China will connect with Kyrgyzstan and Uzbekistan through a railway line. It is a grandiose project, under discussion for a number of years, and showing now the signs of fruition.
The rewards are huge and quite obvious, but the risks are also enormous and some of them still not in sight. For example, the relations between Kyrgyzstan and Uzbekistan are showing signs of strain already.
According to some Kyrgyz media, the preparation of the feasibility study is assigned to the Chinese company China Road. The issue of construction of the 450-km line is unresolved. The Chinese government has allocated 30 million Yuan for the initial priority tasks of the railway line.
The preliminary study shows the distance between East Asia and Middle East / Southern Europe will be cut down by 900 km and the transportation time will be 7-8 days. In addition, the project will be helpful in providing convenient access to the ports of the Persian Gulf and Pacific. It will also stimulate the development and use of the natural resources of the countries in the region and enhance international trade and tourism.
An article published by the Wall Street Journal on 4 March 2018 has pointed out the risks and implications inherent in the investment policy of China. The article, written by Josh Zumbrun and Jon Emont, shows the potential impact of the Chinese investments on eight countries – Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Pakistan and Tajikistan.
China’s Financial Reach Leaves Eight Countries Vulnerable, Study Finds
The article, drawing from a study by the international think tank Center for Global Development presents the Debt-to-GDP ratio and Percentage of external debt to China, now and on completion of the BRI (Belt and Road) projects.
Regionally, the BRI covers a broad range of infrastructure projects: Tajikistan and Kyrgyzstan are getting rails, roads, hydropower plants and a major gas pipeline. Mongolia will receive funding to build hydroelectric power plants and a major highway from the airport to the capital.
According to this study, the construction of BRI facilities in Kyrgyzstan will bring the Debt-to-GDP ratio of Kyrgyzstan from the current level of 62% to 71%.
Scott Morris, one of the authors of the study by the Center for Global Development, cited by the Wall Street Journal, says, “These trends will place Chinese authorities at the center of financial decisions if debt in these countries becomes unsustainable, supplanting the International Monetary Fund, the U.S. or private creditors in importance.”
The rules of the road are really that whoever holds the most debt is going to be calling the shots,” says Mr. Morris, who served as deputy assistant secretary for development finance at the U.S. Treasury from 2009 to 2012.
The choices would be hard. The decisions would need to be very well thought.
On the one hand, Kyrgyzstan will be able to connect the north and south of the country with the Balykchy-Kochkor-Kara-Keche-Arpa-Kara-Suu route and form a unified railway network, and on the other, the issue of political independence will come under heavy strain.
Because of the fact that almost half of the public debt of Kyrgyzstan belongs to China, the situation might turn into a financial trap if some miscalculations or mistakes are made along the way.
The Chinese investors would need to wait for the final feasibility study to find the exact volume of required investments, the approximate timeline and method for the return of the investments and the expected level of profits.
What is clear right away is that the transit time would be 7-8 days from the one end to the other and the distance would be reduced by about 900 km.
There may also be questions on the nature and extent of the railway line. The Kyrgyz side possibly wants to connect as many of its cities to this railway line as possible while the Chinese experts are of the opinion to avoid excessive expansion of the network and keep it to the transit needs of the country.
The standard of rail track is also a matter of mutual discussion – China would like to meet the European standards while Kyrgyzstan wants to stick to the soviet standards of gauge. This is one of the several questions that must be resolved before the work can start on the rail project.
President Sooronbay Sharipovich Jeenbekov is the fourth president of Kyrgyzstan negotiating with China on this project. He is dealing with the aftermath left by his predecessor, spanning a number of factors including the questions surrounding the economic stability.
In addition to the fragile economy, there are several other issues that may collide with the implementation of this railway project. These include the corruption which has been pointed out by the local media and observers, the social inequality, and the risk of the reemergence of the Islamic extremism.
There is another factor that will feature prominently in further negotiations on the railway project: the provable willingness to keep the commitments.
The case in point here is the withdrawal of the Chinese company Huawei from the ‘Smart City’ project of Bishkek.
Under this project Huawei was supposed to install photo and video cameras all over the Kyrgyz capital.
The official reason given by the Kyrgyz side is the failure of Huawei to keep with the implementation schedule of the project. Unofficially, there is strong belief that Huawei backed out because of the corruption in the system.
It is believed that the collapse of the Smart City project was among the reasons that led to the downfall of Prime Minister Sapar Isakov. On 19 April 2018 the President of Kyrgyzstan Sooronbai Jeenbekov fired Isakov and the government following a vote of no confidence, which was initiated by three factions in the country’s parliament. The vote was launched due to dissatisfaction with the government’s performance in 2017, namely, poor administration of the national budget, bad preparation for the heating season, and a lack of state supervision when upgrading Bishkek Thermal Power Station.
However, the observers believe that the withdrawal of the Huawei from the Smart City project was also a decisive factor.
The China-Kyrgyzstan-Uzbekistan railway project, therefore, carries huge benefits but the risks and pitfalls are also enormous. Every step must be taken with caution. /// nCa, 21 June 2018