Kazakhstan among nations cheering SCO’s ‘victory’ over the G7

Kazakhstan among nations cheering SCO’s ‘victory’ over the G7
Certainly on the deals front, Kazakh President Nursultan Nazarbayev (walking alongside Chinese leader Xi Jinping) seemed to have a good summit, but Vladimir Putin (middle) may have come away a little more anxious at how much Central Asia is falling into China’s economic orbit.
By bne IntelliNews June 12, 2018

The relative success of the weekend’s June 9-10 Shanghai Cooperation Organisation (SCO) summit in Qingdao, China, may have been exaggerated in some quarters given the absolute dog’s dinner the G7 summit in Canada turned into as Donald Trump stoked a series of rows with supposed allied nations—but Kazakhstan, for instance, was certainly hailing it a significant advance with Kazakh and Chinese businesses signing 40 deals worth $13bn during the event, according to June 11 reports from Kazakh media outlets.

The SCO, formed in 2001, is a China-led intergovernmental organisation which also boasts Russia, Uzbekistan, Tajikistan, Kyrgyzstan and Kazakhstan as longstanding members, while India and Pakistan were lately granted membership (Afghanistan, Iran and Mongolia have observer status). Many of the inked Kazakh-Chinese deals are in tune with China’s goal of forming trade transit hubs and corridors with modern infrastructure in Kazakhstan and much of the rest of Central Asia. Huge sums will be invested into what is known as the One Belt One Road (OBOR) or Belt and Road initiative, with an eye on driving up exports to Europe.

However, this year’s summit of the 18-year-old SCO has not borne as much fruit as was hoped for because China once again failed to secure India’s backing for OBOR. Even so, while China’s ability to attract India to the table appears to be key to the full success of OBOR, the Central Asian nations look set to remain steadfast in their contribution; the leaders of the “Stans” have continuously reaffirmed support for China’s plan.

Last November, Chinese Assistant Foreign Minister Li Huilai told reporters that “the goal of establishing a [SCO] free trade zone will definitely be achieved before long”.

Trade bloc ambitions
The initiative, on the surface, appears to challenge Russia’s leadership ambitions in Central Asia. Moscow has attempted to consolidate its influence over its former vassal states under its free trade bloc, the Eurasian Economic Union (EEU).

Despite the Kremlin—which was turfed out of the G7 after Russia seized Crimea, although Trump caused upset in Canada by calling for its readmission—repeatedly showing outward support for Chinese investment, many a Russian headline last year expressed concern over China’s influence in Kazakhstan and Kyrgyzstan—especially after Kazakhstan announced plans to transition its language to a Latin alphabet away from a Cyrillic one.

The EEU was originally designed to create a greater dependence on Russia for Kazakhstan and Kyrgyzstan. An SCO free trade zone would likely dwarf Russia’s ambitions of maintaining greater influence over SCO’s ex-Soviet members. In Kyrgyzstan’s case, for example, the EEU has effectively blocked off the inflow of cheap goods from China into the Kyrgyz re-export market. A SCO free trade zone would revitalise that market, but also shift the centre of influence over the country back to China away from Russia.

An SCO trade bloc, if implemented sooner rather than later, might also succeed in bringing Uzbekistan and Tajikistan into the fold of a common free trade space prior to any breakthrough made by Moscow. Russia has been trying to bring the two countries into the EEU in recent years.

Even so, Russia might be preparing itself for the shifting of geopolitical and economic realities. The Russia-led Eurasian Development Bank (EDB) has quite optimistically expressed projections that container traffic between China and Europe spanning the territory of the EEU will almost double between 2017 and 2020.

An economist at ING Groep NV, Joanna Konings, said on June 6, that China, Kazakhstan, Russia, Belarus and Poland are set to push up global trade by 4% thanks to OBOR. The overall boost to world trade, when all countries along OBOR trade corridors are included, could amount to 12% thanks to a halving of trade costs.

Trade between Europe and Asia accounts for 28% of world trade, according to Konings. The most optimistic scenario presented by the economist envisages trade for Russia, Kazakhstan and Poland, alongside Nepal and Myanmar, rising by approximately 35%-45%, with China’s trade jumping by 20%.

In this scenario, things seem to be looking up for Kazakhstan. According to reports from May, Kazakh railway operator Kazakhstan Temir Zholy’s (KTZ’s) subsidiary, KTZ Express, will manage the container fleet of Chinese logistics company COSCO Shipping across Central Asia and along the Trans-Caspian International Transport Route (TITR).

In 2017, Azerbaijan, Georgia, Kazakhstan and Ukraine discussed introducing a single-window system for processing cargoes traveling along the TITR. The route originally launched in 2013 runs through China, Kazakhstan, Azerbaijan, Georgia and onwards through Turkey and Ukraine to Europe.

Kazakh railways were used to transport over 200,000 containers to Europe in cooperation with 17 Chinese provinces, South Korea and Vietnam, in 2017. Rail transportation across the nation is expected to reach 550,000 TEUs in 2018 and continue growing in the subsequent years.