Technical assistance

An emerging development partnership? – The Diplomat

Uzbekistan has expanded its economic cooperation with China with the aim of connecting to global transport and trade routes. In a recent meeting at the Shanghai Cooperation Organization (SCO) in Beijing, Uzbekistan presented its “New Uzbekistan Development Strategy for 2022-2026”. The strategy, presented in the Chinese language, envisions Uzbekistan deepening its economic relations with China. Russia is not explicitly mentioned.

Uzbekistan’s economic engagement with China mainly concerns infrastructure. An important area of ​​cooperation is the long-awaited China-Kyrgyzstan-Uzbekistan railway project (commonly known as CKU), a 4,380-kilometre multimodal railway that aims to connect the Chinese city of Lanzhou with the Uzbek capital, Tashkent. While the railway has been under construction since the 1990s, no rail link exists to directly connect China and Uzbekistan via Kyrgyzstan. At both ends of the journey, in China and Uzbekistan, goods on the corridor are transported by rail, and in the middle part, in Kyrgyzstan, they are transported by trucks. As expected, the CKU would start from Lanzhou City, Gansu Province in Eastern China, exit through Irkeshtam Port, Xinjiang, cross to the southern city of Osh in Kyrgyzstan and continue to Tashkent. In October 2017, the road was officially opened.

Until recently, the project faced significant funding and administrative hurdles and was stalled by the ongoing border dispute between Kyrgyzstan and Uzbekistan. Moreover, the complete vision of CKU requires the construction of new railway lines like the existing railway infrastructure between Uzbekistan and Kyrgyzstan. builds on Soviet-era Russian gauge. As a result, the CKU currently still needs trucks for the part of the route crossing the Kyrgyz border, despite the existence of railways in service at the Chinese and Uzbek ends.

Despite the difficulties, Uzbek President Shavkat Mirziyoyev does not miss an opportunity to stress the importance of the China-Kyrgyzstan-Uzbekistan railway and the need to build it. In April, Sardor Umurzakov, Deputy Prime Minister and Minister of Investments and Foreign Trade of Uzbekistan and Daniyar Amaneldiyev, Kyrgyz Minister of Economy and Trade announced that the CKU issues had been “resolved”. Moreover, in his first gesture as the new Uzbek foreign minister, Vladimir Norov met with the Kyrgyz Ambassador to Uzbekistan and expressed his desire to accelerate the CKU railway project.

If successfully implemented, the route may open a gateway to South Asia for Uzbekistan, as trains entering China could then pass through Pakistan. The trip would avoid Taliban-controlled Afghanistan, whose instability has long hampered attempts to connect Central and South Asia.

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Tashkent’s recent initiatives build on a decade of efforts – albeit sometimes timid – to strengthen connections with markets in Europe and the Middle East. For example, in early February, Tashkent signed a five-year trade and investment cooperation program with Beijing. A month later, Uzbek Transport Minister Ilkhom Makhamov and Chinese Ambassador to Uzbekistan Jiang Yan discussed relive the long-delayed CKU.

Chinese leader Xi Jinping’s Belt and Road Initiative (BRI) aligns with Uzbekistan’s aspirations to expand trade and trade routes. Since the launch of the BRI in 2013, Uzbekistan has become a strategic geopolitical partner of China. Although the two countries do not share a border, Uzbekistan’s geographical location makes it a key BRI hub. Two of the BRI routes pass through Uzbekistan and connect eastward to China via Kazakhstan to the west or Kyrgyzstan to the south; these two routes merge at Tashkent and pass through Turkmenistan to reach Iran, Western Asia and India, the latter being connected to Iranian ports. Uzbek shippers can also connect to Europe, the Caucasus and Turkey by accessing rail services on two other routes through Kazakhstan.

The injection of Chinese investment has a cost. Overreliance on China as a foreign market and investor creates significant risks, of which Uzbekistan and other Central Asian states are already aware, some more than others. Concessional loans for infrastructure and technical assistance projects stipulate that at least half of the materials, equipment, technologies and services purchased under the contract must come from China. Uzbekistan’s economic difficulties and geographic isolation make it particularly receptive – or vulnerable – to Chinese debt. Although Chinese credit increases economic activity and facilitates the growth of trade in Uzbekistan, the country runs the risk of becoming dependent and dependent on Chinese investment to maintain and develop the infrastructure built under the BRI. Another concern is that in a context of facilitated trade, the comparative advantages of Chinese companies could destroy the competitiveness local businesses and create more demand for Chinese imports in Uzbekistan and Central Asia in general.

Uzbekistan is leveraging its partnership with China to address the logistical and geographic challenges it faces. The new wave of efforts initiated by the Uzbek government to strengthen economic ties with China may be an opportunity to better exploit its natural assets, such as its pivotal geographical location. Bordering all other Central Asian countries and Afghanistan, Uzbekistan has transit connections in all directions. As a double-landlocked country, it is depend solely on these cross-border transport links and knows how they work.

These efforts also coincide with the vacuum left by Russia’s withdrawal from Central Asia as it focuses on its domestic issues. For now, Russia’s entanglement in Europe means it can no longer offer economic support to complement China’s investments in the region, and it’s unclear just how interested Russia will be. strategic engagement with the region in the future.

Russia is traditionally Uzbekistan’s largest trading partner. To illustrate, bilateral trade with Russia in 2021 was $7.5 billion, slightly more than the $7.4 billion recorded with China. However, Uzbek banks are increasingly concerned about the risks of secondary penalties. In recent years, Uzbekistan has attracted significant credit resources from Russian banks that are now on the sanctions list, including Gazprombank, VTB, VEB and others. Since these banks are supposed to finance major economic projects in the country, there are risks that Uzbekistan will lose this funding. The best alternative to bridge this gap, if there is one, would be China. Meanwhile, China continues to advance its BRI and assume a greater role in the region.

If Uzbekistan is to realize its aspirations of becoming a regional transit hub and becoming an economic powerhouse in its own right, it must avoid the mistakes that other countries have made when it comes to generating a new leverage and reduce dependence on a single foreign boss, notably China. You have to play the game intelligently and anticipate the pitfalls.