Xinjiang: struggle to revive Silk Road

By Raffaello Pantucci

First published in the Financial Times Beyond Brics September 4, 2012

Picture courtesy here

What do you do about attracting investment if you are a remote corner of China, best-known internationally for your ethnic tensions?

If you are Xinjiang, you invest heavily in a blockbuster economic exhibition. Urumqi is this week hosting its second annual China-Eurasia Expo, opened this year by premier Wen Jiabao, a clear upgrade from last year’s star host, vice premier Li Keqiang.

Leaders and/or ministers from seven countries flew in, giving credence to Wen’s claim that the Expo aimed ‘to build a new bridge of friendship and cooperation across the Eurasian continent…and make Xinjiang a gateway.’ But it’s along way from prime ministerial declarations to the investment that Xinjiang badly needs.

The ‘China-Eurasia Expo’ with its cheery mascot – the animated horse Xinxin – is an evolution from the more cumbersomely named ‘Urumqi Foreign Economic Relations and Trade Fair’ that was held annually since September 1992. Upgraded to a more grandiose Expo as part of a raft of policies to try to help the province economically in the wake of brutal rioting in Urumqi in 2009 that claimed more than 200 lives, the event is part of a push to help build the region’s foreign trade links.

From outside China, Volkswagen has invested some €170m ($225m) into building a new production plant outside Urumqi. Volkswagen CEO Martin Winterkorn told reporters in January that they had been approached by Beijing to develop the plant in the region alongside their local partner SAIC.

The plan is for the plant to start production in 2015 with a target output of 50,000 cars a year.

VW joins a growing list of Chinese vehicle companies that have established plants in the region. The hope for VW is to reach the growing central Asian markets as well as the domestic Xinjiang market: in Urumqi alone the numbers of cars on the road doubled from 2009 to 2011 from 200,000 to 400,000.

According to Chinese customs figures, cross-border trade in vehicles with central Asia stood at $680m in 2011 – though over 80 per cent of this was in heavy trucks.

China is also eagerly courting Turkish investment – showcased at the Expo by the appearance of economic minister Ali Babacan. Turkey’s cultural proximity to the restive Uighur Turkic minority (the languages are mutually comprehensible) has led China to encourage Turkish investment in the hope it will be seen in a less suspicious light by locals who resent the Han Chinese presence in the province.

Key to this is the establishment of a Turkish-Chinese Industrial Park in Urumqi, which was first agreed in April 2011 between Turkish and Xinjiang trade officials. Located just south of Urumqi and offering low tax rates and financial support to encourage development, the park aims to attract Turkish textiles and food producers. Babacan said in his presentation that Turkey wanted to contribute to regional development and that he hoped to see a ‘new Silk Road from Istanbul to Beijing.’

Beijing’s aim is not just to draw in investors, but also to tie Xinjiang into a broader region through a network of roads, rail links and Special Economic Zones (SEZs) aimed at increasing the volume of trade between the province and central Asia.

Established in Kashgar and Khorogos (a border post with Kazakhstan) the uncompleted SEZs are key nodes in a recently-built network of roads and rail radiating out from Kashgar to Kyrgyzstan, Tajikistan, Afghanistan and Pakistan, and from Urumqi north to Kazakhstan.

Xinjiang recorded 10.7 per cent economic growth in the first half of 2012, 2.9 percentage points higher than the national growth rate, according to local officials. But it’s moving from a low base, in terms of income and investment levels.

There are limits to Expo’s ability to attract foreign investment. According to official figures $29.14bn of domestic investment was attracted through last year’s show, compared to only $5.5bn from abroad.

As well its domestic challenges, Xinjiang is hampered by the shortcomings of the generally underdeveloped countries in the surrounding region. Central Asian economies are remote and still farily poor, while Afghanistan and Pakistan suffer from violence and instability.

Official figures for the first six months of 2012 show that Xinjiang’s foreign trade stood at $9.82 bn ($7.29 bn in exports and $2.53bn in imports), a year-on-year increase of 9.2 per cent. That was better than the national average of 7.8 per cent, but the growth rate was substantially slower than last year’s 33 per cent for the whole of 2011.

About 78 per cent of this trade was with the five central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) – meaning Xinjiang is reliant on trade growth with a region replete with serious problems. Something the fanfare of an international Expo is unlikely to change.

Raffaello Pantucci, is a visiting scholar at the Shanghai Academy of Social Sciences (SASS)

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