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3 June, 2013

The Iron Silk Road

With Europe hungry for Chinese goods, and China eager to sell them, high speed railways get large investments to complete the missing links between the two markets. Kazakhstan now sees a historic opportunity to make itself the main stopping place on tomorrow's Iron Silk Road

Centuries ago the Orient supplied Europe with the luxuries it craved - spices, jade, jewels and silk - by caravans crossing the dusty plains along the old Silk Road. Today China has become the world's workshop, and is reopening the old land routes to Europe to speed up delivery of millions of containers. This time, however, the new Silk Road will be built of steel. A new "Eurasian Land Bridge" railway in now under construction, with freight trains set to rumble thousands of miles from China across Central Asia to Istanbul, the Balkans, Germany and the West.

No country is better placed to cash in on this new transport bonanza than Kazakhstan. This vast landlocked former Soviet republic is now frantically building roads and railways to carry the torrent of trade from the Chinese frontier to the borders of Europe. Bolstered by its huge oil and minerals income, Kazakhstan has spent $135 billion over the past decade to open an alternative to the Trans-Siberian railway, breaking the Russian monopoly and political control of East-West traffic, and offering Chinese exporters a way of cutting at least 35 days off the 45-day shipping route to Europe.

Last month Nursultan Nazarbayev, the long-standing Kazakh president, and President Berdimuhamedov of Turkmenistan bolted down the last ceremonial spikes on a new stretch of track over their border that will speed goods through Turkmenistan south to Iran and the Gulf port of Bandar Abbas. In the past decade Kazakhstan has constructed some 1,200 kilometres of new rail to develop the routes west to Turkey. And in October the final barrier will be removed when a 1.9 billion new tunnel under the Bosphorus will take trains under this deep and fast-flowing waterway directly into the heart of Europe.

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At a conference in Kazakhstan recently, senior government ministers announced plans to exploit the new transport links as development corridors, building new industrial plants, setting up high tech services and linking new towns and high tech centres along the route by internet. At the sixth Astana Economic Forum, Kairat Kelimbetov, the Western-educated deputy prime minister and champion of Kazakhstan's rapid modernisation, told the 8,000 delegates attending the two-day forum: "This is a great opportunity to create Kazakhstan as a transport hub. We will become a corridor of prosperity". The hub would, he noted, bring together markets comprising two billion people - a third of the world's population.

Kazakhstan's booming economy is dependent on growing investments from both Europe and China, and its large mineral and energy exports are now earning the country huge sums from both markets. The economic forum, intended to rival the annual gathering in Davos and focus global investors on opportunities in Central Asia, drew big names such as Romano Prodi, the former head of the European Commission, Dominique Strauss-Kahn, the former head of the International Monetary Fund forced to resign after a sex scandal, five former Nobel economics prize-winners, economics ministers from the Middle East and former presidents Bulgaria and Afghanistan, as well as a large number of Russian politicians and business leaders eager to cement relations with their booming neighbour on their southern flank.

Improving the sparse transport connections across Kazakhstan is one of the government's top development priorities. But there are big challenges to overcome in the construction of a new East-West railway. The first is the actual route. The line through Kazakhstan, Turkmenistan and Iran to Turkey is already built, although it involves a time-consuming ferry crossing over Lake Van in eastern Turkey. But the West, influenced by America, is reluctant to use or invest in any line that passes through Iran, and political tensions in the region mean that at any moment frontiers between some of the Central Asian countries may be shut. Kazakhstan is constructing an alternative, that goes via the capital, Astana, to the shores of the Caspian, where a ferry would take trains across the sea into Azerbaijan and then on into Georgia. The old Soviet-era Caucasus route used to go through Armenia to Turkey, but the war between Azerbaijan and Armenia has closed that, and so a diversion is now being built skirting Armenia and crossing into Turkey near Kars.

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The second challenge is the difference in gauges. All the states of the former Soviet Union use broad, 1,520mm gauge track, while China, Iran, Turkey and mainland Europe use standard gauge - 1, 435mm. At the crossing points between the systems - at Dostyk, on the Chinese frontier with Kazakhstan, at Serakhs between Turkmenistan and Iran, or at Akhalkalali on the Georgian-Turkish border - containers must be offloaded from one train and loaded on to another using different wheel gauges. Passenger trains in Europe going to Russia have time-consuming wheel changes, but this would not be worth the cost for freight trains. Spain has developed a mechanism to bring the wheels closer together as the track narrows, so that trains can change gauge as they go along, but the cost of buying an entirely new fleet of freight wagons with such equipment would be prohibitive.

A radical simplification of customs agreements is also needed. Kazakhstan's transport ministers told the forum that some 32 states have now signed an operational agreement for a single customs regime for through trains. But bureaucracy and the prevalence of corruption threatens to make all border crossings expensive and unpredictable.

The final issue is finance. China, itself rapidly developing a high speed network within its borders, is investing billions in rail systems around the world, and is offering loans and grants to many of its neighbours to speed up the Eurasian Land Bridge. Several Central Asian states, especially Kazakhstan, have large funds to pay for the new lines and the roads that parallel them. The World Bank has offered Kazakhstand a $2.125 billion dollar loan for its transport plans. And some of the money comes from banks and private investors.

But despite the long-standing backing of United Nations regional economic commissions and the official approval of Russia and the West, there are still political obstacles. Russia is desperate to keep as much traffic as possible using the Trans-Siberian, which is clogged, slow and needs modernisation. Russian officials attending the conference insisted that Moscow sees the Eurasian line as complementary to the Trans-Siberian and has no objection to its construction. But in fact the new line will be a direct competitor, and it is clear that Russian does not welcome any development that makes its former republics in Central Asia less dependent on Russia, politically and economically, or ties them more closely to China.

America is also very dubious of other plans to export Chinese goods via Iran and the Gulf or of any line that ties Turkey more closely to Iran.

But at either end of the proposed route, big rail developments are taking place. Europe is hungry for Chinese goods, and China eager to sell them, and their large investments in high speed railways have whetted their appetite to complete the missing links between the two markets. Kazakhstan now sees a historic opportunity to complete those links and make itself the caravansarai - the main stopping place - on tomorrow's Iron Silk Road.


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