More than money blocks China's rail dreams
By Richard Weitz
When Chinese officials consider their international economic interests,
Afghanistan and Central Asia (sometimes referred to as "Greater Central Asia")
naturally come to mind. These countries possess an abundant supply of untapped
natural resources, and they offer potential export markets as well as
investment opportunities for the People's Republic of China (PRC).
Moreover, these territories can provide the conduit through which the PRC
imports and exports goods from and to other economically important regions of
the world. Increasing the
volume and types of goods available from and to China requires improving the
region's means of transportation, with railroads representing an important
element along with surface roads, energy pipelines, and shipping by sea and
air.
Recent revelations of vast untapped mineral resources in
Afghanistan have undoubtedly piqued Chinese interest in developing rail connections
and related commercial infrastructure in Afghanistan. According to new
reports, US geologists believe US$1 trillion worth of iron, copper, cobalt
and lithium reserves are scattered around Afghanistan, including the Taliban-strong
southern and eastern regions along the border with Pakistan.
Pentagon officials believe these mineral resources will help transform
conflict-ridden Afghanistan into a modern industrial state. Yet, a difficult
political situation, bad surface roads and the lack of railroads prevent
exploitation and shipment of these resources to markets.
In recent years, the Chinese government has launched a sustained campaign to
develop the region's transportation and other commercial infrastructure. In the
case of railroad construction, the PRC brings several distinct advantages to
this endeavor. China is adjacent to Greater Central Asia and has been
undertaking a large domestic railroad construction program that, in addition to
generating jobs and developing the PRC's own national infrastructure, has
helped give the PRC workers and technologies suitable for building railroads.
Chinese representatives can also describe their partnership with the
governments of Afghanistan and Central Asia as a natural "win-win" arrangement.
Indeed, these countries are rich in natural resources such as energy and
minerals but are strapped for funds, whereas the PRC has surplus investment
funds but depends increasingly on imported natural resources.
Afghanistan
Although PRC policy makers have limited their military involvement in
Afghanistan, they have encouraged Chinese companies to invest in developing the
country's natural resources. Recent PRC investment activity in Afghanistan has
concentrated on gaining access to these raw materials and developing the
infrastructure required to transport these goods to Afghanistan. The most
famous Chinese-run project is the exploitation of the Aynak copper mine near
Kabul, which is scheduled to begin operating in 2012 [1].
The Metallurgical Corporation of China (MCC) purchased a controlling stake in
2008 at a cost of $3 billion, the largest single foreign investment project in
Afghanistan. The state-owned MCC could offer a package of benefits that its
private sector competitors could not match. As part of the deal, which requires
additional Afghan infrastructure to realize, the Chinese agreed to build the
transportation network needed to bring equipment and other supplies to the
mining site as well as to export the extracted copper to the PRC. This would
include Afghanistan's first major railroad, which will convey freight from
western China through Tajikistan to the site and from northern Afghanistan to
the country's southeastern border with Pakistan.
At present, Afghanistan only has two short railroad lines across its northern
borders with Uzbekistan and Turkmenistan. A third route that crosses the
Afghan-Pakistan border is not currently in operation. The first 15km line
connects Kheyrabad to Termez in Uzbekistan. From Termez, the line provides
access east to Tajikistan and west to Turkmenistan. The second 9.6km line, run
by Turkmen railroads, links Towraghondi to Kushka in Turkmenistan [2]. The
resulting requirement to unload and reload cargo from rail to truck and
vice-versa is considered a major impediment to Afghanistan's foreign trade [3].
The government of Afghanistan is also working with its neighbors to build
additional lines that would support the main regional transit routes linking
Iran and Pakistan with Central Asia. A proposed
Shirkhan-Bandar-Kondoz-Mezare-Sharif-Herat line under consideration would
connect Afghanistan's rail system with that of China through Tajikistan [4].
In May this year, the Afghan minister of mines, who is co-hatted as
"Coordinator of Cluster for Economic & Infrastructure Development", said
Afghanistan planned to develop three lines, totaling 2,000 km, at a cost of
almost $6 billion. These would run from Shirkhan Bandar on the Tajikistan
border to Kunduz province to Balkh province to Herat, linking it to Iran, and
with a branch to the Uzbekistan border from Mazar-i-Sharif to Hayratan, as well
as an Andkhoy to Aqina line to the Turkmenistan border.
A second line would run from Mazar-i-Sharif to Pul-i-Khumri to Kabul to
Jalalabad to Torkham at the Pakistan border. A third line would run from Chaman
in Pakistan to Spin Boldak to Kandahar. The statement says these lines would be
1435 mm (standard) gauge, designed for 25-tonne axle loads, speeds of 100-160
km/h and capacity for 10-12 pairs of trains a day [5]. The Chinese rail network
could connect through Pakistan or Tajikistan.
Also in May, the foreign ministers of Iran and Tajikistan signed a memorandum
of understanding to begin technical studies assessing how to connect
Tajikistan's railway network to that of Iran via Afghanistan. Iranian Foreign
Minister Manouchehr Mottaki said that the proposed connecting railway would
link the rail networks of China, Kyrgyzstan and Afghanistan to Iran's railway
network and allow for the transport of goods to Iran's Persian Gulf ports.
The construction of a railway from Tajikistan's east directly to China (such as
between Kabul and Kashgar) is considered an alternative option [6]. Tajik
economist Hojimuhammad Umarov believes that his country cannot afford the costs
of constructing a railway to either Afghanistan or China for at least five
years. But in May, Chinese officials expressed interest in helping construct a
railroad between Dushanbe and Vakhdat and Yavan. This project is currently
under development by Tajikistan's state railroad company, but the Tajik
government needs additional funds to complete it.
Interestingly, the Indian government has been constructing a deep-water port at
Chabahar, in eastern Iran, to counter China's support for Pakistan's
construction of a deep-water port at Gwadar, in southwest Balochistan. The
value of using Iranian ports for either China or India would depend on how
international sanctions constrained Iran's commercial relations with world
markets.
China's regional economic interests
Although Chinese policymakers are seeking to increase economic ties with
Central Asia and Afghanistan in general, they are particularly eager to expand
links between this region and the PRC's relatively impoverished northwestern
provinces. Increased commerce could help promote the development of Xinjiang,
Tibet, and other regions that have lagged economically behind the PRC's vibrant
eastern cities.
Although trade with Central Asia represents a small percentage of the PRC's
overall commerce, it already represents a more important share for northwest
China. This consideration applies particularly to restless Xinjiang, which is
abundant in natural resources and has a relatively well-developed
transportation infrastructure [7], but suffers from ethnic tensions between the
indigenous Uyghurs and the ethnic Hans who have immigrated into the province in
recent decades. More than half of Xinjiang's foreign trade already derives from
commerce with Central Asian countries [8]. The PRC government is developing new
rail, pipeline, and other infrastructure links that would tighten connections
between Xinjiang and both Central Asia and the rest of the PRC.
Further major increases in China's economic exchanges with or through Greater
Central Asia will require substantial improvements in the capacity of the
region's transportation infrastructure. The regional governments, other
countries and various multinational institutions have launched various
initiatives to help establish a modernized trans-Eurasian corridor that would
ideally create a modern version of the old Silk Road [9].
Yet, the most important initiatives to coordinate transport investment in
Central Asia - the Transport Corridor Europe Caucasus Asia (TRACECA) program
launched in 1993 by the European Union, and the Central Asian Regional Economic
Cooperation (CAREC) program initiated in 1997 by the Asian Development Bank
(ADB) - have proved unable to overcome the region's inadequate transportation
infrastructure. The availability, quality, and costs of transport services
throughout Greater Central Asia compare unfavorably with alternative routes,
especially containerized maritime shipping [10].
The local countries, their Western partners and the multinational institutions
have lacked both the considerable funds required to comprehensively upgrade
Great Central Asia's transportation networks and the ability to pursue an
integrated strategy managed by a single overarching authority.
China has managed to bring both these assets to its Eurasian rail-building
campaign. The PRC government can design and fund rail networks, including
subsidizing the purchase of Chinese-made rail equipment by foreign countries,
though these projects are naturally optimized to serve Beijing's economic
interests.
China's Eurasian railroad building campaign also helps overcome another
potential barrier to PRC commerce in and through Central Asia: the legacy of
the formerly integrated Soviet economy in Eurasia. At the time of their
independence, the major roads, railways and energy pipelines in the new states
of Central Asia all flowed northward towards Russia rather than eastward toward
China. The PRC has been funding several major infrastructure projects to spur
east-west traffic, while supporting the efforts of international organizations
like the Shanghai Cooperation Organization (SCO) and the Asian Development Bank
to address some of the non-physical barriers to trade and investment.
China's railroad expansion
Kazakhstan represents China's most important economic partner in Central Asia.
In 2008, bilateral PRC-Kazakhstan trade amounted to $17.5 billion. It is
therefore not surprising that China's railroad building efforts have primarily
focused on expanding the transit capacity with Kazakhstan. In fact, the 460km
line between Urumqi in Xianjiang and Akataw Pass, where it connects to
Kazakhstan's railways, represents China's only currently operational rail link
with Central Asia.
In 2009, the Alataw Pass Port became a free-trade zone, allowing Kazakh
citizens to enter visa-free for one day. The increased transit capacity with
Kazakhstan should allow China to import copper from the major Boschekul border
deposit, whose development will presumably be financed by some of the $2.7
billion China's Development Bank lent to Kazakhmys, a Kazakh copper company.
The field is expected to produce 100,000 tonnes of copper annually starting in
2014.
China has recently spent large sums of money to expand the capacity of its
railroad network near Urumqi. In March 2010, work began on a second railroad
linking Urumqi with inland cities with the purpose of reducing travel time and
increasing the shipment of coal, whose deposits and production is concentrated
in Xinjiang and Inner Mongolia.
China is also financing construction of a second railroad to Kazakhstan that
links Horgos with Zhetygen. It spent 300 million yuan (US$$44 million) to build
nine broad gauge rails (Russian standard) and six standard gauge rails to
Alataw-Pass. This increased volume will allow for the importation of 50,000
tonnes of liquefied natural gas (LNG) this year and 200,000 tonnes of LNG in
the next three years. On June 14, a freight train carrying 45 tonnes of LNG
crossed the Chinese-Kazakh border at the Alashankou checkpoint en route to
delivery to the Dushanzi petrochemical plant located in northern Xinjiang. The
shipment marked the first time that China imported energy resources from
Central Asia by rail.
Chinese officials have considered building a railroad into Kyrgyzstan, though
with less enthusiasm than Beijing has been pursuing rail connections with
Kazakhstan, which has vast energy deposits and is emerging as a rapidly
developing economy. In contrast, Kyrgyzstan is a poor and unstable country. It
has some coal reserves in the south that might interest China, but these are
largely undeveloped. Ironically, it is Kyrgyzstan's very political instability
that is driving Chinese efforts to promote that country's development through
enhanced trade and investment in order to alleviate the poverty that might be
promoting that country's political instability and extremism, which PRC
officials fear might be contributing to the same phenomena in Xinjiang.
China has held talks with Kyrgyzstan and Uzbekistan on the construction of a
railroad since the late 1990s, including within a SCO framework. In a 2006
joint statement, Chinese and Kyrgyz leaders agreed to conduct technical
evaluations for a possible railroad link. The railroad through Kyrgyzstan would
allow China to shorten its route to Central Asia to 268km, connecting to
Uzbekistan's rail network in Fergana Valley. The proposed line would start in
the Chinese city of Kashgar, enter Kyrgyzstan at the Torugart Pass, follow a
route to Kara-Suu near Osh, and terminate at Uzbekistan's Andija.
Kyrgyzstan would benefit from the increasing number of tourists that could
visit the scenic lake Issyk-Kul and ability to collect taxes on cargo. China
would be able to sell more of its goods in Central Asian markets, leading to
enhanced PRC influence in the region. Uzbekistan, where the proposed railroad
would terminate, has the second-most extensive railroad network in Central Asia
after Kazakhstan. Since 2001, Uzbekistan has engaged in major railroad
construction efforts. The ADB believes Uzbekistan enjoys the most favorable
location to serve as a Eurasian transportation hub. It is also the only Central
Asian country that possesses rolling stock manufacturing and repair
capabilities. According to the ADB, the China-Kyrgyzstan-Uzbekistan
standard-gauge railroad, if completed, could make Uzbekistan the most efficient
link between China and Central Asia [11].
Various obstacles continue to block former agreement on this proposed
China-Kyrgyzstan-Uzbekistan railroad. First, the Chinese government continues
to negotiate the terms of ownership and financing for a railway that could cost
$2 billion to build. Second, Russian representatives have opposed the project,
which could threaten their rail dominance in Central Asia. Third, unlike
Uzbekistan, Kyrgyzstan has yet to follow Beijing's request to adopt the narrow
gauge for the network.
Yet, Uzbekistan has remained less interested in the project than the other two
governments. Uzbek leaders have long adopted a cautious and protectionist
approach toward granting access to their country's resources. Furthermore,
Kazakh officials have not supported the project for fear of losing cargo
transit on their own country's network [12]. Finally, the crisis in Kyrgyzstan
has resulted in the project's de facto suspension. Nonetheless, analysts
believe that once these issues are resolved, as well as the new problems
resulting from the political chaos in Kyrgyzstan, the railroad itself can be
completed in a short period of time.
Implications
China is making progress in improving Eurasian rail networks, but the existing
and proposed near-term rail links between the PRC and its western neighbors
will still service only a small share of China's foreign commerce, which will
likely remain dominated by containerized cargo shipping by sea. The one
development that might change this situation - the construction of high-speed
rail networks through Greater Central Asia that would connect the PRC directly
to European markets by land - would require hundreds of billions of dollars
that the parties do not at present possess.
Even the more modest proposals to construct a more limited complex of rail
lines linking China with Central Asia as well as Afghanistan have encountered
serious obstacles. First, the parties continue to dispute the terms of
financing and the question of ownership. Second, influential Russian interests
have opposed some projects, seeing them as a threat to Russia's rail hegemony
in Eurasia. Furthermore, China's investment in infrastructure is diluted by
Chinese railroad building in other foreign regions and even more so within the
PRC's borders, which will remain a priority as long as Beijing is eager to
stimulate domestic job creation.
Finally, the non-physical impediments to commerce in and through Central Asia
and Afghanistan are perhaps greater than the lack of adequate railroads and
other means of transport. These barriers include suboptimal visa and customs
policies, inadequate financial and communications networks, deviations from
international legal standards regarding property rights, and transnational
threats such as Islamist terrorism and narcotics trafficking that make
governments reluctant to relax their border controls.
Notes
1. Ministry of Mines, "Aynak Copper Deposit Exploitation on Track to Begin
Operations in Two Years," May 27, 2010.
2. Wolfgang Danspeckgruber, et al,
Railroads: Afghanistan's Century Project, from Petersburg Papers on Afghanistan
and the Region, Vol 4 (2009) (Liechtenstein Institute on
Self-Determination),
3. Masood Aziz, "Afghanistan," The New Silk Roads: Transport and Trade in
Greater Central Asia, edited by S Frederick Starr (Washington, DC: Central
Asia-Caucasus Institute & Silk Road Studies Program, 2007): 53.
4. Regional Summit
Meeting of Afghanistan and Neighbors, the secretary general's
statement, Economic Cooperation Organization, Istanbul, January 26, 2010.
5.
Afghan Government Plans Three Standard Gauge Railways, Railways of
Afghanistan, June 13, 2010.
6. Ministry of Mines, "Railway from Torkham to Amo Darya Connects Middle Asia
to Indian Ocean," Islamic Republic of Afghanistan, May 10, 2010.
7. Niklas Swanstrom, Nicklas Norling, and Zhang Li, "China," The New Silk
Roads: Transport and Trade in Greater Central Asia, edited by S Frederick Starr
(Washington, DC: Central Asia-Caucasus Institute & Silk Road Studies
Program, 2007): 389.
8. Zhao Huaheng,
China, Russia, and the United States: Prospects for Cooperation in Central Asia,
CEF Quarterly: The Journal of the China-Eurasia Forum, February 2005: 24.
9. S Frederick Starr and Andrew C Kuchins, The Key to Success in Afghanistan: A
Modern Silk Road Strategy (Washington, DC: Central Asia-Caucasus Institute
& Silk Road Studies Program, 2010): 1-20.
10. Asian Development Bank
report.
11.
Uzbekistan Trade Logistics Presentation, Asian Development Bank (2008).
12. Sebastien Peyrouse, "Economic Aspects of the Chinese-Central Asia
Rapprochement," Silk Road Paper (September 2007): 27.
Dr Richard Weitz is a senior fellow and director of program management at
the Hudson Institute in Washington, DC.
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