Building the new Silk Road

By bne IntelliNews November 27, 2012

Clare Nuttall in Astana -

The Chinese-Kazakh border crossing of Khorgos is being transformed into a business and logistics centre as Astana revives the ancient Silk Road that once crossed its territory. With the basic infrastructure almost complete, Kazakhstan is working to attract private sector investment.

China is already one of Kazakhstan's main trading partners, with Kazakhstan importing billions of dollars worth of Chinese consumer goods, while Beijing secures supplies of Kazakhstani oil, metals and other commodities. At a summit in Beijing in June, the two governments set the target of boosting mutual trade to $40bn by 2015. However, trade volumes have been limited by bottlenecks - both physical and bureaucratic - at the two main border crossings, Khorgos and Dostyk.

Back in 2005, the two governments agreed to set up the Khorgos International Centre of Boundary Cooperation (ICBC), in a bid to simplify cross-border trading and develop the transit potential of both countries. The ICBC is a trading, logistics and entertainment complex straddling the border at Khorgos, which was once a stop on the northern Silk Road that ran from the ancient Chinese capital of Xi'an, around the Taklamakan desert and through the Tian-Shan mountains, before dropping down into modern day Kazakhstan.

Citizens of Kazakhstan, China and third countries will be able to stay in the ICBC for up to 30 days visa-free. A special customs regime has also been introduced. "Businesspeople from Kazakhstan and other CIS countries who want to do business with Chinese companies will be able to go to Khorgos, which is just 356 kilometres from Kazakhstan's financial capital Almaty, instead of flying seven hours or more to Hong Kong or Guangzhou," explains Kuralai Kanakhina, director of the department of international cooperation at the Khorgos ICBC.

Straddling the border

The ICBC is divided into two parts connected by a corridor. Of its total area of 528 hectares, 185 hectares are in Kazakhstan, and the remaining 343 in China's Xinjiang Uighur autonomous region. The Kazakhstani zone will include a conference centre, exhibition area, hotels, an ethnographic park, tourist resort, and zone for transport and shipment terminals. Similar facilities are being built on the Chinese side, which has already received considerable private sector investment.

An inter-governmental agreement was signed in June 2005. The basic infrastructure on the Kazakhstani side, funded by the government, is due to be completed by the end of 2014. This will include roads, power lines, water and heating.

The total cost of building the Kazakhstani zone will be KZT382.9bn ($2.5bn). Overall, the Kazakh government envisages raising four tenge of private investment for every one tenge spent from the state budget, Kanakhina tells bne. Khorgos ICBC aims to attract investment from the other two Customs Union countries (Russia and Belarus), the rest of the Commonwealth of Independent States (CIS), and the Middle East, as well as domestic investors.

Some private sector investors are already active at the Khorgos ICBC, where they are building terminals, trade centres and other facilities. They include Japanese-Kazakh joint venture Senko Lancaster Silk Road Logistics and Orion Global, Faykon and NRG+ST.

In August 2011, Kazakhstan's national railway company Kazakhstan Temir Zholy (KTZ) took control of the Khorgos ICBC. Since taking over, KTZ has stepped up efforts to attract investment and bring in international partners.

Kazakhstan has ambitions to become a transit hub for trade between Europe and Asia, as the journey time from China to the EU border across Kazakhstan is just 14 days. Astana is investing into road and rail infrastructure. The Kazakh section of the Western China-Western Europe international transit corridor runs from Khorgos across Kazakhstan to the Russian border. A new railway line between Khorgos and Zhetigen, a logistics centre near Almaty was completed in December 2011, and the Altynkol-Khorgos railway crossing is due to open before the end of this year. On the Chinese side, the Jinghe-Yining-Khorgos railway was completed in 2009.

Ultimately, there are plans to make Khorgos into not just a logistics centre, but a new industrial town. A presidential decree on the planned Eastern Gates SEZ was signed in November 2011. Some 5,840 hectares of land adjacent to the Khorgos ICBC has been allocated for the SEZ, which will include a trade and economic zone, a "dry port", cargo airport, industrial zone and residential area.

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