstan to Uzbekistan. Hence, the CKU railway can ease the financial burden on Uzbekistan’s entrepreneurs and reduce the time of transportation substantially (Karimov and Kurbonmuratov, 2023). At the same time, the CKU will strengthen Uzbekistan’s role as a transit hub (People’s Daily Online, 2024). On June 7, 2024, delegations of Uzbekistan Temir Yollari and Xi’an Municipal Committee of China had a meeting, aimed at further strengthening railway and logistics ties between China and Uzbekistan. According to the provincial delegation of Xi’an, in 2023, 5.351 trains were sent from the port of Xi’an, 675 of which went to Central Asia, in particular, Uzbekistan accounted for more than 50%. By the end of 2024, it is planned to transport 20 thousand TEU containers along the Xi’an – Jizzakh route. Uzbekistan’s delegation expressed its readiness to cooperate in increasing the volume of cargo transportation through the port of Xi’an to Uzbekistan and through Uzbekistan. It was also proposed to consider the possibility of transporting goods from Xi’an to Uzbekistan through Kyrgyzstan (Uzbekistan Temir Yollari, 2024). Hence, China is strengthening its position as Uzbekistan’s key trade and investment partner. The cooperation is broad and varies from agriculture to energy. China plays a key role in Uzbekistan’s electric vehicle market. In December 2023, the Chinese firm Henan Suda signed a deal with Uzbekistan’s Energy Ministry to build upwards of 50.000 electric vehicle charging stations around the country by 2033. It is expected that 2.500 charging stations will be constructed in 2024. The project will serve about 700.000 electric vehicles when fully built out. During the first 10 months of 2023, China exported over 20.000 electric vehicles to Uzbekistan (Eurasianet, 2023). Thus, the CKU railway will serve Uzbekistan’s intentions to penetrate new markets and will become a new source of revenue. Uzbekistan’s entrepreneurs will increase their competitiveness by lowering trade costs, which will positively influence the country’s industrial policy and population well-being.

Conclusion and Policy Implications

Thus, the CKU railway implementation will have a substantial effect on Eurasian transport and trade networks. The start of the project was caused by a set of internal, regional and global factors. The war in Ukraine also had a significant effect on the CKU railway and made China diversify and Central Asia seek new revenue sources. All participants and the whole region can benefit from the project. However, there are significant risks related to ecology, debt trap, increased competition from China and dependence on China. By addressing these risks in advance Central Asian states may maximize their benefits.

References:

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Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.