This document summarizes key aspects of China's Belt and Road Initiative (BRI) in the Eurasian region, including Central Asia and the Caucasus. It provides the following key details:
1. Over the past 7 years, China has invested approximately $98 billion in 168 projects across the region, with over 50% of investments in Russia and Kazakhstan. Major sectors include energy, infrastructure, and industry.
2. Chinese investments in the region peaked at around $18 billion annually from 2013-2015, before declining to around $5 billion as China signaled plans to curb overseas investments.
3. Major Chinese investors in the region include state-owned banks and investment funds. Debt financing makes up over 60%
1. BELT AND ROAD AND THE EURASIAN HEARTLAND
CONTEXT, ISSUES, PROJECTS
ALEXEY KALININ
SKOLKOVO Institute for Emerging Market Studies (IEMS)
Director
May 17, 2018
Hong Kong
The
Belt
and
Road:
From
Vision
to
Reality
Business
Talk
2. Belt and Road
2
DIMENSIONS OF BRI
• 68 countries, 3 continents
• 4.4 billion people
• $1 trillion investment
• 1000 separate projects
• 6 economic corridors
• 7 belts:
• Trade
• Healthcare
• Education
• Innovation & IT
• Agriculture
• Finance
• Tourism
• Infrastructure:
• Transport
• Energy
• Telecom
3. Heartland
ONE COUNTRY
• GDP USD 332 bln, Hong Kong, No. 33
• 85 million people, Turkey, No. 15
• 4 188 thousand sq km 1,5 India, No. 6
• GDP per capita 4300 Pakistan, No. 145
• GDP Growth Rate ±5%, Indonesia, No. 50s
• Central Asia and Caucasus have always been at the crossroads of
civilizations, from the times of the ancient Silk Road – wars and conflicts
• Modern CAC countries have never existed in the current borders – it is the
Soviet legacy
• Belt and Road Initiative is the largest ever complex development initiative
• Supposed to be implemented in one of the most unknown, diverse and
volatile regions
There is no such thing as Central Asian internal issue. Not anymore.
• 99.8% literacy rate
• up 50% tertiary enrollment rate
• median age is 27 years
• in the past 25 years the population has increased by 35%
ONE NATION
NO, IT IS NOT
3
4. The CAC region is located on the crossroads between Russia, China, the Islamic World and
the West. Political and economic dynamics in the neighboring countries have a direct
effect on the heartland
Universal partners
• Russia – One of the main political and trading
partner, and security guarantor. The most desired
destination for regional labor migrants. So far.
• China – An important trade and investment partner.
Major creditor. Third popular destination for
education scholarships, after US and UK.
Sectoral development partners
• Japan - diversification of energy supply sources.
Leading partner for technological and innovative
solutions.
• South Korea – Engagement areas: construction,
infrastructure, automobile assembly, energy & mining
sector, digitalization, agribusiness
• India – Bottom of the pyramid goods. Qualified
migration, possibly into CAC
Islamic powers
• Turkey – Pan-Turkism. Transfer point for oil and
natural gas from the Caspian basin for Western
markets. Funding of Sunni education.
• Iran - Potential new regional leader, balancing to
Turkey and Saudi Arabia. Geographically connected,
Caspian sea sharing with CAC
• Saudi Arabia – Interest in agriculture, Islamic finance
in CAC. Growth of islamisation in CAC, religion
tourism quotas and funding of Sunni religious
education
Security, institutions and development partners
• US - Corridor for Afghan operations. Decreasing
influence in CAC, but stable in South Caucasus.
Interests in energy sectors. In top 10 FDI providers.
• Europe - In top 10 FDI providers in the region and
large trade partner. Promoting Human rights and
democratic values
Geo-Economic Context
4
5. Diverse political models
Political models vary significantly, from true democracy
in Kyrgyzstan, to conservative and authoritarian
Turkmenistan, to progressive autocracy in Kazakhstan.
Different economic systems
Represents various systems – e.g. Kazakhstan and
Turkmenistan – enjoying the benefits of oil and gas
development. Kyrgyzstan, Tajikistan and Uzbekistan rely
more on the Soviet industrial legacy and on leveraging
agriculture potential.
Versatile social and cultural capital
Remarkable cultural legacy and significant demographic
dividend. Over 100 ethnicities. Speaking more than 30
languages. Practicing all the world’s major religions,
Islam dominates except for Armenia and Georgia.
Uneven business environment
• Ease of Doing Business – from 24 in Georgia,
to 132 in Tajikistan
• Competitiveness Index - from 37 in
Azerbaijan to 111 in Kyrgyzstan
• Human Development Index – from 56 in
Kazakhstan to 129 in Tajikistan
• Internet Penetration – from 15% to 70%
• Logistics Performance Index – from 77
Kazakhstan, to 153 Tajikistan
• Unemployment rate from 2.4% in Tajikistan to
18.5% in Armenia
• Poverty rate from 7.6% Azerbaijan to 46,7% in
Tajikistan
• Share of remittances in GDP from negligible in
Kazakhstan to 37% in Kyrgyzstan
CAC is a diverse, complex and dynamic region,
combining ancient culture and traditions with
forward-looking aspirations
Diversity
5
6. Eurasian Economic Union
Predominately trade and investment organization established in
2014, members are Armenia, Belarus, Kazakhstan, Kyrgyzstan,
and Russia.
Shanghai Cooperation Organization
Eurasian political, economic, and security organisation,
members are China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan,
Uzbekistan, and India and Pakistan since June 2017
Collective Security Treaty Organization (ОДКБ)
Security block between Armenia, Belarus, Kazakhstan,
Kyrgyzstan, Russia, Tajikistan.
Political transition
CAC is still in the process of
transition from more controlled to
the market economies.
Security – disputes, conflicts
ISIS risks, potential border conflicts
(Nagorny Karabakh, Fergana
Valley), Ethnic conflicts (Kyrgyzstan
and Uzbekistan), water security
disputes (Uzbekistan and
Kazakhstan, Uzbekistan and
Tajikistan).
Migration
Ethnic and labor migration from the
CAC into Russia, South Korea, Turkey
and the Middle East
INTEGRATION PLATFORMS
Dynamics
INTRAREGIONAL DEVELOPMENTS
The Turkic Council
An organization for promoting cooperation among Turkic states,
established in 2009 by Azerbaijan, Kazakhstan, Kyrgyzstan, and
Turkey; Turkmenistan and Uzbekistan are observers
Integration initiatives, political transformation, migration flows, disputes and conflicts make
Central Asia and Caucasus a very vibrant place
6
7. BRI IN EURASIA
Over the 7-year period China has invested about $98bln in 168 projects in the region.
7
50%
11%
17%
3%
3%
0%
4%
2%
8%
2%
Value
of
Chinese
Investments
by
Sector
Energy
Industrial
Building
ConstrucHon
Civil
Engineering
Forestry
Vehicle
and
equipment
Manufacturing
Research
and
Development
in
Nanotechnology
Finance
Real
Estate
Mining
Agriculture
2.10
1.00
6.12
17.06
5.07
12.61
2.37
8.10
3.02
9.07
31.37
Value
of
Chinese
Investments
by
Country
Armenia
Azerbaijan
Belarus
Kazakhstan
Kyrgyzstan
Iran
Tajikistan
Turkmenistan
Uzbekistan
Turkey
Russia
50% of all investment were attracted by Russia
and Kazakhstan; over 70% with Iran and
Turkey.
50% of total investment are made in Energy and over
75% with Industrial Facilities and Infrastructure.
Agriculture, forestry and mining make other 13%
8. DYNAMICS
Shorty after the announcement of the BRI, Chinese investment in the region quickly reached
about $18bln a year (2013) and stayed there for three years until the Chinese Government said
stop it. If it was not an Iranian nuclear deals we could have seen sharp drop down to the level of
about $5bln a year.
8
0
2
4
6
8
10
12
14
16
18
20
2011
2012
2013
2014
2015
2016
2017
Volume
of
Chinese
Investments
in
2011-‐2017
Russia
Turkey
Iran
Kazakhstan
Other
countries
Beijing
has
signaled
plans
to
curb
Chinese
firms’
investment
in
foreign
assets,
a=er
revealing
that
companies
from
China
are
on
course
to
spend
1.12
trillion
yuan
(£130bn)
on
everything
from
BriGsh
football
clubs
to
a
Hollywood
film
producer
in
2016.
The
difference
between
investments
abroad
and
those
coming
into
China
has
reached
an
unprecedented
£39bn.
The
widening
gap
has
triggered
concerns
about
capital
flight,
where
investors
send
their
money
out
of
the
country
rather
than
invesGng
it
to
spur
domesGc
growth.
9. STRUCTURES
9
Big4 includes Agricultural Bank of China, Bank of
China, China Construction Bank and Industrial and
Commercial Bank of China
20%
17%
63%
Type
of
TransacHon
Debt
Equity
na
2%
1%
27%
40%
30%
Status
Announced
Delayed
InplementaIon
Completed
na
-‐500
0
500
1000
1500
2000
2500
3000
Investments,
US$
2011
2012
2013
2014
2015
2016
2017
Volume
of
Chinese
Investments
by
Project
- Major investors are China Development
Bank, China Investment Corporation,
Silk Road Fund, and relevant SOE
- Average size of the project - $587mln,
but some could be millions, other could
be billions
- On 63% of projects we have no data on
the transaction type
- Over 70% of projects are real – either
completed or being implemented
- 30% of projects – no status available
1%
11%
3%
13%
4%
1%
42%
25%
Major
Finance
Players,
%
Big4
China
Development
Bank
China
investment
CorporaHon
The
China
EXIM
Bank
Silk
Road
Fund
The
Asian
Infrastructure
Investment
Bank
(AIIB)
na
10. 10
The unique combination of the risk appetite, modest return expectations and financial power
makes China a second to none option for Central Asia and Caucasus and the Middle East in
the broad range of projects.
In large projects (over $500mln), Chinese investments
amount to near 40% in average
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Investments,
%
Projects
%
of
Chinese
Investments
for
projects
cost
more
than
US$
500
Chinese
Investments
Other
Investments
30%
16%
21%
33%
%
of
Chinese
Investments
in
Projects*
Less
than25%
More
than
25%
but
less
than
50%
More
than
50%
but
less
than
75%
More
than
75%
* For 63 of 168 projects in which information about the Chinese
share is available
In about 70% of projects China is a principal
investor, in more than 50% - controlling.
TRIGGERS & CONTROL
11. 11
6%
24%
8%
1%
2%
44%
6%
9%
0%
The
IDB
Investments
in
the
region,
US$
mln
Azerbaijan
Iran
Kazakhstan
Kyrgyzstan
Tajikistan
Turkey
Turkmenistan
Uzbekistan
Russia
Islamic
Development
Bank
provides
funding
for
over
110
projects
for
about
$25bln
in
the
region.
Islamic
Belt and Road – is an Islamic
Economy Initiative
• Muslim majority countries grow over 6%
• Muslim population is 1,7 bln (+73% by 2050)
• Muslim millemials: 30% under 15 y.o. 60% under 30
• Muslim digital economy: $170 bln, CAGR 17%
Global
Muslim
spend
across
lifestyle
sectors
was
$2
trillion
in
2016,
while
the
Islamic
Finance
sector
has
$2.2
trillion
in
total
assets.
12. What for Russia?
12
Total volume of the Chinese investments in Russia
during this 7-year period estimated at around
$31bln.
0
1000
2000
3000
4000
5000
6000
7000
8000
2011
2012
2013
2014
2015
2016
2017
Chinese
Investments
by
Year,
US$
mln
According
to
the
Russian
Central
Bank
Data,
the
volume
of
direct
Chinese
investments
in
Russia
in
2011-‐2017
account
only
to
US$
16.3
bln.
This
figure
is
twice
as
liZle
than
the
volume
of
the
Chinese
investments
in
the
projects
examined.
15.6,
48%
3.39,
11%
3.06,
9%
1.88,
6%
1.78,
5%
0.2,
1%
1.2,
4%
0.883,
3%
3.74,
12%
0.44,
1%
Volume
of
Chinese
investments
be
Field,
US$
bln
Energy
Industrial
Building
ConstrucIon
Civil
Engineering
Forestry
Vehicle
and
equipment
Manufacturing
Research
and
Development
in
Nanotechnology
Finance
Real
Estate
Mining
Agriculture
Mineral resources make up to 70% of
investment. Close to 20% in industry and close
to 10% in infrastructure.
13. 13
POWER OF SIBERIA
The
Power
of
Siberia
Pipeline
a
natural
gas
pipeline
under
construcIon
in
Eastern
Siberia
to
transport
YakuIa's
gas
to
Primorsky
Krai
and
Far
East
countries
13 13
In May 2014, Gazprom and China National Petroleum
Corporation (CNPC) signed the Sales and Purchase
Agreement for gas to be supplied via the eastern route
(Power of Siberia gas pipeline). The 30-year Agreement
provides for Russian gas deliveries to China in the
amount of 38 billion cubic meters per year. Gas
supplies will start in December 2019.
14. 14
CONSTRUCTION
CHINA NATIONAL PETROLEUM CORPORATION
RUSSIA’S GAZPROM
" Historic $400bn Gas Deal
" Aim is to deliver 38 billion cubic meters of
gas to China annually using the eastern
route on 30-year period
INFRASTRUCTURE INVESTMENT from both sides
will be more than $70 billion and will be the
world's largest construction project., with
Russia providing $55 billion up front and China
$22 billion for : EUR 3,6 bln (US$4,1 bln)
" Russia – US% 55 bn
" China – US$ 22bn for pipelines on their
respective territories Size
The gas price formula remains classified.
In
September
2014,
Gazprom
commenced
the
construcIon
of
Power
of
Siberia’s
first
secIon
running
some
2,200
kilometers
from
the
Chayandinskoye
field
(YakuIa)
to
Blagoveshchensk
(Chinese
border).
The
second
phase
of
the
project
will
include
the
construcIon
of
a
secIon
stretching
for
about
800
kilometers
from
the
KovykInskoye
field
(Irkutsk
Region)
to
the
Chayandinskoye
field.
The
third
stage
provides
for
expanding
gas
transmission
capaciIes
between
the
Chayandinskoye
field
and
Blagoveshchensk..
PARTICIPANTS
14 14
POWER OF SIBERIA
15. KAZAKHSTAN
15
China has sought to obtain a leading role in cultivating and developing energy industries in
Kazakhstan, harnessing Kazakhstan’s oil, natural gas, minerals, including uranium, and other
major energy resources.
76%
4%
5%
1%
10%
4%
Volume
of
Chinese
Investments
by
Field,
%
Energy
Industrial
Building
ConstrucIon
Civil
Engineering
Finance
Mining
Agriculture
69%
6%
25%
Energy
projects
oil
and
gas
thermal,
hydro,
electric
alternaIve
0
1000
2000
3000
4000
5000
6000
2011
2012
2013
2014
2015
2016
2017
Chinese
Investments
by
Year,
US$
mln
Total volume of the Chinese investments in
Kazakhstan during this 7-year period estimated at
around $17bln in 29 projects.
Mineral resources make up to 90% of
investment. Energy makes over 75% of
investment, with most money coming to oil and
gas, but also supporting renewables.
16. KHORGOS
The most ambitious China’s project in Kazakhstan
16
Khorgos Gateway, a dry port on the China-Kazakh border
seen as a key cargo hub on the new Silk Road, began
operations in August 2015.
KHORGOS DRY PORT
Goal: To decrease the required transit time between China, Europe, Middle
East from 45 days (sea route) to 10-15 days (railroad and automobile road).
Transit via Kazakhstan saves up to 30 days in cargo transportation.
Description: Khorgos Gateway project is contributing significantly to the
development of both the local communities as well as positioning Kazakhstan
as a country in the epicenter of the New Eurasian Economy. Its total area
129,8 hectares, located on the logistics (224,9 ha) and industrial (224,6 ha)
zones, thus providing an optimal solution for the containers handling and
other logistic, - and further industrial -services to participants of Special
Economic Zones, created to ensure strategic importance of the project. Tax
and customs incentives are also provided.
It is supported by the gigantic infrastructure of the western China Western
Europe highway, 8,000 km highway that starts in Lianyungang and that
ends up in Europe. SEZ Khorgos is also linked with rail that can connect with
any major destination in China, Central Asia and Europe.
With its strategic location, in the middle between China central Asia and
Europe, with its rail and road connectivity, SEZ Khorgos will become the main
distribution and industrial hub that will connect in less than 10 days the 183
million inhabitants of the Eurasian Economic Union, and the 750 millions
inhabitant of Europe.
Participants Amount US$
mln.
China 3250
Kazakhstan 3014
Total cost of project: 6214
17. KHORGOS
17
The container port currently has capacity to process
540,000 TEU annually, with six berths where multiple trains
can be handled at the same time. Although within five
years Gheysen predicts that they could be seeing over a
million TEU passing through — which is more than many
seaports in the world.
The Khorgos-East Gate Special Economic Zone was
announced on July 2, 2014 by Kazakhstan's president
Nursultan Nazarbayev. The idea for the project is said to
have come directly from the president himself, for whom
the revival of the Silk Road has been one of the prime
objectives since it was announced.
DP World (Dubai Port) is managing Khorgos-East Gate for
a ten year term. This is the same company that runs the
Jebel Ali port and free trade zone in Dubai which helped
spark the birth of the booming city we know the place as
today. DP World also plans to acquire a 51% stake in the
Khorgos SEZ to play an important role in enhancing trade
connectivity along the New Silk Route
China’s COSCO Shipping and the Port of
Lianyungang have signed on to take a 49% of
Kazakhstan’s Khorgos Gateway dry port.
18. KHORGOS
18
Despite plans to expand the town, some officials say that technology
and automation could eventually eliminate, or at least significantly
reduce, the need for people
It takes 45 to 50 days to send goods from Chinese factories to
Europe by sea, but less than half that time by train through
Central Asia. Transporting a shipping container overland costs
around 10 times as much as by sea, even if it is relatively
speedy and still much cheaper than airfreight.
In 2017, Khorgos handled the equivalent of more than
100,000 standard containers full of goods. It aims to handle
500,000 containers by 2020, but even that target is only
around 1 percent of the volume of goods that travel from Asia
westward by sea.
Though monitored by sophisticated technology, the main activity carried out at Khorgos
is very low-tech: laboriously moving containers that arrive on trains from China onto
railway cars that run on the wider gauge tracks used by the Kazakh and Russian railway
systems.
CHALLENGES
US$ 1 million bribe case in 2016 complicates full implementation. The head of a Silk
Road free-trade zone between China and Kazakhstan was detained on suspicion of
accepting a US$ 1 million bribe.