China To Invest US1.9 Bn To Fuel Kazakhstan’s Slowing Down Economy

By Marina Romanova

With US1.9 billion investment in Kazakhstan’s agricultural industry signed in deals by two countries last week, China continue to promote its Silk Road strategy (“Belt and Road Initiative”) launched in 2013 to boost PRC trade and cooperation with Central Asia and beyond.

19 projects, including tomato, chicken and meat processing plants are planned to be launch in coming years in Kazakhstan to “add lucrative value to its agriculture products to make up for losses due to low oil prices,” as Chinese state news agency Xinhua phrase it, describing its north-western neighbor as ‘the world’s eighth-largest wheat exporter, whose soviet-era agriculture industry lacks the ability to turn agriculture resources into cash.’

Former Soviet Republic and one of the region oil-exporter is indeed very much in need to revitalize its economic growth, which is set to fall a two-decade low this year, according to the International Monetary Fund.

The Regional Economic Outlook for the Central Asia released by IMF on April 25, 2016 predicts growth in the region to decline to 1.2 percent in 2016. This is a sharp drop from the 3 percent growth rate the region experienced in 2015, and much weaker than the 8.3 percent average in 2000-14, the IMF report said.

Kazakhstan’s long-term strategic ally, Russia, now face its own hard to solve problems in a midst of a falling world energy prices, while the US and European investors have one by one refused to participate in oil production projects in the Kazakhstan Caspian shelf. According to experts, their refusal stems from an aversion to heightened tax pressure levied on international companies by Kazakh authorities.

Meanwhile, China, unlike western financial institutions, continue to provide Kazakhstan with much needed financial liquidity for its oil and gas industry, which together with comparatively small investment in county’s mining, engineering, processing, and transport industries claim more than 90 percent of Chinese investment in the country.

According to the Kazakhstan Embassy in China, as of 2014, accumulated Chinese investment between 1992 and 2013 amounted to over US$20 billion, including US$6 billion in foreign direct investment (FDI).

In 2013, Kazakh President Nursultan Nazarbayev and Chinese Premier Xi Jinping signed an agreement on investment projects in the country totaling almost US$43 billion, over 200 percent of the volume of the preceding two decades with US$1.8bn in 2000 to US$50bn in 2013.

However, in order to avoid the role of a mere raw materials provider to its powerful neighbor and to create a new investment dynamics, Kazakhstan need to attract investment into various sectors of the economy such as new 19 investment projects to upgrade Kazakh food processing industry.

Gulmira Isayeva, the deputy agriculture minister, said “we have great interest from Chinese companies to invest in our Kazakh agricultural production system, we can export to China all products which we can grow in Kazakhstan.”

There are some Chinese food producers already operates in Central Asian country. One of them is food processing Tsin Food company from Xinjiang Autonomous Region which exports its products (tomato sauce, fruit jam, canned vegetables) mainly to Kazakhstan. Its Kazakh brand Tsin Kaz tomato paste and recyclable jam bottles is accounted for 30 percent of county’s market share. As of now Tsin Food is processing fruits and vegetables locally grown in Xinjiang.

According to Gulmira Isayeva, Beijing’s $40bn Silk Road Fund (some investments were coordinates together with World Bank and Tokyo led Asian Development Bank), is planning to invest in three agribusiness projects, including one to relocate three tomato processing plants from China to Kazakh steppe. Deputy agriculture minister didn’t specify which Chinese company will participate in this project, but the proximity of the Xinjiang Uighur Autonomous Region, which is connected to the plan to turn the region into a launching pad for Chinese penetration into Central Asian “stans’ and Middle East, suggests its might be one of locally operate businesses.

China’s trade with Central Asia is mainly conducted through Xinjiang, also know in Central Asia by its historical name as Eastern Turkestan. In 2015 the import/export trade with Kazakhstan accounted for 40.2 percent of Autonomous Region’s total trade value. Although due to falling demand in Central Asia Xinjiang’s total import and export value dropped last year to US$19.68 billion. The food processing is one of the highly-developed industry in this most Western province of China. According to PRC statistics the region based Xinjiang Production and Construction Corps (XPCC) alone, locally known as the Bingtuan, exports 17 percent of the world’s ketchup.

Despite of the considerable bulk investments China has allocate in Kazakhstan in recent years, local people are still very suspicious of China’s motives.

In late April protests against changes to the country’s Land Code and fears that the government could sell off land to China have spread across the country in several provincial towns of Kazakhstan including Atyrau, Aktobe and Semey. Some observers estimate that between 1,000 and 2,000 people gathered in each city, which is quite serious for Kazakhstan where no dissent is tolerated.

People were angry at the changes in the law that allow foreigners to rent agricultural land in Kazakhstan for 25 years. Although, under existing legislation, foreigners are already allowed to rent agricultural land for 10 years and recent changes will simply bring this up to 25 years, BBC explicates.

So, the main reason for unprecedented protests spread around the country, is the unbearable level of the corruption, due to which “only the rich and powerful will benefit from the amendments’.

“You know how things are done in Kazakhstan, corruption is everywhere,” one protester who wished to remain anonymous said to BBC. “People simply don’t trust that this will all be effective and not misused as usual.”

Nevertheless, Chinese “people-to-people bond” soft power strategy gain some positive outcome in the former Soviet Republic. According to the China Scholarship Council, a government body that helps overseas students study in China, the number of Kazakh citizens studying in China has risen more than fivefold in the past decade to 12,000.

Moreover, starting from 2003, Beijing has set up 10 Confucius Institutes and 12 Confucius Classrooms in Central Asia to promote Chinese language and culture in the region. They trained about 23,000 students in five Central Asian “stans” including Kazakhstan.

“I do not think China has done enough. They have work to do to create a favourable image,” Financial Times writes Zhao Huasheng, director of the Centre for Russia and Central Asian Studies at Fudan University, as saying.

There are three Kazakh autonomous prefectures within Xinjiang, where at least 1.5 million ethnic Kazakhs live, which can potentially add some discrepancies to Chinese penetration into Kazakhstan’s economy.

The Xinjiang development led to the massive inflow of workers from inland of China and creates competition for the locals for employment, farming rights, and resources. According to analysts, most of the region’s top jobs are disproportionately taken up by Han workers, many of which are intentionally shipped in from other parts of the country. Han settlers now constitute 40 percent of the region’s total population compare to mere 6,7 percent as it was in 1950s.

Inequitably distribution of economic benefits and rapid social and cultural transformation in Xinjiang Uighur Autonomy may potentiality lead to an ethnic sentiments and solidarity ascending in Kazakhstan.