On an official visit State visit yesterday President Hu Jintao and the head of State of Kazakhstan, Nursultan Nazarbayev, signed agreements which will deepen the economic and strategic partnership between the countries to “historic” new levels. Chinese-Kazakhstan trade hit 20.4 billion U.S. dollars in 2010 -a figure expected to double in the next 3-4 years. The agreements will build upon the decade long economic cooperation between the countries that have brought new meaning and reality to the long talked about “New Silk Road” and the policy of peaceful economic cooperation.
Kazakhstan’s decade long cultivation of Chinese investment in key sectors in the economy, particularly energy infrastructure and the development of oil and gas sector in unison with the Kazakhstan national oil and gas company KazMuniGaz, are compelling reasons to see Kazakhstan as new “tiger” economy in Central Asian, and a budding emerging stock market growth story.
Emerging from the 2008 global financial meltdown relatively unscathed and determined to learn from the crisis, Kazakhstan has strengthened domestic financial institutions while making market opening reforms in its economy a priority. China assisted with both investments and loans to help stabilize the financial institutions of the country, and now plans to increase direct investments into all of Central Asia including Kazakhstan.
Significantly as China pursues a policy to increase the role of the Yuan in trade and investments, the Central Asian region will become one of the centers for expanding trade settlements in the RMB according to the Chairman of the Export Import Bank of China, Li Ruogu. Kazakhstan, besides being an immensely mineral rich nation is sandwiched between 2 BRICS, Russia and China, and it’s near neighbor to the south is another BRIC, India. Once geographically isolated, Kazakhstan’s modern transformation into the energy and transportation hub of the Silk Road is well positioned to benefit from both raising global commodity prices but also consumer boom of the BRICS and East Asian economies.
Kazakhstan is opening up the economy with new policy initiatives to add value to its exports and increase trade with all of its neighbors. A country with territory as large as Western Europe but with a relatively small population of 16 million, Kazakhstan has entered into a Customs Union with neighboring Russia and Belarus to develop economies of scale for new industries. The Customs Union is similar to the North American Free Trade Agreement, where another resource power with a small population, Canada, was able to move up the value chain and away from dependence on exports of raw materials.
Kazakhstan, like Canada, is hoping to move up the value chain and provide more than just raw materials to its powerhouse neighbors in the east and north and the deepening relationship with other growing East Asian economies bodes well for the natural resource based economy in Central Asia. Capitalizing on the strategic partnership signed with China in 2005, Kazakhstan has been able to diversify its export markets from the West to the dynamic East, and increasingly has tied itself to the growth economies of Asia.
The Customs Union is a strong positive for the Kazakhstan economy of budding entrepreneurs, and, significantly, it will also help to spur China’s implementation of its “Go West” policies especially along the border in the northwestern Xingjian Uygur autonomous region. For Chinese in this region especially, Kazakhstan’s entry into the Customs Union will mean that Chinese products manufactured or assembled with Kazakhstan inputs will allow for duty free entry into the 300 million strong Customs Union through the Horgos Port in Xinjiang. Effectively this means that Chinese entrepreneurs will have direct access thru its western neighbor in Kazakhstan to a new single market.
Horgos served as the traditional port of the Silk Road trade routes and its history dates back to the Sui Dynasty of AD 581-618 has been designated as a Free Trade Zone by the Chinese government. Goods made at the new international free trade zone and border crossing at Horgos, with sufficient local content, may enter the Customs Union with little or no duties which should be an alluring incentive for people to “Go West” when considering new investments in China.
In fact, recent legislation in Kazakhstan to increase “local content”, whereby more goods and services used in Kazakhstan must be of local origin, should hasten the development of the new international free trade zone the Horgos, and possibly spur the development of what some are calling a new “Shenzhen” of western China.
Kazakhstan and China’s deeper strategic economic relationship has already proven mutually beneficial to both countries economically and enhanced political stability in the region. The Export Import Bank of China has over 20 major infrastructure projects in the past decade in Kazakhstan with an estimated investment value of USD 7 billion. Meanwhile the market reforms and liberalization being pursued in Kazakhstan, from the so called “People’s IPO’s”- the privatization of assets held by it’s Sovereign Wealth Fund-the Customs Union with Russia and the Horgos SEZ, should propel the Central Asian economy to new heights of prosperity.
Kazakhstan is becoming a de-facto investment play on the strong growth of the Chinese and other Asian economies as these economies need the abundant natural resources of this country. Government initiatives to increase local content of the domestic economy and its Customs Union agreement with Russia assure it of access to one of the other dynamic BRIC economies while encouraging direct investment from Chinese entrepreneurs, especially in Xingjian, looking at this single 300 million person market.
Kazakhstan “peoples IPO’s” in the coming months on both the local and Hong Kong stock exchanges which will make for a number of opportunities to invest in this budding Central Asian tiger economy.. The newly emerging tiger economy in Central Asia will undoubtedly provide promising investment opportunities for Chinese and other global investors.
*Antonio Mario Angotti, based in Beijing and Almaty, is Managing Director for China and Central Asia for Praetorian-Trust, a Swiss Wealth and Asset management company