Dragon’s Syndrome. Is Chinese Investment Economic Growth to Kazakhstan?
China is planning to invest in Kazakhstan at around $80 billion, and only 4,7 percent of the money is a direct investment. The other is debt. What will happen if Kazakhstan won’t be able to pay back the debt to China?
“It doesn’t matter whether a cat is black or white, as long as it catches mice”
This is the Deng Xiaoping Theory. After the death of Mao Zedong, who is the founding father of the People’s Republic of China, Deng took the shift of power to rule China. He paid more attention to create the welfare of the population, not to ideology.
In the 1960s, around 45 million people died from hunger in China. Deng Xiaoping developed China with communistic ideology, but with the capitalistic ecosystem. If his theory failed, China would be totally different from now. In the 2000s, the average Chinese would have a chance to eat once a day, it leveled up to 2 at the beginning of 2010s. Nowadays, China has almost minimized hunger across the country and increased the percentage of middle-class families.
In turn, China decided to switch to geopolitics, when everything was set up with the national economy.
Belt Road Initiative
China is planning to create a world order in its own way with the help of a new Marshall plan. And it’s called the Belt Road Initiative, where the territory of Kazakhstan was also involved.
It’s planned to spend around 4 to 8 trillion US dollars for Belt Road Initiative. This is the largest investment line after the Marshall plan. Money in the Marshall plan was a political subsidy, Belt Road Initiative is the way to give credits with low-interest rates to developing countries via regional banks of Asia.
For now, the project is interconnecting 68 countries of three continents via land and the sea roads. The number of countries has been increasing and China is, especially, targeting to invest in countries in Africa and the Middle East. In this way, China is trying to reach the trust of government officials of states and a close connection to export goods from mainland China. The first and foremost reason is to hold a regional order, later, even, a world order.
China invests to projects which are beneficial only to China
One-third of investment from the Chinese government is being addressed to build oil pipelines, seaports, rail and conventional roads for strengthening the circulation of goods with the mark of “Made in China”. Another sum of money is being used for creating factories and refineries. And China is finding out the projects which can be built in Kazakhstan and offering money for it.
China is investing without checking the ability of countries to pay back the debt later. There are two main reasons for it. The first is the Chinese budget is not stocked in bank accounts, it is in circulation and making more money. The second is China finding allies and some sort of economic colonies unless countries in a contract of BRI cannot afford to pay.
“China depends on the resources of developing countries. And the Chinese government is spending on building roads and seaports to imports resources. That’s is one of the main reasons for launching an international project. Of course, under the deal of economic benefit, there is a political reason for stepping out as the project is planned for long-term ambition, ” Anton Bugaenko, a senior expert on China’s economic policies in the Institute of World Economics and Politics (IWEP) told to a correspondent of informburo.kz.
The Western Europe-Western China Highway
The project of highway that goes through the land of Kazakhstan and connects western China with the west and northern part of Europe has a line of a road with a length of 8445 km. China is aiming to use this main line to deliver the goods that were made in China to the European market.
“The project is started in 2009 and financed by the Chinese government. The Chinese part of through-passage was given for use in 2010 and Kazakh’s part finished in 2013. Unfortunately, agreement with Russia is still in the process,” Anton Bugayenko told.
According to the World Bank, International Bank for Reconstruction and Development Bank (China) allocated $2,125 billion to the Western Europe-Western China project construction in the part of Kazakhstan. Later extra investment with the sum of $217 millions were added to build an additional highway from Karaganda to Astana.
Two years ago, China has already sent its plan to invest in 51 different projects including fineries, factories, special industrial zones, etc. For instance, China wants to support the chemical industry, ore mining and smelting sector, mechanical engineering, energetics, agro-industrial complexes, consumer goods manufacturing, oil fineries and prepare construction goods in Kazakhstan. And the total sum of investment is going to be $26, 2 billion.
For now, KazInvest, a quasi-corporation, is analyzing which investment project of China will be beneficial to Kazakhstan. According to sources of IWEP, 4 projects ($372 million) out of 51 was in a process of building by the beginning of 2018. And 37 projects ($22 billion) were in the line to KazInvest. The other 10 projects were declined by the government of Kazakhstan as they were more beneficial to China.
“China is accelerating the key areas of industries in Kazakhstan and then step to these projects which will be more profitable to the investor, not to Kazakhstan. That’s why it’s important to KazInvest to delineate the offered deal from China as they are insisting on using their technologies and labor to build selected industrial facilities. For example, projects should be run by a Chinese construction company and the majority of workers should come from China,” Anton told.
According to the IWEP expert, if a Chinese company manages the projects, the investment will go back to the Chinese market. Kazakhstan is having industrial zones, but Chinese capital which was managed by their quasi-officials will be added to the national debt of Kazakhstan. Kazakh government officials are restricting Chinese citizens to have a working visa in the territory of Kazakhstan.
“There are 12 projects with an investment of a billion each. Among them, oil fineries in Shymkent and Atyrau, which need to refurbish in all stages from the bottom to the top,” Mr. Bugaenko told.
Shanghai Cooperation Organization (SCO) was built for the common security purposes. Now member states are switching to cooperate to have close economic ties between them. Recently, India and Pakistan were welcomed to have a membership in the organization. It’s a big concern to the EU and the US to observe that four regional powers with nuclear potential are united to cooperate.
“Until these days, Central Asia was one of the key players in Shanghai Five, but now it was put aside by The Bay of Bengal (India and Pakistan). China is having a huge benefit from this cooperation, Dosym Satbayev, a prominent political analyst,” told to a correspondent of informburo.kz.
According to him, Chinese infrastructural transit to Europe goes through the land of Iran. That’s why China is trying to persuade the ruling party of Iran to be a part of the anti-terror SCO. But the economic sanction of the US government to Iran is preventing Iran to cooperate with the Shanghai Five countries.
The debt of Sri Lanka
A decade ago, China planned to build a seaport in Sri Lanka in order for the Chinese oil tankers would have a chance to stop by and refill the heavy fuel oil (HFO). They invested $1,5 billion to build a port.
In a short period of time, Colombo had financial issues when China asked Sri Lanka government officials to pay back the debt. A tiny island country has small which comes from mostly tea export. Sri Lanka decided to give a control package of a seaport to Chinese authorities for 99 years to get rid of the debt.
“This situation created a certain amount of problems for China as the other countries started to think more when they decide whether to take the deal or not. Kazakhstan is also having the same behavior as a quarter of our national debt is from China. China is planning to invest in Kazakhstan around $80 billion and only 4,7 percent of it is a direct investment. This is the sum which is 50 times bigger than seaport investment in Sri Lanka,” Mr. Bugaenko told.
A Chairman of BCG Hans-Paul Buckner, who was interviewed by a correspondent of informburo.kz, told that he could not agree with IWEP analyst. According to Mr. Burkner, China is supplying developing countries with different investment projects to have them dependent on China. Then Chinese authorities will give an alternative option as the solution.
“Pakistan and Myanmar also decided to give their land and facilities to cut the debt from China. China is aiming to reach more developing countries to use the same scheme of loaning money. This is the real geopolitical expansion of the modern era,” Mr. Burkner told.
How much Kazakhstan have to give to China?
The national debt of Kazakhstan is $168 billion. Ministry of National Economy of Kazakhstan decided not to delineate how much of debt Kazakhstan has for China.
A Chairman of BCG Mr. Burkner and Clark Plexico, a president of International Strategies Inc., assured that Kazakhstan does not have to worry about debt, which needs to be paid to China as Kazakhstan is affordable to do it.
“Kazakhstan has a huge exporter of oil and gas. Kazakhstan has the sum of money to pay to China. It’s no big deal for them to do it. But they have to accurate before to accept any offers from China, ” Mr. Plexico told to a correspondent of informburo.kz.
What is the concern of Western countries?
EU and the US started to think more about regional power as China’s expansion of Eurasia via the infrastructural projects is enhancing.
Jonathan Hillman, a director of projects on interconnecting Asia in CSIS, warns that almost all the countries which were involved in Belt Road Initiative are losing their chances to keep liberty and land from China. In this way, China has already begun to own land and sea areas for goods transit.
“China always tries to invest more than expected. Government officials of developing countries will be happy to receive an investment without worrying about any consequences. Kazakhstan, especially, experts who are responsible for analyzing investment offers from China has to do a double check before making a decision. There is the only reason for China to do so. It’s the owning the land of neighboring countries.”, Mr. Hillman said.