Kashgar, Nanjiang

By Benjamin Shook

View of Kashgar’s new city. Photo by Sue Anne Tay

Xinjiang will soon see the launch of its first high-speed railway train that will run from Lanzhou city in neighboring Gansu province to Urumqi, the capital of Xinjiang. The government has hailed this as a significant move that will boost Xinjiang’s economy through more open trade, tourism and connectivity into Central Asia as part of the leadership’s vision of the new Silk Road Economic belt. Yet, the Guardian has countered that the high-speed railway in Xinjiang may end up exacerbating the growing economic inequality in the province.

Xinjiang, normally described as less developed than the industrial coastal cities of the east, is in fact itself divided between relatively prosperous northern Xinjiang, predominantly Han, and southern Xinjiang (known in Chinese as Nanjiang (南疆), which is mostly Muslim Uyghur. Violence has been on the rise this year, particularly in Uyghur-majority southern towns, including Kashgar itself. Since the major Urumqi riots of 2009, the Chinese government has championed a campaign of regional investment and development in an attempt to foster economic growth that would engender social stability.

Given the ethnic and geographical nature of violence in southern Xinjiang, the centerpiece of the state’s efforts to reform southern Xinjiang have been focused on Kashgar, the largest town in the southern region. While domestic engagement is surely the key to prosperity, the style of state-directed investment must change.

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China and Pakistan: the world’s highest border crossing. Photo by Pamir Times

Kashgar, known in recent times as a city of mainly historical and cultural significance, has become more and more politically important over the last ten years. Indeed, the conditions in southern Xinjiang have implications for China’s opening to Central and South Asia. Announced in 2011 as part of the Silk Road Economic Belt initiative, Kashgar has been partnered with Shenzhen to become China’s next Special Economic Zone (SEZ). With visions of ‘Asian tiger’-style transformation, the goal is to make Kashgar the base for China’s expanding regional economic engagement in the hope that greater economic opportunity will reduce what China calls ‘extremism and separatist sentiments’.

While much of China’s trade with Central Asia (along with most road, rail, and pipeline connections) runs through Northern Xinjiang, the Chinese government is busily working to exploit the growth potential of the southern commodity trade with Central Asia through Kyrgyzstan. Large marketplaces such as Qorasuv and Dordoi in Kyrgyzstan rely heavily on the re-export of cheap Chinese commodities. The extent of this reliance became evident in Dordoi earlier this year when annual turnover, estimated at over $2.9 billion USD, dropped drastically in response to Kazakhstan raised its import tariffs as part of its transition into Russia’s Customs Union. As for imports into southern Xinjiang, Kashgar and the Naryn Free Economic Zone in Kyrgyzstan signed an agreement in April 2014 on trade cooperation that included the expansion of places for Kyrgyz entrepreneurs in Kashgar markets. But the westward flow of cheap Chinese commodities, depending as it does on favorable tariff rates and economic inequality between China and Central Asia, is not a viable model for sustainable economic development.

More promising for Kashgar is its status as the foundation of southern Xinjiang’s trade with Pakistan. Indeed, last year the China Overseas Port Holding Company formally took over operational responsibility for Pakistan’s Gwadar port, which was completed in 2007. Every day in spring and summer, buses leave Kashgar International Bus Terminal and head along the Karakoram Highway into the mountains to Sost, the first town after the Sino-Pakistan border. From Sost, Chinese construction workers are paving a 335 kilometer road to Gilgit, at which point Chinese commodities will take the Indus Highway south west to Balochistan’s Gwadar. The journey is about 1,500 kilometers total, compared to a distance of around 3,000 kilometers from Kashgar to China’s rich coastal east.

While much of China’s trade with Central Asia (along with most road, rail, and pipeline connections) runs through Northern Xinjiang, the Chinese government is busily working to exploit the growth potential of the southern commodity trade with Central Asia through Kyrgyzstan. Large marketplaces such as Qorasuv and Dordoi in Kyrgyzstan rely heavily on the re-export of cheap Chinese commodities. The extent of this reliance became evident in Dordoi earlier this year when annual turnover, estimated at over $2.9 billion USD, dropped drastically in response to Kazakhstan raised its import tariffs as part of its transition into Russia’s Customs Union. As for imports into southern Xinjiang, Kashgar and the Naryn Free Economic Zone in Kyrgyzstan signed an agreement in April 2014 on trade cooperation that included the expansion of places for Kyrgyz entrepreneurs in Kashgar markets. Ultimately, with 70% of Xinjiang’s exports to Central Asia originating in other provinces, southern Xinjiang must look elsewhere for near term economic assistance.

Border controls, regional political disunity, and Central Asian markets that rely heavily on foreign remittances will further limit the potential for Central Asian development to bring substantive economic opportunities to southern Xinjiang in a manner that may enhance the lives of local Uyghur communities. Fortunately, when it comes to Xinjiang’s development, Beijing cannot be accused of inaction. To facilitate Kashgar’s transition from a fringe of the nation to bustling metropolis, the central government has partnered the city with Guangdong officials who will model the new Kashgar on Shenzhen’s successful SEZ, including an initial investment of RMB 1.14 billion (USD 186 million) in advance of the region’s 12th Five-Year Plan (2011-2015). The project, set to come into effect in 2011, would see Guangdong invest RMB 9.6 billion (USD $1.06 billion) in Kashgar’s infrastructure and social welfare by 2020. It is unclear, however, what the specifics of this plan are, or to what extent it has already been implemented.

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Demolition in Kashgar’s old city is ongoing. Photo by Sue Anne Tay

The government is not only throwing money at Xinjiang’s problems. Policy changes, less publicized than large-scale investment deals, have also been employed. National tax reforms exempt Xinjiang companies from paying corporate income tax for their first two years after establishment, followed by a 50% discount for the following three years for companies founded between 2010 and 2020. A nationwide “partner assistance program” for each region of Xinjiang has been initiated. The same program which paired Guangdong and Shenzhen with Kashgar requires all 19 of China’s provinces and municipalities to contribute 0.3% to 0.6% of their fiscal revenue between 2011 and 2020 to support the development of the whole region.

Evidently, these efforts are not sufficient. While fractured, unevenly developed neighbors in Central Asia make tutelage by China’s eastern provinces Kashgar’s best hope for economic opportunity, the nature of the government’s investment approach towards south Xinjiang must change. As long as rich eastern coastal areas are footing the bill, economic priorities in southern Xinjiang will be determined by eastern interests, not local interests.

Though there is little transparency on the destination of profits from natural resources mined in Xinjiang, financial services, partner assistance programs, and public constructions projects, it is clear this money is not being reinvested locally, at least not in southern Xinjiang. Despite the billions of yuan invested domestically, the development indicators of southern Xinjiang are a fraction of what they are in the north. The 2013 GDP of Kashgar was RMB 61.73 billion, with a per capita annual GDP of RMB 15,016 (around USD $2,400); Hotan, another southern city, had a GDP of just RMB 17.1 billion for a per capita annual GDP of RMB 7,994 (USD $1,300). This pales in comparison to Urumqi (RMB 240 billion GDP for a per capita annual GDP of USD $10,000), Yili (per capita GDP of USD $5,000), or oil-producing Karamay (annual per capita GDP of USD $36,600).

The lagging GDP of southern Xinjiang may be due in part to the concentration of investment in the formal sector of the local economy, including natural resource extraction, financial services, and urbanization. Indeed, statistical analysis reveals that ‘market segmentation’ between formal and informal economies is the greatest source of income inequality between local Uyghurs and Han migrants to Urumqi, the only city for which such data is available. While exact definitions vary, the difference between the formal and informal economies is generally one of regulation and oversight. Formal sector positions, both in private and state-owned enterprises, are officially acknowledged by the state and subject to review, regulation, and taxation. The informal economy, therefore, exists outside government affirmative action, workers’ rights, and taxation laws. Such positions may include agriculture work, street vending, small-scale manufacturing and day labor.

Despite being more educated (partly through said affirmative action policies available in the formal economy) on average than Han migrants, local Uyghurs were paid 29% less and had less access to formal sector positions. This drove more Uyghurs into the informal sector, which lacks outside investment. The prospects for Uyghurs living in southern Xinjiang, where infrastructure is limited, international trade tightly controlled, and Han cadres parachuted into local government positions, are much less conducive to minority growth and local economic empowerment.

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Urumqi’s Great Bazaar in winter. Photo by Benjamin Shook

Without change to the policy framework which tends to push minorities toward the informal sector (such as rules which ban practice of religion as a condition for employment), development strategies which focus purely on economic growth are likely to increase inequality. If local actors are able to allocate development funds in accordance with the demands of local markets (formal and informal), human capital needs, and infrastructure priorities, the regional and central governments will benefit. By semi-decentralizing investment funds, the pre-existing market development needed to cultivate the kind of internationalized financial service sector and export-led manufacturing that Shenzhen planners envision for the Kashgar SEZ will begin to grow on its own as local stakeholders dictate the allocation of resources.

This is easier said than done. The central government is not likely to devolve substantive decision making power in a region where geopolitics, security, and trade are so delicately balanced. Nor will the government be keen to risk its legitimacy in a backlash by a Han population angry that its preferential socioeconomic position – and perception of physical security – is threatened. However, steps towards giving locals even modest agency over their own economic environment are likely to lead to an easing of tensions in the future.

Benjamin Shook just finished an MSc in Asian Politics at the School of Oriental and African Studies. He is currently an International Security Studies Intern at the Royal United Services Institute in London, UK.

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One comment

  1. top secert

    The world need peace and trade not war and confrontation.James Dale Davidson (advisor to 4 US presidents) said the day of reckoning is coming,we cannot keep printing money.China holds one trillion dollars or more of US treasury bonds.

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