Smooth as Silk, Paved in Gold

SITTING IN Ivan Khizkov’s gold-coloured Land Cruiser counting the kilometres roll by on a Silk Road highway built by China as part of an intense desire to crisscross the massive continent to Europe with road and rail, one could only marvel at the ambitious nature of the endeavour. This newly made Silk Road led to Bishkek, the Kyrgyzstan capital, and beyond to the hinterland of Lake Issyk Kul, the second largest saline lake after the Caspian Sea, close to the fabled Silk Road city of Kashgar.

The China-created thoroughfare would take us deep into the Tian Shan mountain range, yet again on a well-paved two-lane highway through a majestic landscape. On these roads Khizkov’s Kazakh license plate spelt money for locals and trouble, as Khizkov warily weaved his way between police speed controls hoping desperately to avoid shake-downs. But, these roads also made money for Khizkov and he had travelled them often, recalling the days of family vacations on the shores of Issyk Kul.

“The business is shifting to places like Tajikstan, and Kyrgyzstan is rapidly developing as a central hub due to its location,” noted Khizkov, whose thriving business in Austrian Liebherr machinery is designed to build roads and develop resources at an even faster clip. “These are the new Asian Tigers, and if one remembers the rise of the old Asian Tigers, it is clear that much opportunity lies here. Sure, it is not always easy to do business, but usually a good local partner can solve most problems.”

Silk Road Revisited

A couple of columns back I wrote about my voyage through the Silk Road Central Asian powerhouses of Kazakhstan and Uzbekistan, the first being the resource richest and the second being the most populous of the republics. I noted the positive developments of the Silk Road Economic Belt Policy promoted by China and the treasure chest earmarked to conquer the vast plains and mountain ranges of Central Asia with rail and road.

To better understand how this bonanza impacted the less developed “post-Union” republics (as the locals refer to it) I decided to head back into Central Asia and travel to Kyrgyzstan. Bordered by China, Kazakhstan, Tajikistan and Uzbekistan, and surrounded by the towering peaks of the Tian Shan range, this Republic of 6 million is a hidden jewel when it comes to natural beauty, not to mention a central hub in the battle for resources.

Kyrgyzstan once occupied an important place on the Silk Road, particularly the town of Osh, which is the second and oldest city, now celebrating its 3,000 anniversary. Kyrgyz ancestors lived in Siberia until the 10th century, before heading south and, more recently, Kyrgyzstan was under the Manchus and Kokand Khanate. The Russians took over in the late 19th century and the country was part of the Soviet Union until its independence in 1991.

The largest ethnic group remain Kyrgyz, which comprise some three quarters of the population. Others include Russians and Uzbeks, with small but noticeable minorities of Dungans, Uyghurs, Tajiks, Kazakhs and Ukrainians. Unfortunately, Kyrgyzstan remains one of the poorest Central Asian countries as it lacks major deposits of natural gas and oil, which its neighbours possess in abundance. This lack of resources and related poverty is one reason why the nation has proven to be the region’s most politically unstable.

Pressed by threats to power, most political leaders have turned to foreign sponsors for solutions to economic woes. Still, foreign policy has fluctuated as three presidents have left office over the last 20 years, two overthrown. The latest to be ousted was President Kurmanbek Bakiev during the 2010 revolution and his replacement is Almazbek Atambaev.

In terms of the foreign dynamic, Atambaev has used his connections to reinforce Turkish ties and Kyrgyzstan has indeed benefited from Turkish investment. However, Russia remains important, and Kyrgyzstan assumes Russia provides security, although no guarantees exist – as demonstrated by Moscow’s reluctance to intervene in the 2010 event. Still, Moscow’s incentive for economic investment is limited and as a consequence Atambaev has turned to China. While Russia and the US rely on military might to assert influence, China stresses economics.

China Relations

Over the last five years, China has increased its investment in the country ten times and Kyrgyzstan has encouraged engagement. In August 2012, Atambaev visited China to discuss investment with President Hu Jintao, including the opening of China banks and a railroad connecting China, Kyrgyzstan and Uzbekistan. In December 2012, Premier Wen Jiabao visited Bishkek during the Shanghai Cooperation Organisation summit to take the discussion on investment to another level.

A strategic partnership was among the agreements signed following the more recent talks in Bishkek between President Xi Jinping and Atambaev, which include agreements on vehicle deliveries, natural gas pipeline construction, health care, upgrading a heating plant, construction of a new highway and credit totaling together some USD 3 billion.

While many projects are under discussion, others are implemented. China has built an oil refinery in Bishkek and the electric switch station in Jalal Abad province, and recent reports state that China “squeezed out” Russia to rebuild airports. Beijing Urban Construction Group will invest USD 1 billion to reconstruct Manas International Airport in Bishkek and China Machinery Engineering Corporation will invest USD 300 million in Osh Airport.

Though Chinese influence is no greater than Russia, the US and Turkey, this situation is likely to change as the economic influence of the largest trading partner becomes more visible. “The Report on the Development of Central Asia” presented in Beijing in September 2013 reported that the situation in Central Asia was stable and conditions for development favourable. Still, Beijing does not perceive Kyrgyzstan’s investment climate to be the best.

Tajik vs. Kyrgis

When you are an economic emerging tiger there is always someone chasing your tail, and in the case of Kyrgystan it is its southern neighbour, Tajikstan. These days, Chinese investors are looking closer at Tajikistan, and central Asia’s poorest country is said to be in an economic boom, as the state broke its annual production record for cement while pushing gold output up by roughly 25 per cent in 2014. It is said that China companies were largely responsible for these latest economic achievements.

Two factors in Kyrgyzstan are causing China investment to move to Tajikstan. The first is Bishkek’s decision to join the Russia-led Eurasian Economic Union (EEU), a local EU model, and the second is the political climate. Meanwhile, gains from China FDI have been be offset by higher sovereign debt, as loans from China total over USD 1 billion, almost a third of foreign debt.

In addition, China’s Tajik projects have fared better than Kyrgyz ones as of late. State-owned Zijin Mining Group has gold concessions in both countries, and its Zarafshan concession in Tajikistan accounted for 70 per cent of the country’s gold output. Meanwhile, in Kyrgyzstan, Zijin’s Taldy-Bulak Levoberezhny project, has had problems since purchase in 2011, and, in 2012, Zijin had to evacuate 250 employees following a fight with locals.

“We are already active in Tajikstan, and are vying for major road and mining projects,” concludes Khizkhov, looking in his back mirror as he passes another police speed control. “We see this as the new Central Asian frontier and are excited to push south for more business. There are some issues in dealing with a country on the border of Afghanistan, but the risk and reward ratio is what this region is all about, and no one knows that better than our Chinese friends to the West.”

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