China’s “Belt and Road” investments in Kazakhstan are paying off, allowing the Central Asian country to promote itself as an attractive market for the U.S. and other global investors.
During a Jan. 16 visit to the White House, Kazakh President Nursultan Nazarbayev declared a “new era of relations” between the two countries. That afternoon, U.S. companies signed 20 commercial contracts with Kazakhstan worth $7.5 billion at a business roundtable.
One of three areas of collaboration named in a joint press statement is agriculture, where Kazakhstan’s trade with China is growing. Produce grown in the central Asian country travels into China through railroads and inland “ports” built as part of the massive regional development program Beijing launched five years ago.
“The Kazakhs have been more successful opening up the agriculture market in China to Kazakhstan for wheat, vegetables and beef than others have been,” said David Merkel, a nonresident senior fellow at the Atlantic Council, a U.S.-based think tank. He is also on the board of trustees of Nazarbayev University in Astana, Kazakhstan.
“Now because of the infrastructure built out because of the [Belt and Road Initiative], they have the market to be looked at more favorably for investments,” Merkel said.
The Kazakhs, he added, are using their success in accessing the Chinese market as “leverage to say to U.S. investors, ‘Invest in Kazakhstan, not just for the Kazakh market but also the Chinese market and what’s beyond China.'”
As part of the Belt and Road Initiative, China has developed inland ports in cities such as Xi’an that are linked by railroad to similar hubs in Kazakhstan and stretch all the way to Europe. The transit lines also spread east. Early last year, Kazakhstan sent its first shipment of wheat to Vietnam through China, helped by railroads connecting Central Asia to a port on the eastern coast of China.
Chinese businesses have already tapped into the trade opportunities the Belt and Road railways have opened up. China has invested more than $14 billion in Kazakhstan over the last decade, according to data cited by the Kazakh government.
In 2017, trains running from Xi’an to Central Asia carried 170,000 tons of goods worth 1.3 billion yuan ($210 million), according to Jie Gai, project manager in marketing for Xi’an International Inland Port Multimodal Transportation. About 75 percent of those goods went to Kazakhstan, Gai said.
In roughly the first three weeks of 2018, he said, six trains have left Xi’an for Central Asia carrying 11 tons of goods worth 2.73 million yuan.
Meanwhile, Xi’an Aiju Grain and Oil Industry Group has opened an oil factory in Kazakhstan, said Liu Dongming, the company’s vice president and deputy party secretary. The company also works with farms in the country that Aiju either owns or invests in.
“This year, we will expand in Kazakhstan,” he told CNBC.
His company has clearly benefited from a July 11 agreement with the Kazakh government for grain and oilseeds trade. By growing produce in Kazakhstan, processing them in China, and sending them back to the Central Asian country for sale, Liu has said the company cuts costs by about 20 percent. So far this year, Liu said, Aiju has imported 60 percent more oilseeds and wheat from Kazakhstan.
Overall, Kazakhstan exported 150,300 metric tons of oilseeds to China in the marketing year ended July 2017, according to a report compiled for CNBC by the U.S. Department of Agriculture’s Foreign Agricultural Service, citing industry sources.
A few U.S. companies have been long-time investors in Kazakhstan, and at least one recently announced a new deal.
General Electric subsidiary GE Transportation has worked in the country since the 1990s and announced on Jan. 17 it signed two contracts with Kazakhstan’s state-run railroad Kazakhstan Temir Zholy, or KTZ. The deals are worth more than $900 million, according to a release, and include the delivery of 300 “shunter” locomotives and an 18-year service agreement for 175 “passenger Evolution Series” locomotives.
“Our new agreements with KTZ reflect our ongoing commitment to partner with Kazakhstan to build a world-class rail industry that serves the region and beyond,” Rafael Santana, CEO of GE Transportation said in a statement.
The announcement came as part of the U.S.-Kazakhstan agreements announced during the meeting of the two countries’ presidents. Details regarding some reported “contracts on collaboration in agriculture sector” were not immediately available. The U.S. Chamber of Commerce referred CNBC to the Kazakh embassy, which did not respond to requests for comment.
The U.S. doesn’t have normal trade relations with Kazakhstan, and concerns about upholding contracts and human rights issues in the country still exist. U.S. companies may also need to consider China’s increasing involvement in Kazakhstan’s development.
“It’s an area that is really at the heart of Belt and Road and China’s overland aspirations, which are huge,” said Jonathan Hillman, a fellow at the Center for Strategic and International Studies, a U.S.-based think tank.
But, he said, participation in the program doesn’t equal purely supporting China’s goals.
“Even though Belt and Road has opportunity for landlocked countries that they might not have otherwise, they’re still interested in balancing rather than aligning themselves,” Hillman said.
For Kazakhstan, flanked by China on one side and Russia on the other, the U.S. offers a potential counterweight.