Тhe China-Kyrgyzstan-Uzbekistan Railway Project: How Much Does Kyrgyzstan Stand to Benefit?

«It is the probability that such a project would add significantly to the already substantial Kyrgyz government debt to China and potentially lead to a ‘debt trap’ scenario that is perhaps the biggest risk» – London-based independent researcher Harry Roberts notes in his article for CABAR.asia.

  • Central Asia inherited a railway network that in many cases left the newly independent states with transport infrastructure gravitating more towards Moscow than with the rest of the region (or even with other parts of their own countries);
  • The China – Kyrgyzstan – Uzbekistan railway could potentially be the key piece in the central route connecting China with Iran-Turkey-Europe;
  • One of the chief obstacles in concluding this project has been the proposed route the railway will take on its Kyrgyz section;
  • Considering that Chinese-funded infrastructure projects around the world usually demand that Chinese firms and labour be used, the Kyrgyz government will have to balance expectations among Kyrgyz workers of being employed in this project with the realities of doing business with Chinese companies.
    Like many China-funded infrastructure projects around the world, China would quickly gain something tangible from this. Photo: news.cn

    The China-Kyrgyzstan-Uzbekistan railway project has moved at a snail’s pace since first envisioned back in the mid 1990s. In recent years, there has been some traction in the right direction with a number of high-level meetings between the participants regarding the proposed routing, financing and timing of the project. Furthermore, other regional developments have seen Uzbekistan apparently transform its stance towards regional integration since the death of its long-time leader Islam Karimov in 2016. Encouraging signs on the part of its current leader, Shavkat Mirziyoev, have tentatively started to lay the foundations for greater integration in this most disintegrated of regions, a move that could assist in getting this stalled project finalised.

    However, today, there is still an enormous amount of work to be done and significant hurdles to mount if this project will ever see completion. It can be argued that the primary barrier to implementing this project are the many unanswered questions over how much Kyrgyzstan, arguably the lynchpin for the whole endeavour, stands to benefit from this ambitious project. Among Bishkek’s many concerns over the proposed railway are spiraling construction costs and what many regard as the limited local economic benefits that this railway will bring to Kyrgyzstan. Furthermore, there is a growing concern among numerous countries that have taken on large Chinese debts about their future ability to pay back these loans and what will happen if they cannot.

    In Kyrgyzstan, there is already evidence of a lingering, and perhaps growing, general suspicion of the Chinese migratory and business presence in the country. With levels of debt that are already straining the state budget and with additional finance expected to come from Chinese lenders, there are not unrealistic fears of Kyrgyzstan falling into a ‘debt-trap’ scenario. Given the political, economic and social implications this could have in a country that has been deeply divided in its very recent past the government could be put in a very awkward position if things were to backfire. Such fears will need to be genuinely assuaged in order to fully realise what could be a ‘win-win’ for not just the three states directly involved, but a boon for wider regional integration.

    This article will conclude by making a number of recommendations in order to inform stakeholders in Kyrgyzstan of possible ways in which they can overcome what must be seen as highly legitimate concerns.

    A Railway 20+ Years in the Making

    The original routing of this project in broad terms proposed the construction of a new rail link from Kashgar in China’s Xinjiang province to the city of Andijan in Uzbekistan via Kyrgyzstan’s Naryn and Osh oblasts. If completed, an enormously important rail link would be established between not only the three countries directly involved but would thereby establish an unprecedented era in Eurasian connectivity. Such a rail link would potentially enable these states to link with Turkmenistan, and the newly inaugurated Turkmen-Afghan ‘Lapis Lazuli’ railway, to the ports of the Caspian and onwards to Europe, and even to Iran and the open sea.

This map is courtesy of Mercator Institute for China Studies (MERICS). Found at https://www.merics.org/en/bri-tracker/mapping-the-belt-and-road-initiative

The need for such transport links should been seen in the light of both Uzbekistan’s and Kyrgyzstan’s economic under-development and having enhanced transport links to the wider world could go a long way towards revitalizing these struggling economies. For both landlocked states, (in Uzbekistan’s case ‘Double Landlocked’) connecting to the outside world has been a big issue since gaining independence from the Soviet Union in 1991. Central Asia inherited a railway network that in many cases left the newly independent states with transport infrastructure gravitating more towards Moscow than with the rest of the region (or even with other parts of their own countries). Additionally, in the case of Kyrgyzstan more than Uzbekistan, a lack of funds to maintain or expand rail services in the era since independence, coupled with what has been at times, particularly frosty relations between the leaders of Post-Soviet Central Asian countries, have left a legacy that has not been at all good for regional connectivity. Indicative of this is the 2018 World Bank Logistics Performance Index which places Kyrgyzstan and Uzbekistan 108th and 99th respectively out of 160 countries. While a vast improvement on 2014, both states lag significantly behind Kazakhstan (71st); making it the favored option for international freighters moving East-West cargo. Thus, there’s lots of scope to improve integration between these states and one of the ways to do this is through large scale transport infrastructure projects like the proposed China – Kyrgyzstan – Uzbekistan railway.

BRI and Alternative Routes

Of course, this project should also be seen in the light of the China-sponsored Belt Road Initiative (BRI). Announced in 2013, BRI is a collection of infrastructure projects aimed at enhancing connectivity between China and Europe, in which the building and upgrading of Eurasian railway infrastructure is apparently an integral part. Although the China-Kyrgyzstan-Uzbekistan railway project predates BRI by almost two decades, both regimes in Tashkent and Bishkek have tried to link the project to these ambitious Chinese plans. At the moment, there are several BRI routes that are proposed in addition to the Maritime Silk Route. The China – Kyrgyzstan – Uzbekistan railway could potentially be the key piece in the central route connecting China with Iran-Turkey-Europe. Five and a half years on from the announcement of BRI, Central Asia’s importance as a region has seldom been more tangible.

For its part, Uzbekistan has generally been a keen supporter of the trilateral railway project. In recent years China has helped build, (and mostly fund), key transport infrastructure projects such as the Pap-Angren railway, which connects Uzbekistan’s populous Fergana Valley almost with the capital, Tashkent. Furthermore, given the obvious desire of Mirziyoev to maintain high economic growth, create employment and lift the general standard of living in Uzbekistan in order to cement his own political position, he has signaled that Uzbekistan is open for business. A number of recent high-profile foreign trips, including to Berlin, Paris and Beijing, saw trade and investment topping the agenda. As testament to this, Mirziyoev’s visit to China in May 2017 saw approximately 100 agreements made totaling some US$20 billion.

So far, so good. However, if only things were so clear-cut regarding Bishkek’s view of the proposed railway. One of the chief obstacles in concluding this project has been the proposed route the railway will take on its Kyrgyz section. In its original feasibility study way back in 1998, the engineering firm Gibb took as their brief that the railway would cross the ‘Chinese frontier at Irkeshtam and then turn north at Sary-Tash to pass through Osh before heading directly to Andizhan, a total distance of some 600 km. However, over 20 years later, even this seemingly simple task of finalizing the route seems to be clouded in uncertainty. As recently as July 2017, then Kyrgyz leader, Almazbek Atambayev (commenting on a similar route, with trains going to the southern Kyrgyz city of Jalalabad rather than Osh), noted that such a route would be of little benefit to Kyrgyzstan, saying “We don’t need a railroad that goes through the territory of Kyrgyzstan without making even one stop,”. With this in mind, he proposed an alternative route, “A little bit longer, but it would go from the At-Bashi district and from there through Kazarman and head south.”

In proposing such a route, Atambayev was keen to highlight the economic benefits that this could potentially bring to the economically depressed towns along the way. Given the concentration of economic growth, including a thriving garment industry in and around the Chui Valley where the Kyrgyz capital Bishkek is situated, it makes sense in terms of long-term economic planning to disperse economic development to other regions of the country.

Such development would not only potentially stem the flow of economic migrants from rural areas of Kyrgyzstan abroad to places like Russia and Turkey, but perhaps also the significant in-country migration towards the capital with the concurrent pressures that this brings on housing, land and other key services/resources in Bishkek.

China seems to prefer the more direct route which would only make one significant stop either around Osh or Jalalabad before reaching Uzbekistan. Like many China-funded infrastructure projects around the world, China would quickly gain something tangible from this. Having a direct rail link to Uzbekistan, Chinese manufacturers would have easier access to Central Asia’s most populous country and 30 million potential customers. This would tie in with Beijing’s policy of encouraging China’s SME’s to seek opportunities abroad due to market saturation within China and a general desire to restructure the economy towards producing higher-value added goods. The installation of the railway could therefore play an important part in servicing the relocation of such businesses from China to Central Asia.

Furthermore, according to Bruce Pannier, the railway would allow state owned China National Petroleum Corp, (CNPC) to be able to fully exploit Uzbekistan’s Mingbulak oil field and its 30 million tons of oil, which at the moment, is only accessible by road. Although a marginal amount given China’s overall needs, this also links with China’s energy-security strategy to diversify its oil import routes. The railway would also allow China to exploit Kyrgyzstan’s untapped mineral deposits including gold and rare earth metals.

The Rub

And this is really the crux of the matter, both Uzbekistan and China stand to gain something tangible over the short term, but for Kyrgyzstan the potential benefits remain vague. What’s more, is the cost that Kyrgyzstan would have to bare in bringing this project to fruition. Given Kyrgyzstan’s challenging mountainous terrain, with stretches of railway travelling at over 3000m and entailing the construction of nearly 50 tunnels and more than 90 bridges, such projects are not cheap. Original projections stood at around the US$2-3billion mark. However, this is now estimated to have at least doubled, not least because of the add-on proposed by Atambayev, which he claimed “is $1.5 billion more expensive but it is economically advantageous”. However, such gains would not be seen in the immediate short-term. Gibbs also proposed that if Kyrgyzstan charged ‘European’ transit fees, the investment and operating costs could be recouped in approximately 15 years after completion. However, this estimate was costed when alternative rail links, most notably, via Kazakhstan, did not exist.

Competing with the well-established Kazakh lines, which already provide cost efficient transshipment services at both the Khorgos and Druzhba rail terminals, could potentially mean a rail tariff war, thereby cutting Kyrgyzstan’s transit revenues and undermining the long-term financial viability of the whole project.

Furthermore, there is the problem over how Kyrgyzstan will fund its section of the proposed railway. Presumably this money will come from Chinese lending organisations. However, the implications of Kyrgyzstan taking on more Chinese debt are particularly salient at the time of writing. Impoverished Kyrgyzstan has an estimated foreign debt of $4.4 billion, more than one-third of which is owed to China. Further still, Kyrgyzstan annually spends over 10% of its state budget servicing this debt. This money looks set to increase over the coming years meaning there will be even less money for essential government services. For a government in such a position, investments of this magnitude are not to be taken lightly.

Fears of increasing indebtedness also come at a time when a growing number of countries around the globe, heavily indebted to China, are having trouble repaying their loans. Contemporary accounts are rife with examples of countries falling into so-called ‘debt-trap’ scenarios with serious implications for the governments and people of recipient states. Such examples include Sri Lanka’s Hambantota Port, which China acquired on a 99-year lease when Sri Lanka was unable to pay its debts triggering widespread protests in the country. In addition, there are similar concerns regarding Kenya’s Mombassa Port, which was cited in one report as collateral for a multibillion dollar loan to fund a railway project in the country. Such a scenario in the Kyrgyzstan railway context, where Kyrgyzstan has to cede land, or mineral rights to China, would have disastrous implications for not only the government of the day in Bishkek, but also long-term Kyrgyz bilateral relations with China, and China’s general reputation within the CA region.

There are already a growing number of reports pertaining to the rising anti-China feelings in Central Asia. Recent examples of this sentiment manifesting itself include protests in Bishkek in January 2019 and have been stoked by conservative groups within Kyrgyzstan like Kyrk Choro (Forty Knights), who cite the high number of illegal Chinese migrants in Kyrgyzstan as a particular grievance. Whether this claim is valid is a debated point, but considering that Chinese-funded infrastructure projects around the world usually demand that Chinese firms and labour be used, the Kyrgyz government will have to balance expectations among Kyrgyz workers of being employed in this project with the realities of doing business with Chinese companies. Therefore, in order not to alienate the Kyrgyz public, it is paramount the government is seen to be putting the interests of Kyrgyz people first. With two former Prime Ministers on trial for corruption (one regarding the refurbishment of Bishkek’s primary power station which was carried out by a Chinese company) it is imperative that future business deals with China are seen to be conducted in as transparent a manner as possible.

President Sooronbay Jeenbekov, Kyrgyzstan’s current leader, who incidentally is currently embroiled in a power struggle with his predecessor, while generally defending China’s reputation against attacks by its critics, will have a hard time maintaining the public’s trust if China is perceived to be adding to the already high corruption levels within Kyrgyzstan.

Conclusion

For many, it is clear that Kyrgyzstan is in dire need of infrastructure development that can help spur its economic growth. One of the ways to do this is through investing in its transport infrastructure, thereby helping to restore regional economic integration and bolster trade. The country is well situated to gain from BRI and as one analyst put it, “Kyrgyzstan, like the rest of Central Asia, needs to integrate into global markets and for a small, landlocked state, becoming a stop on China’s planned road to Europe is an opportunity not to be missed”.

However, the China-Kyrgyzstan-Uzbekistan railway project in many ways appears likely to bring more risks than returns to Kyrgyzstan and this perhaps explains why successive Kyrgyz regimes have showed a good deal of hesitancy over its implementation. A summary of such risks includes the ever-mushrooming estimated costs of the project and only vague projections of the direct economic benefits the railway will bring to Kyrgyzstan. However, it is the probability that such a project would add significantly to the already substantial Kyrgyz government debt to China and potentially lead to a ‘debt trap’ scenario that is perhaps the biggest risk. In a worst-case scenario, such high levels of indebtedness leading to Kyrgyzstan giving up ownership of the railway, (or land or mines) would not only undermine Kyrgyz sovereignty but seriously jeopardise the government in Bishkek by adding to the perception that the government is putting the interests of China ahead of Kyrgyz people. Given Kyrgyzstan’s turbulent recent history and its vibrant and open civil society, if such a large-scale project goes wrong this could have dire consequences for political stability in the country.

The following points are two possible inter-related recommendations that could mitigate such risks and help the project succeed.

  1. Kyrgyzstan could attempt to diversify its lending partners for the railway. By bringing aboard partners like the Asian Development Bank (ADB), EU, Japan or India for example, Bishkek could mitigate falling into a ‘debt-trap’ scenario vis-à-vis borrowing money from China to pay for the railway project, with all the disastrous political consequences this could have for the government of the day in Bishkek. Alternative partners may see the railway as an opportunity to balance against China’s presence in Central Asia and so be inclined to lend significant capital to Kyrgyzstan. While China may be sensitive to the likes of India or Japan expanding their influence in the region such a development would ultimately test how sincere China’s claims are that the BRI is a true ‘win-win’ project for all where everybody is welcome to get involved.
  2. During the genesis of this project it has been claimed that one of Bishkek’s major concerns was that the railway would exacerbate the north-south divide within Kyrgyzstan as the railroadwould disproportionately increase economic benefits to Kyrgyzstan’s secessionist southern provinces, thus providing them with greater leverage against the centre. While this is a very valid point, there are possible solutions that would reduce such a risk.

The original feasibility study conducted by engineering firm Gibbs was tasked with developing a North-South line as well as the East-West one. Such a line could thereby link Bishkek- Balykchi-Kochkor- Kara-Keche-Kazarman and would tie in nicely with Atambayev’s proposal for the railway to make several stops within Kyrgyzstan on its East-West trajectory with Kazarman becoming a hub for both routes. This Y shaped line would thereby link the country together in a more cohesive way offsetting fears the railway would disproportionally benefit one part of the country more than others. Furthermore, a North-South line, in conjunction with an East-West line, would reduce heavy road transport and the concurrent deterioration of the highway between Bishkek and the south of the country and also save what has been estimated at “US$50m a year shipping traffic between Bishkek and Jalal-Abad over a circular route via Kazakhstan and Uzbekistan”.

Of course, this is an even more ambitious proposal, but it would make more economic sense in the long term by bringing holistic development to neglected parts of Kyrgyzstan. Such a project should be seen as a long-term investment and could be completed in piece-meal stages. Lastly, the funding for both lines should be sought from diverse channels, helping mitigate Kyrgyzstan’s dependency on any one partner, reducing the risks of the Kyrgyz government alienating its public and allowing it to maintain good relations with its lenders. Such a strategy may therefore assist in the overall viability of this project.