Spirit of the Silk Road: Chinese Trade and Investment throughout the Eurasian Corridor 981164540X, 9789811645402

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Spirit of the Silk Road Chinese Trade and Investment throughout the Eurasian Corridor yong x i u b a i songj i wa ng

Spirit of the Silk Road

Yongxiu Bai • Songji Wang

Spirit of the Silk Road Chinese Trade and Investment throughout the Eurasian Corridor

Yongxiu Bai Xi’an, China Translated by 

Youlan Tao Shanghai, China

Songji Wang Xi’an, China

Zhongwu Luo Beijing, China

ISBN 978-981-16-4540-2    ISBN 978-981-16-4541-9 (eBook) https://doi.org/10.1007/978-981-16-4541-9 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-­01/04 Gateway East, Singapore 189721, Singapore

Preface

The Silk Road Economic Belt (SREB), guided by the Silk Road spirit and featured by consultation, co-construction and sharing, is a new type of international cooperation platform for regions along the Silk Road in Asia, Europe and Africa. It was proposed by Chinese President Xi Jinping on September 7, 2013, as an innovative cooperation mode during his visit to Kazakhstan. This initiative, together with the twenty-first-century Maritime Silk Road, constitutes the Belt and Road Initiative (BRI) to lead China to build a new pattern of all-round opening up. It is also a Chinese plan to deal with deficit in peace, development and governance across the globe for a new type of globalization featuring mutual benefit and win-win cooperation, and for a community of shared future for mankind. After President Xi’s proposal, the BRI gradually transformed from concept into reality. In November 2013, the Decision of the CPC Central Committee on Several Major Issues Pertaining to Comprehensively Deepening Reform adopted at the Third Plenary Session of the 18th CPC Central Committee clearly stated that “(We will) work hard to build the SREB and Maritime Silk Road, so as to form a new pattern of all-round opening-up”. After more than a year of concept design and planning, the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MFA) and the Ministry of Commerce (MOC) jointly issued Vision and Proposed Actions Outlined on Jointly Building the SREB and twenty-first century Maritime Silk Road on March 28, 2015, marking that the building of the SREB has officially entered the stage of practical cooperation. On August 17, 2016, General Secretary Xi Jinping attended the work conference on the building of the BRI and delivered an important v

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speech, stating that the progress and achievements of the building of the BRI had been beyond expectations and that the construction of the initiative should be advanced steadily. From May 14 to 15, 2017, the “Belt and Road” Forum for International Cooperation was held in Beijing, attracting about 1500 representatives from about 130 countries and about 70 international organizations, including 29 leaders of state and government from other countries, and the forum reached a broad consensus on the building of the BRI. In the report delivered at the 19th National Congress of the Chinese Communist Party on October 18, 2017, General Secretary Xi Jinping stressed that “We should take the Belt and Road Initiative as a priority … With these efforts, we hope to build a new pattern of openingup through links running eastward and westward, across the land and over the sea”. Up to now, more than 100 countries and international organizations have been actively supporting and participating in the building of the BRI, and more than 40 countries and international organizations have signed cooperation agreements with China. More than 30 countries have been carrying out production capacity cooperation with China, and a large number of landmark projects have been launched, which has promoted the economic and social development of the countries and regions along the route. The SREB is an open platform based on, but not limited to, the regions along the ancient Silk Road for international cooperation. It is open to all countries and regions with Asia, Europe and Africa as its focus. The basic principles of the building of the SREB are extensive consultation, joint contribution and shared benefits, which show the important features that distinguish the initiative from traditional international cooperation modes. First, extensive consultation should be carried out on related issues. The SREB is an international cooperation initiative proposed by President Xi Jinping on behalf of China; however, the concept design and planning as well as the choice of major projects is not decided by China alone, but by the relevant countries through mutual consultation, which means that all countries should pool their ideas in an equal capacity so that the SREB takes into account the interests and concerns of all parties and embodies the wisdom and creativity of them. Second, the building of the SREB is a common undertaking of the countries along the route. In the construction of such related projects as

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infrastructure connectivity, trade and investment facilitation, international production capacity cooperation, participant countries should do their best to give full play to their comparative strengths and make steady progress through concerted efforts. Finally, the benefits should be shared among countries involved. In his speech at the headquarters of the United Nations in Geneva in early 2017, President Xi Jinping stated that “China will continue to pursue a win-win strategy of opening up, share our development opportunities with other countries, and welcome them aboard the ‘Express Train’ of China’s development”. The SREB Initiative originated in China, but it delivers benefits well beyond its borders. It spans different regions, development stages and civilizations with the vision to promote the building of a community of shared future for mankind through complementary advantages, mutual benefit and win-win results. The building of the SREB mainly involves five key areas, namely, policy communication, infrastructure connectivity, trade link, capital flow and understanding among peoples, covering such fields as economy, politics, society, culture and ecology. One aspect may affect the situation as a whole; therefore, all of these fields should be taken into consideration so as to achieve coordinated development in the process of building the SREB. We believe that the foothold of the initiative should be the “economic belt”, so we need to understand the key tasks of building the SREB Initiative from the perspective of economic cooperation, and the goal is to build a new international cooperation platform that is open, inclusive, balanced and beneficial to all. To achieve this goal, the building of the SREB should focus on the construction of connectivity, trade and investment facilitation, industrial collaborative upgrading, urbanization and Renminbi internationalization, which together provide support for the economic cooperation of the SREB. Against this backdrop, we have been carrying out research on the important contents of building the SREB since the end of 2013 and have produced a series of research results. The SREB Initiative is a great idea that inherits the ancient times and opens up a new era. With the progress in the building of the SREB, the academic circle and executive departments are constantly updating their cognition of this initiative. This book intends to show the readers our tentative reflection on the building of the

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SREB from the academic perspective, which is inevitably far from perfect due to our limitations. It is hoped that the publication of this book will be helpful to enhance the readers’ understanding of the SREB Initiative and contribute to the promotion of this great cause of the century. Xi’an, China 

Yongxiu Bai Songji Wang

Contents

1 Framework of the SREB Initiative  1 2 Connectivity Construction 43 3 Trade and Investment Facilitation103 4 Industrial Cooperation and Upgrading145 5 Construction and Upgrading of Urbanization in Western China183 6 Regionalization and Internationalization of Currency199 7 Guarantee Mechanism for the SREB217 Appendix: Big Events269 Epilogue283 Bibliography287

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List of Figures

Fig. 1.1 Fig. 1.2 Fig. 1.3

Fig. 1.4 Fig. 1.5

Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 3.1 Fig. 3.2

Sketch of SREB Spatial scope of the SREB China’s investment stock in Russia and five Central Asian countries in 2005–2013. (Source: China Foreign Direct Investment Statistical Bulletin 2013, China Statistics Press, 2014: 46–50) Per-capita GDP of countries (regions) along the route in 2012. (Source: data are calculated according to the GDP and population data of the World Bank database) Comparison of economic growth between Northwest China and the whole country in 2000–2012. (Data source: statistical bulletin of national economic and social development of the whole country and five provinces (regions) in the northwest over the years) Contents and interrelationship of connectivity construction of SREB Asia–Europe economic depression belt. (Source: data are calculated on the basis of population and GDP data in the World Bank Database 2013) Number of Internet users in major countries along the route over the years. (Global Macro economic Data, Sina Finance, 2015-1-2, http://finance.sina.com.cn/worldmac) Trend of trade volume of representative countries The trend of FDI in representative countries

11 13

26 37

40 45 48 63 117 129

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Fig. 4.1

Fig. 4.2 Fig. 5.1

Fig. 5.2 Fig. 6.1

China’s investment in Russia and five Central Asian countries in 2005–2013. (Source: China’s foreign direct investment statistical bulletin in 2013, China Statistics Press, 2014: 46–50) 172 Schematic diagram of industrial value chain in the core area of the SREB 175 Change of urbanization rate in China’s three major regions from 2008 to 2012. (Note: The eastern region includes 13 provinces and cities: Beijing, Tianjin, Hebei, Liaoning, Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan; the central region includes six provinces: Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan; the western region includes 12 provinces and cities: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang. The methods of division of regions mentioned in the sourcebook are the same as here. Data source: relevant data in China Statistical Yearbook 2013)185 Paths of urbanization development and upgrading in the western region 194 Trade volume between China and the five Central Asian countries in 2008–2012 211

List of Tables

Table 1.1 Table 1.2

Silk Road strategies proposed by relevant major countries 4 Analysis of SREB economic and geographical characteristics (2012)12 Table 1.3 Levels of international economic exchanges 15 Table 1.4 Comparison of SREB in its narrow sense and major regional economic cooperation organizations (2012) 36 Table 2.1 The stock of land transport facilities in SREB core area in 2009 55 Table 2.2 Countries and cities along the main international railways of “SREB”58 Table 2.3 Important transnational oil and gas pipelines in the SREB 67 Table 2.4 Total power generation and consumption of countries in the core area of the SREB in 2009 73 Table 3.1 Action plan for trade facilitation 110 Table 3.2 Changes in trade volume of representative countries in 2008–2013 (100 million US dollars) 117 Table 3.3 Major trade partners of each country in 2013 118 Table 3.4 Ranking of representative countries in terms of infrastructure 122 Table 3.5 Ranking of customs environment of representative countries 123 Table 3.6 Ranking of regulatory environment of representative countries 124 Table 3.7 Ranking of e-commerce of representative countries 125 Table 3.8 Trade facilitation level of representative countries 126 Table 3.9 Trade facilitation level index of representative countries 127 Table 3.10 Weighted Trade Facilitation Index and standardization results of representative countries 128 Table 3.11 Foreign direct investment of representative countries (US $100 million) 128

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Table 3.12 Market environment and efficiency ranking of representative countries130 Table 3.13 Environmental ranking of representative national legal and administrative institutions 131 Table 3.14 Ranking of representative national innovation environment 132 Table 3.15 Ranking of financial market environment of representative countries133 Table 3.16 Labor market environment ranking of representative countries 134 Table 3.17 Macroeconomic environment ranking of representative countries134 Table 3.18 Scores of investment facilitation level of representative countries135 Table 3.19 Total scores and standardization results of investment facilitation of representative countries 136 Table 3.20 Trade and investment facilitation index of representative countries136 Table 4.1 Types of GVC analysis 151 Table 4.2 Comparison of producer-driven and buyer-driven GVCs 152 Table 4.3 Dominant natural resources and major industrial industries of the five Central Asian countries 159 Table 4.4 Economic development of five Central Asian countries (2012) 160 Table 4.5 Changes in Russian industrial structure during 2000–2011(%) 164 Table 4.6 Top ten commodities exported by the five Central Asian countries in 2012 168 Table 4.7 Proportion of main pollutants in three regions of China in 2013 (%) 170 Table 4.8 Market space in the core area of the SREB (2013) 173 Table 5.1 Change of urbanization rate in China’s three major regions from 2008 to 2012 (%) 185 Table 5.2 Proportion of foreign investment in China’s three major regions in 2011–2012 (%) 186 Table 5.3 Proportion of added value of three industries in Western Cities and Provinces in 2012 (%) 188 Table 5.4 Administrative divisions and distribution of cities in three major regions of China 190 Table 5.5 Development level of urban facilities in western municipalities and provinces in 2012 191 Table 5.6 Proportion of major pollutant emissions in three major regions of China in 2012 (%) 193 Table 6.1 GDP and GDP growth rate in the core area and main regional countries in the SREB in 2013 209

CHAPTER 1

Framework of the SREB Initiative

On September 7, 2013, Chinese President Xi Jinping delivered a speech at Nazarbayev University in Kazakhstan, proposing that Asian and European countries should jointly build the “SREB”.1 This proposal aroused positive response from relevant countries, especially Central Asian countries. In November 2013, the Third Plenary Session of the 18th CPC Central Committee adopted the Decision of the CPC Central Committee on Several Major Issues Pertaining to Comprehensively Deepening Reform stating clearly the goal of “promoting the building of the SREB” so as to form the “China-Central Asia-West Asia Economic Corridor”(CCWAEC).2 In December 2013, the Central Economic Work Conference (CEWC) set “enhancing the level of opening-up” as one of the six major economic tasks for 2014, and called for making prompt strategic plans and strengthening infrastructure connectivity to promote the building of the SREB.3 President Xi Jinping’s proposal and the decision adopted at the work conference showed that the building of the SREB had become an important part of China’s economic development and opening up.

1  Xi Jinping, Promote Friendship Between Our People and Work Together to Build a Bright Future—Speech at Nazarbayev University, People’s Daily, September 8, 2013. 2  Decision of the CPC Central Committee on Several Major Issues Pertaining to Comprehensively Deepening Reform, People’s Publishing House, 2013: 27–28. 3  Central economic work conference held in Beijing. People’s Daily, December 14, 2013.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_1

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1   Background of the Initiative The ancient Silk Road, as a major traffic route for trade and civilization exchanges between the East and the West, is still exerting a profound impact on the cooperation among Asian and European countries. In recent years, influenced by such factors as the financial crisis in the United States and the debt crisis in Europe, the global economic recovery is faltering and remains fragile. China’s economic growth is also faced with downward pressure, and the competition among relevant major countries in the regions along the route is becoming increasingly fierce. China is carrying out increasingly close cooperation with Asian and European countries. Under this backdrop, it is necessary for China, the starting point and main country of the ancient Silk Road, to further strengthen regional economic cooperation in the form of jointly building the SREB. 1.1  Profound Influence of the Ancient Silk Road The Silk Road was the main route for economic, political and cultural exchanges between the East and the West in ancient times, which had exerted a profound impact on the progress of human civilization. More than 2000 years ago, Zhang Qian, a royal emissary in China’s Western Han Dynasty, traveled westward on a mission of peace and opened an overland route linking the East and the West. As silk was an important commodity traded by all parties, this route of communication came to be called the “Silk Road” by later generations. The origin and wide spread of the term “Silk Road” should be attributed to Ferdinand von Richthofen, a German geographer and geologist, and the historian Albert Herrmann. In 1877, in his book China: the Results of My Travels and the Studies Based Thereon, Richthofen first coined the term of “Seidenstrassen” (German for “Silk Road”) to describe “the regional route of silk trade linking China with Transoxiana4 and India from 114 BC to AD1 27”. In 1910, in his book The Ancient Silk Road between China and Syria, Hermann advocated that the “Silk Road” should be redefined as “a route extending all the way to Syria in the far west”. In 1915, in his book The Silk Road from China to the Roman Empire, Hermann further referred to the “Silk Road” as the general designation of 4  Transoxiana refers to the river basins of the Syr Darya, AmuDarya and Zeravshan rivers in Central Asia, including the whole territory of Uzbekistan and the southwest of Kazakhstan.

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the traffic route between China and Greek-Roman communities.5 After that, the term “Silk Road” was widely accepted. Before China’s reform and opening up, most Chinese scholars referred to the “Silk Road” as “communication route between China and the West”. After the 1980s, Chinese scholars began to use the “Silk Road” in their discourse, and it has gradually become a fixed expression in China. Through the Silk Road, China established close trade ties with such regions as Central Asia, West Asia, South Asia, Europe and North Africa, thereby promoting cultural exchanges between the East and the West, and contributing to productivity development in these regions. In terms of business and trade exchanges, from Zhang Qian’s traveling westward to open an overland route linking the East and the West in 126 BC to the decline of the route, such Chinese commodities as silk, porcelain and tea were continuously exported to the West through the Silk Road, and western goods such as fur products, jewelry, spices, walnuts and carrots were, in turn, imported into China. The circulation of commodities enriched the material and cultural life of the people in Asian and European countries. In terms of cultural exchange, the Silk Road connected the world’s major civilization systems of ancient China, ancient Rome, ancient Islamic world and ancient India. Through the Silk Road, western religious beliefs such as Buddhism, Islam and Nestorianism were introduced to China, and Chinese culture was spread to the West, which promoted the exchanges and integration of human civilizations. In terms of productivity development, China’s ancient great inventions such as paper-making and wood block printing were introduced to the West, while astronomical calendar, architectural techniques, and sugar and brewing technologies of the West were imported into China. In this process, the economic and social development and productivity of countries along the route were also improved. The Silk Road declined after the Song and Yuan dynasties (960–1368), but as a model of civilization exchange between Asia and Europe, it is still exerting a profound impact on the economic and trade cooperation among contemporary Asian and European countries. In view of this, and against the backdrop of promoting the great rejuvenation of the Chinese nation and realizing the “Chinese dream”, it is of great significance to promote the building of the SREB. 5  Li Mingwei, A Historical Review of Studies on the Silk Road in a Hundred Years[J], Northwestern Journal of Ethnology, 2005(2): 90.

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1.2  Fierce Competition in “Silk Road Strategies” Among Major Countries Considering the important geographical advantages, rich natural resources and broad development prospects of the areas along the route, relevant major countries clamored to put forward strategic ideas for this region in recent years, including Japan’s “Silk Road Diplomacy Strategy”; “North-­ South Corridor Plan” initiated by Russia, India and Iran; the European Union’s “New Silk Road Program” and the United States’ “New Silk Road Strategy” (see Table 1.1). Japan’s “Silk Road Diplomacy Strategy”. In 1997, the Japanese cabinet of Hashimoto Ryutaro began to attach importance to exchanges with Central Asia and its surrounding countries, and put forward the “Silk Road Diplomacy”, a plan covering the eight countries in Central Asia and the South Caucasus,6 referred to as the “Silk Road region”. The objective of Japan’s implementation of the Silk Road Diplomacy Strategy is twofold: it aims to strengthen economic cooperation with Central Asian countries, accelerate the economic development and improve internationalization level of the countries in the region; it also aims to increase Japan’s political influence and economic penetration, and exploit the rich oil and gas resources in the region so as to ensure Japan’s energy supply security. After Table 1.1  Silk Road strategies proposed by relevant major countries Country

Proposed strategy

Japan

Silk Road Diplomacy Strategy North-South Corridor Plan

Russia, India, Iran EU

United States

Time Main contents

1997 A plan covering the eight countries in Central Asia and the South Caucasus to strengthen political and economic cooperation 2002 A plan to build a freight and cargo transit route stretching from India to Iran, the Caucasus and Russia, and ending in Europe New Silk Road 2009 A plan to build the “Nabucco natural gas pipeline”, a Program southern corridor for energy transportation to strengthen its ties with Central Asia and the surrounding countries in different fields New Silk Road 2011 A plan to build a US-led Central Asia–Afghanistan– Strategy South Asia economy with Afghanistan as its center

Source: Contents of this table are sorted out by the author according to public data

 The eight countries in Central Asia and the South Caucasus refer to Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan, Tajikistan, Georgia, Armenia and Azerbaijan. 6

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that, Japan provided substantial government development assistance to promote the construction of such infrastructure as railways, highways and power plants in relevant countries, thereby contributing to the economic development in the region. In 2004, Japan launched the regular Foreign Ministers’ Meeting of the “Central Asia plus Japan” Dialogue. Through this mechanism, Japan has strengthened its ties with Central Asian countries. Russia–India–Iran “North-South Corridor Plan”. Initiated by Russia, India and Iran in 2000, the North-South Corridor Plan is intended to build a freight and cargo transit route, stretching from India to Iran, the Caucasus and Russia, and ending in Europe. A multi-modal transport system is envisioned integrating motorway, rail transport and ocean shipping services, which can cut freight transport costs of countries along the route, especially India to Europe, thereby improving the competitive edge of the goods of relevant countries on the global stage. As the leading country of the plan, Russia intended to build the North-South Corridor Plan to offset the influence of East-West “Eurasian Economic Corridor”, a plan initiated by the West to bypass Russia, so as to maintain Russia’s traditional influence in this region. After the plan was put forward, China and Central Asian countries showed great interest in it. However, due to political differences and lack of capital in relevant countries, the railway and road project in the “North-South Corridor Plan” experienced delays and was even shelved for a time. At the expert meeting of the 14 countries on the “North-South Corridor” held in January 2012, India expressed its intention of undertaking the construction of railways and roads in Iran,7 enabling the project to gain traction again. European Union’s “New Silk Road Program”. The European Union (EU) put forward the “New Silk Road Program” in 2009 to reduce its dependence on Russian oil and gas resources, and strengthen its ties with Central Asia and the surrounding countries in such fields as energy, commerce, personnel and information through the construction of the “Nabucco natural gas pipeline”, a southern corridor for energy transportation. The 3300-km-long pipeline, scheduled to be completed and put into use in 2014, extends from the Caspian Sea in Central Asia to Austria through Turkey, Bulgaria, Romania and Hungary, and takes the Middle 7  He Maochun, Zhang Jibing, Analysis of the New SREB as a National Strategy-China’s Historical Opportunities, Potential Challenges and Response Strategies [J], People’s Tribune (Frontiers), 2013,12(I): 9.

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East as a potential area for the source of natural gas. Through the implementation of the “New Silk Road Program”, the EU can strengthen cooperation with Central Asian countries in oil and gas resources to ensure its own energy supply security, and expand all-round cooperation with Central Asia and its surrounding countries to enhance its influence in the region. The United States’ “New Silk Road Strategy”. In 2007, Frederick Starr, an American scholar, put forward the concept of “the New Silk Road” in his book The New Silk Roads: Transport and Trade in Greater Central Asia, proposing to build the economic circle of the “Greater Central Asia” by strengthening the communication links. Based on this idea, Hillary Clinton, then Secretary of State of the United States, put forward the “New Silk Road Strategy” in July 2011, trying to make use of Afghanistan’s geographical advantage of connecting Central Asia and South Asia to form a “New Silk Road” led by the United States with Afghanistan as its center. The United States also actively promoted this strategy to its allies and partners.8 The implementation of the “New Silk Road Strategy” by the United States has several benefits. First, it enables Afghanistan to get involved in regional economic integration and promote its economic development, thus reducing the strategic burden of the United States. Second, it expands the development space and accelerates the economic rise of India, enabling the country to play a greater role at regional and international levels. Finally, it strengthens the economic and trade cooperation between the United States and Central Asian countries, and facilitates the exploitation of the rich oil and gas as well as other mineral resources in Central Asia. It can be seen that the implementation of the “New Silk Road Strategy” of the United States can weaken the influence of China and Russia in Central and South Asia, and help establish a new order led by the United States in the region. Besides, Iran put forward the “Railway Silk Road Plan” in 2011, trying to connect the railway in Iran with that in China through Afghanistan, Tajikistan and Kyrgyzstan. Kazakhstan began to implement the “New Silk Road Project” in 2012, actively improving its transportation infrastructure. To sum up, regional economic ties have been strengthened, and the competition of the Silk Road strategies among major countries has become 8  Zhao Huasheng, An Analysis of The United States’ “New Silk Road Strategy” [J], Journal of Xinjiang Normal University (Philosophy and Social Sciences Edition), 2012(6): 15–23.

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increasingly fierce. Under this backdrop, it is necessary for China, the starting point and main country of the ancient Silk Road, to put forward its own Silk Road Initiative. 1.3  Closer Cooperation Between Asian and European Countries In recent years, with the acceleration of regional economic integration and globalization, China’s economic and trade exchanges as well as regional cooperation with countries along the Silk Road have been continuously strengthened. It is time for Asian and European countries to jointly build the SREB.  After entering the twenty-first century, the Second Eurasian Continental Bridge, a project completed in the 1990s, was under normal operation, and the second transit railway connecting China and Kazakhstan was also open to traffic. The construction of the Silk Road revival project, the China–Kyrgyzstan–Uzbekistan Railway and the Western Europe– Western China Highway has been accelerated. The ancient Silk Road is full of vitality as China’s traffic links with countries along the Silk Road are becoming increasingly close. On June 15, 2001, six countries China, Russia, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan announced the creation of the “Shanghai Cooperation Organization (SCO)”, an organization preceded by the “Shanghai Five” mechanism and committed to strengthening all-round cooperation among its member states. After that, India, Iran, Pakistan, Afghanistan and Mongolia became SCO’s observer states, and Turkey, Sri Lanka and Belarus became its dialogue partners. In addition, the Eurasian Economic Community (EurAsEC), with Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan as its member states and Armenia, Ukraine and Moldova as its observers, was established. Most of the member states, observer states and dialogue partners of the SCO and the EurAsEC are located along the ancient Silk Road. The promotion of regional economic cooperation on the basis of these two organizations can strengthen the economic ties between Asian and European countries, and further expand the development space for these countries. Central Asia is located in a key position connecting China and Europe. Irrespective of geography, history or current cooperation, China and the five Central Asian countries are closely linked, which provides an important guarantee for the building of the SREB. First, in terms of geography, China is connected with Kazakhstan, Kyrgyzstan and Tajikistan by common mountains and rivers, sharing a 3300-km-long border line. The transportation infrastructure in this region

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is improving with each passing day, and the Horgos International Border Cooperation Center, a China–Kazakhstan cross-border economic and trade zone and regional cooperation project, is in operation. This provides the geographical basis for economic cooperation between China and Central Asian countries. Second, in terms of historical ties, China has had close exchanges with Central Asia over the ages as the region was a hub and an important section of the ancient Silk Road. All peoples have jointly created brilliant ancient civilizations in this region, which provides the historical basis for China’s economic cooperation with Central Asian countries. Finally, in terms of current cooperation, China’s implementation of the western development strategy has strengthened all-round ties between western China and Central Asian countries. In recent years, China, taking Central Asia as its diplomatic priority, has been carrying out in-depth cooperation in economic and trade exchanges, energy, transportation construction and the fight against the “three evil forces”, namely, terrorism, separatism and extremism, through bilateral frameworks and the SCO. At present, China has established a comprehensive strategic partnership with Kazakhstan, and a strategic partnership with Uzbekistan, Turkmenistan and Kyrgyzstan. Energy-centered economic and trade exchanges are on the upswing, and China has become the most important trade partner or investment source country of Central Asian countries. This provides the practical basis for the building of the SREB. With rich natural resources, a good economic base and sufficient foreign investment, Central Asia and its surrounding countries have huge potential for economic growth. China and other countries along the Silk Road are carrying out increasingly close cooperation. Against this backdrop, the joint building of the SREB will contribute to the economic and social development of Asian and European countries and promote economic integration in these regions.

2   Definition and Significance The SREB is a new model of regional economic cooperation across Asia and Europe, the goal of which is to build Asian and European countries into a community of mutual benefit and win-win cooperation. In terms of spatial scope, the SREB can be divided into three levels: the core area, the expansion area and the radiation area. Through the joint construction of the SREB, Asian and European countries will be able to form closer

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economic ties, carry out deeper cooperation and enjoy broader development space. 2.1  Connotation of the SREB Initiative The SREB is a belt zone for economic cooperation, which takes the ancient Silk Road as the cultural symbol, the SCO and the EurAsEC as important cooperation platforms, the three-dimensional comprehensive communication network as the link, the city clusters and central cities along the route as the fulcrum, the liberalization of cross-border trade and investment and optimized allocation of production factors as the driving force, the communication of regional development plans and strategies as the basis, and the free currency exchange and people-to-people exchange as the guarantee, so as to bring about mutual benefit and win-win cooperation among all relevant countries and achieve economic integration of Asia and Europe. The SREB Initiative has the following three characteristics: First, the SREB is not only a historical concept but also a realistic one. Ancient China established close trade ties with Central Asia, West Asia, South Asia, Europe, North Africa and other regions through the Silk Road, thereby promoting productivity development and cultural exchanges between China and the West, which provides a historical basis for Asian and European countries to strengthen their cooperation in modern society. With the completion of or progress in such projects as the Second Eurasian Continental Bridge, China–Kazakhstan Transit Railway, Silk Road Revival Project, Western Europe–Western China Highway, China’s economic and trade exchanges with countries along the Silk Road have been continuously strengthened, and political mutual trust has been increasing, which provides a realistic basis for Asian and European countries to jointly build the SREB. It can be seen that the SREB not only has rich historical connotations but also provides an important platform for the current and future all-round cooperation among Asian and European countries. Second, the SREB is not only a regional concept but also a global one. It is regional in that it mainly includes China, Russia and the five Central Asian countries, and its construction area mainly involves countries along the ancient Silk Road, including East Asia, Central Asia, West Asia, South Asia, North Asia and Europe, which makes it an important

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platform with marked regional characteristics for regional economic integration. It is global in that it connects China, Japan, Russia, India, the European Union (EU) and other major economies in the world. With the increasingly close traffic links and the rapid development of the Internet, the SREB can also extend to other regions such as Africa and America. It has a strong capability of radiating across the globe, which makes it a global economic organization and international cooperation platform in the era of economic globalization.9 It can be seen that the SREB, both regional and global, is an important manifestation of regional economic integration as well as economic globalization. Finally, the SREB is not only an economic concept but also a comprehensive one. Economic cooperation is the basis and main content of building the SREB. China has become the most important trade partner or investment source country of Russia and the five Central Asian countries. Asia is the main region of China’s foreign economic activities, while Europe is the largest trade partner of China. Through the joint construction of the SREB, China’s economic cooperation with Asian and European countries still has broader space for development. In addition to strengthening economic cooperation, relevant countries can also carry out cooperation in such fields as infrastructure construction, political mutual trust enhancement, military exchanges, social management, cultural exchanges and environmental protection in the process of building the SREB. It can be seen that the SREB, with a wide range of contents, is not only an economic concept but also a comprehensive one. The radiation of the SREB across Asia and Europe is of great significance to the economic and social development of Asian and European countries. The SREB, in its broad sense, starts from the East Asian economic circle with prosperous economy in the east and extends directly to the European economic circle with a developed economy in the west, with the pan Central Asian economic circle in the middle (see Fig. 1.1). In such a vast geographical range, the communication network plays the role of 9  From the perspective of system theory, there are four levels of economic organizations: enterprises belong to microeconomic organizations, regional economic units within a country belong to mesoeconomic organizations, economic units within a country belong to macroeconomic organizations and international economic units beyond a country belong to global economic organizations.

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Fig. 1.1  Sketch of SREB

connecting the countries along the route, where it is necessary to build not only the “Air Silk Road” focusing on aviation, high-voltage power grid and information transmission, but also the “Land Silk Road” focusing on passenger railway line, freight railway line and high-grade highway, as well as the “Underground Silk Road” focusing on crude oil, natural gas and refined oil pipelines. Through the three-dimensional comprehensive communication network, the SREB links the city clusters and the central cities along the route. Asian and European countries jointly formulate strategic plans for strengthening trade and investment cooperation and promoting free currency exchange and friendly people-to-people exchanges so as to build a great corridor for economic integration covering the longest distance, the largest area and the largest population, as well as the market with the largest scale and the greatest potential for development in the world. 2.2  Spatial Scope The SREB runs across Asia and Europe, and its spatial scope can be divided into three levels: core area, expansion area and radiation area (see Table 1.2 and Fig. 1.2). Specifically, the core area of the SREB consists of the major member states of the SCO and the EurAsEC, including China, Russia and the five Central Asian countries,10 covering an area of 30,699,200 square kilometers, with a population of 1.56 billion and a total GDP of 10.55 trillion US dollars in 2012. The expansion area of the SREB consists of 10  Although Turkmenistan, as a permanent neutral country, has not joined the SCO and the EurAsEC, it has close economic and trade cooperation with neighboring countries.

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Table 1.2  Analysis of SREB economic and geographical characteristics (2012) Level

Country or region

Core area

China Five Central Asian countries Russia Total India Pakistan Iran Afghanistan Mongolia Other EurAsEC countries Total EU West Asia Japan and South Korea Total

Expansion area

Radiation area

Total of core area and expansion area Total of SREB

Land area (10,000 km2)

Population (100 million)

GDP (trillion US dollars)

959.81 400.29

13.51 0.65

8.23 0.30

1709.82 3069.92 328.73 79.61 174.52 65.21 156.65 87.48

1.44 15.60 12.37 1.79 0.76 0.30 0.03 0.62

2.02 10.55 1.84 0.23 0.51 0.02 0.01 0.26

892.20 432.48 465.06 47.72

15.87 5.09 2.38 1.77

2.87 16.69 3.04 7.09

945.26

9.24

26.82

3962.12

31.47

13.42

4907.38

40.71

40.24

Source: population and GDP data are taken from the World Bank Database; land area data are taken from the attached table of the World Bank’s World Development Report 2009: Reshaping Economic Geography (Tsinghua University Press, 2009: 332–334) Note: The five Central Asian countries are Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan; the other EurAsEC countries are Belarus, Armenia, Ukraine and Moldova; the European Union includes 28 European countries; West Asia includes Saudi Arabia, Turkey, Israel, Palestine, Iraq, Syria, UAE, Qatar, Bahrain, Kuwait, Yemen, Oman, Lebanon, Jordan, Cyprus, Georgia and Azerbaijan

other member states of the SCO and the EurAsEC as well as their observer states, including nine countries India, Pakistan, Iran, Afghanistan, Mongolia, Belarus, Armenia, Ukraine and Moldova, covering an area of 8,922,000 square kilometers with a population of 1.587 billion and a total GDP of 2.87 trillion US dollars in 2012. The radiation area of the SREB includes countries and regions in West Asia and the European Union (EU), and radiates to such East Asian countries as Japan and South Korea,

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Fig. 1.2  Spatial scope of the SREB

covering an area of 9,452,600 square kilometers with a population of 924 million and a total GDP of 26.82 trillion US dollars in 2012. We believe that the SREB can be defined according to the cooperation basis and geopolitics in its broad sense as well as in its narrow sense (see Fig. 1.2). The SREB in its narrow sense includes the core area and expansion area, which is the main body and focus of building the SREB. All the countries involved are the member states (or observer states) of the SCO and the EurAsEC.  The construction of the SREB can be smoothly advanced with the joint efforts of the relevant countries and strengthened cooperation between these two organizations. The SREB in its narrow sense covers an area of 39,621,200 square kilometers, with a total population of 3.147 billion and a total GDP of 13.42 trillion US dollars in 2012. There is a huge market scale and development potential in the region as the economy of all the countries involved, mostly developing countries, are highly complementary. The SREB in its broad sense, which is also the development goal and ideal state of the initiative, includes the core area, the expansion area and the radiation area. In 2012, the SREB in its broad sense covers an area of 49,073,800 square kilometers, accounting for 32.94% of the world’s land area, with a total population of 4.071 billion, accounting for 57.42% of the world’s total population, and a total GDP of 40.24 trillion US dollars, accounting for 55.55% of the world’s total GDP. It can be seen that the SREB in its broad sense has an unparalleled market scale and development space. Its successful construction will help realize the economic integration of Asia and Europe, and promote the prosperity and development of the whole world.

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3   Theoretical and Practical Basis 3.1  Theoretical Basis Global economic exchanges have been developing with the emergence of the concept of state. With the continuous improvement in productivity level, the international division of labor is increasingly refined and deepened, the content of international economic exchanges is constantly enriched, the scope of international economic exchanges is constantly expanded and the intergovernmental coordination is constantly strengthened. Human society has experienced three stages of international economic exchanges: economic internationalization, regional economic integration and economic globalization as well as global economic integration.11 This historical law of international economic development is independent of man’s will. Correspondingly, there are three levels of international economic exchanges during these three stages: primary level, intermediate level and advanced level. At different levels, international economic exchanges will be significantly different in terms of the main platforms, contents, degree of organization and influence on the world (see Table 1.3). 3.1.1 Primary Level With the development of human productivity at a low level, the social and international division of labor was correspondingly at a low level. The traditional international trade in goods developed on the basis of a simple 11  In this paragraph, economic internationalization refers to the status quo and historical process in which commodities and factors of production break through the barriers of national boundaries for flow and allocation among countries. During this stage, economic exchanges among countries are increasingly close with a tendency of global flow and allocation of commodities and factors of production. Economic integration means that two or more countries or regions with a certain geographical relationship form an economic system and market featuring cooperation and mutual support through signing a certain treaty or agreement and drawing up a common code of action and coordinated policies. Economic globalization refers to the status quo and historical process featuring the global flow and allocation of production factors, the increasing integration of productivity and production relations, and the tendency to be connected as a whole. Global economic integration refers to the status quo and historical process in which the free flow and allocation of production factors across the globe are realized, human economic activities and production relations have truly become a whole under the guarantee of relevant systems, and the world economy develops smoothly in a harmonious, orderly, fair and efficient market environment coordinated by a supranational organization.

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Table 1.3  Levels of international economic exchanges Level

Primary level

Intermediate level

Advanced level

Major platforms

International trade in goods

Regional economic integration and economic globalization International trade (trade in goods and services), international investment, international economic cooperation

Global economic integration

Main contents

Traditional trade of goods based on the resource endowments of different countries Organization Low degree of level organization and lack of institutional cooperation mechanism

International influence

High degree of organization, vigorous development of regional organizations, high degree of economic integration of various countries and full involvement of major countries Limited scope Large scope of influence, and low degree of great influence and high influence degree of trade and investment liberalization and facilitation

All-round economic exchanges and cooperation covering international trade, international investment and the flow of production factors High degree of organization interaction among countries under the unified global organization, and sound institutional cooperation mechanism, basically covering all countries and economies in the world It has a great impact on the overall economic development of the world. Trade and investment have been liberalized and facilitated globally

barter system had relatively low requirements for division of labor, so it has become the initial form of international economic exchanges. At this level, countries carried out specific trade activities corresponding to their own resource endowments and the level of labor productivity. Generally speaking, the proportion of international trade in the world economy was not high and there were no or limited cross-border production and business activities. There was a lack of institutional economic communication mechanisms among countries, with only a few national institutions and international economic cooperation organizations coordinating international economic exchange activities; there was only a limited scope and a relatively low degree of influence on the world economic development. Simple but sporadic international trade appeared in the slave society when surplus products increased and cross-border exchange of goods

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emerged. After entering the feudal society, international trade represented by the trade along the Silk Road saw some development and even flourished in some regions, but it was still far from forming a global market. After the Great Geographical Discovery from the end of the fifteenth century to the beginning of the sixteenth century, with the great development of capitalism in western countries, the scale and field of international trade were constantly expanding, the economies of all countries became organically linked in the world through international trade platforms, and a global market began to take shape. With the great development of western capitalism, international investment activities as a result of international trade began to emerge and developed to a certain extent at the end of the eighteenth century. However, the outbreak of the two world wars brought international investment activities to a standstill or even retrogression, and there was a lack of organizations and institutions to coordinate economic exchanges among countries. The academic circle has reached the following consensus: before the Second World War, commodity trade was the main form of international economic exchange in the traditional pattern of international division of labor. Therefore, we believe that from the emergence of international trade to the Second World War, international economic exchanges were at the primary level with traditional international trade in goods as the main form of economic exchange. 3.1.2

I ntermediate Level: Taking Regional Economic Integration and Economic Globalization as the Main Platform With the continuous improvement in human productivity, the level of social and international division of labor also witnessed constant improvement. As a result, the cross-border flow and allocation of production factors became frequent, and such international exchange activities as international investment became more important than international trade, although international trade was also developing at a far higher speed than before. The deepening of international division of labor put higher requirements for international economic coordination, which not only promoted the rapid development of regional economic integration led by governments but also promoted the rapid development of economic globalization. Regional economic integration and economic globalization cooperation have become the main forms of promoting the world economic development. Correspondingly, these two forms replaced

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traditional international trade in goods and became the main platform for international economic exchanges at the intermediate level. At this level, international investment, international trade (including service trade) and related international economic cooperation activities were frequent and dynamic. Accordingly, the international organizations for regional economic cooperation and the world trade organizations were flourishing, which made international economic exchanges more organized. Major countries in the world got fully involved in international economic exchanges that exerted a greater impact on the development of the world economy. As a result, there was a higher degree of liberalization and facilitation of international trade and investment activities. After the Second World War, the regional economic integration cooperation represented by the European Union developed vigorously across the globe, and the world entered the era of regional economic integration thereafter. In the early 1990s, the end of the Cold War between China and the West marked that the world economy entered the era of economic globalization. Against this backdrop, human productivity achieved leapfrog development, the degree of international division of labor was constantly improving and international economic exchanges were far greater than before in both breadth and depth; as a result, international economic cooperation became increasingly important. International economic cooperation advocates that governments of different sovereign states, international economic organizations as well as natural and legal persons transcending national boundaries should carry out long-term economic cooperation activities for their common interests in the field of production with the flow and reallocation of production factors as the main content. The current international economic exchanges are carried out in an era when regional economic integration coexists with economic globalization. According to the current development trend, we believe that international economic exchanges at the intermediate level still need to develop for about 50 years. That is to say, from the end of the Second World War to around 2065, human beings have been carrying out and will carry out international economic exchanges at the intermediate level. 3.1.3

 dvanced Level: Taking Cooperation in Global Economic A Integration as the Main Platform With the high development in human productivity, the degree of regional economic integration and economic globalization will continue to improve. Theoretically, economic globalization and regional economic

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integration started at the same point, namely, economic internationalization, and will arrive at the same destination, namely, global economic integration. At present, economic globalization and regional economic integration are in a state of parallel development. The logic here is that with the continuous development of economic globalization, the world economy will be more closely linked and the factors that hinder economic integration will be eliminated under the role of the market and the efforts of the government, which will eventually lead to global economic integration; with the continuous development of regional economic integration, regional economic organizations will continue to expand with an increasing number of member states. Different regional economic organizations will be merged into regional economic organizations covering a wider range and eventually become a global integration organization, which will lead to global economic integration. Correspondingly, cooperation in global economic integration will replace that in regional economic integration and economic globalization to become the main platform of international economic exchanges at the advanced level, which is also the ultimate level of international economic exchanges. At this level, international economic exchanges are highly frequent, and all countries in the world (excluding a few small economic countries and regions) will participate in a wide range of highly organized economic exchanges with great influence. Specifically, global economic integration will exert a significant impact on the overall development of the world economy; trade and investment activities will achieve a high degree of liberalization and facilitation globally; international economic exchanges will be carried out in a simplified, coordinated, transparent and predictable environment jointly created by the global organizations for unity and coordination among all countries in the world. Judging from the current development trend, we can see that after 2065, human beings will carry out international economic exchanges at the advanced level. According to the above theoretical analysis of the three levels of international economic exchanges, it can be seen that the current international economic exchanges are at the intermediate level, and promotion of regional economic integration is an important theme of the times for countries in the world today. Therefore, there is sufficient theoretical basis for vigorously promoting the construction of the SREB.

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3.2  Practical Basis The five Central Asian countries (Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan) are important along the ancient Silk Road, and they occupy an important geographical position with rich energy and mineral resources. Undoubtedly, the key for China to build the SREB is to strengthen economic cooperation with these countries. Central Asia and Western China are located between the prosperous European economic circle and the Asia-Pacific economic circle, forming the “economic depression belt” relatively lagging behind in economic development. For them, the construction of the SREB is not only of urgent practical significance but also has a good foundation for development. 3.2.1 Having a Certain Foundation for Organizational Cooperation In June 2001, China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan jointly created the SCO, whose main goals are as follows: strengthening mutual trust and neighborliness among the member states; promoting their effective cooperation in politics, trade, economy, research, technology and culture, as well as in education, energy, transport, tourism, environmental protection and other areas; making joint efforts to maintain and ensure peace, security and stability in the region; and moving toward the establishment of a democratic, fair and rational new international political and economic order. This coincides with the goals of building the SREB.  Although SCO is not an organization with economic cooperation as its main goal, it still plays an effective role in promoting economic cooperation among its member states. It emphasizes the common interests and security demands of the core area of the Silk Road, promotes the growing consensus and mechanism of cooperation among its member states, and helps consolidate and expand the foundation for cooperation in the Silk Road. The operation of EurAsEC also helps to consolidate the foundation for the construction of the SREB.  Through the tariff coordination mechanism of the countries in the united region under Russian CIS policy, EurAsEC improves the organization of economic cooperation among Russia, Belarus and Central Asia. In addition, after more than 20 years of construction, China, Russia and the five Central Asian countries have all become important strategic partners, and good political and cultural exchanges among the countries along the route will facilitate the construction of the SREB.

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3.2.2 Having a Certain Basis for Industrial Cooperation With a low-level economic development, the regions of Central Asia and Northwest China lag far behind the developed economies in Europe and East Asia in terms of per-capita GDP, but these regions have great potential for economic growth because they are blessed with the world’s most abundant mineral, energy, land and human resources, as well as precious tourism resources of historical relics and sites, magnificent natural scenery and multiple cultures. Since 2004, the economic growth rate of the five Central Asian countries and China has remained above 5% on average, and the degree of economic dependence among the countries has been increasing. China and Russia, as countries with vast territories and great influence on the world economic and political patterns, have been maintaining a healthy and stable strategic partnership of cooperation since the disintegration of the Soviet Union in 1991. The bilateral trade volume between China and Russia has been increasing in recent years, and mutual investment has shown a good momentum of development. At present, China is Russia’s largest trading partner, while Russia is one of China’s major trading partners. Since China and the five Central Asian countries established diplomatic relations from early 1992, economic and trade cooperation has been developing rapidly, and bilateral trade has been expanding year by year. China has become the largest trade partner of Kazakhstan and Turkmenistan, the second largest of Uzbekistan and Kyrgyzstan, and the third largest of Tajikistan. With the development of the SCO, China and Central Asia have been carrying out extensive cooperation in such fields as energy and transportation. Chinese enterprises directly invest in the five Central Asian countries mainly in the industries of mining, construction, manufacturing, wholesale and retail, finance and air transport.12 It can be predicted that, on the basis of current industrial cooperation, China’s economic exchanges with Russia and the five Central Asian countries will lead to the improvement of the quality of economic cooperation and expansion of cooperation fields, which will play a positive role in the construction of the SREB.

12   Feng Zongxian, Strategic Artery for China’s Extension to Eurasia: A Detailed Interpretation of Areas, Routes and Functions of the SREB [J], People’s Tribune (Frontiers), 2014, 2 (II): 79–85.

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3.2.3 Having a Certain Basis for Infrastructure Construction In recent years, under the guidance of such international plans as the Silk Road Revival Plan of the United Nations, countries along the route have been increasing investment in infrastructure construction. Compared with the backward infrastructure in the past, the conditions of Eurasian passage in terms of infrastructure such as roads, railways, ports and customs entry have been or will be greatly improved. At present, great progress has been made in the construction of comprehensive transportation infrastructure along the new Eurasian Continental Bridge. As far as China is involved, with the completion of such arterial highways as Lianyungang–Horgos Highway and the steady progress in such railway projects as Jinghe– Yining–Horgos Railway, a Central Asian transportation network with coordinated points and lines providing smooth traffic has been basically formed. China and Central Asian countries are highly complementary in the field of communication cooperation. China boasts advanced communication equipment and technology in the world, while Central Asian countries are comprehensively promoting the privatization and modernization of the telecommunications industry in the process of economic transformation. The successful cooperation between China and Central Asian countries in the field of communication and information services will further promote economic and trade exchanges as well as economic development. China and Central Asian countries have also made significant progress in the cooperation of oil and gas pipeline construction projects. It can be said that the infrastructure of the transportation corridor connecting China and Central Asia, with railways as the main body, including highway, aviation, pipeline, communication and port facilities, has begun to take shape.13 With the improvement of the infrastructure, the Eurasian Continental Bridge running through Central Asia will continue to show its advantages of lower costs, shorter journey time and lower risk compared with Eurasian marine transportation, and will help promote the economic and social development of the regions covered by the SREB.

13  Yang Shu, Wang Shusen, SREB: Strategic Ideas and Challenges [J], Journal of Lanzhou University (Social Science Edition), 2014(1): 23–30.

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4   Key Tasks and Support System The construction of the SREB is a complex and systematic project, involving such fields as economy, society, politics, culture and ecological environment. From the economic perspective, the construction of the SREB is an important measure to promote China’s economic development and expand opening up, the goal of which is to form a new pattern of regional economic integration through deepened regional cooperation on a wider range and at a higher level. 4.1  Key Tasks In order to form a new pattern of regional economic integration in the SREB, it is necessary to construct the strategic fulcrum and spatial carrier for regional economic cooperation through the construction of central cities, and it is also necessary to construct the industrial carrier for coordinated development of regional economy in the SREB through promoting industrial division of labor and cooperation. The construction of central cities and the promotion of industrial division of labor and cooperation call for orderly and free flow of commodities and production factors, efficient allocation of resources and deep integration of markets on the basis of facilitated regional trade and investment. Therefore, we regard the construction of central cities, the promotion of industrial division of labor and cooperation, and trade and investment facilitation as the key tasks of the construction of the SREB. 4.1.1 Construction of Central Cities Central cities are the important fulcrum and space carrier of the construction of the SREB. By strengthening the construction of the central cities along the route and improving the division of labor and cooperation among central cities, we can provide strong support for the smooth implementation of the SREB Initiative. In recent years, major cities in western China such as Chongqing, Xi’an, Chengdu, Lanzhou, Urumqi, Xining and Yinchuan have witnessed rapid development. The Guanzhong City Cluster with Xi’an as its center and the Chengdu–Chongqing City Cluster with Chengdu and Chongqing as its center have begun to take shape, and they have played a positive role in promoting the economic and social development of western China. However, at the same time, there is a lack of reasonable division of labor among the western central cities and

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between the two city clusters. The radiation effect of regional central cities on the surrounding small- and medium-sized cities is far from notable, and a new type of urban-rural relationship in which industry promotes agriculture, urban areas support rural development, agriculture and industry benefit each other, and urban and rural areas integrate with each other in development has not yet been established, which is not conducive to the healthy urbanization in western China and is ineffective in supporting the promotion of economic integration in the regions along the route.14 In the process of building the SREB, we must first make great efforts to strengthen the construction of central cities in the domestic sections of the SREB. Specifically, we should build cities like Chongqing, Xi’an, Chengdu, Urumqi and Lanzhou in western China into international metropolises facing countries along the route, accelerate the formation of Guanzhong City Cluster with Xi’an as its center, Chengdu–Chongqing City Cluster with Chengdu and Chongqing as its center, Lanzhou–Xining City Cluster with Lanzhou and Xining as its center, the City Cluster to the Northern Slope of the Tianshan Mountains with Urumqi as its center, and Yinchuan Plain City Cluster with Yinchuan as its center. At the same time, we should actively promote the development of small- and medium-sized cities and towns, and strengthen the spatial and economic connections between urban and rural areas. With the gradual improvement in the development capacity of big cities, the radiation role of big cities to surrounding smalland medium-sized cities, small towns and vast rural areas will continue to increase, and reasonable division of labor will be gradually realized among central cities, and within or among city clusters, so as to comprehensively improve the urbanization level in western China. In addition to strengthening the construction of central cities in the domestic sections of the SREB, we should further strengthen the division of labor and cooperation between China’s central cities and those in Central Asia and surrounding countries. In particular, we should build the development axis of the SREB and give full play to the role of the central cities along the route in economic growth by strengthening the division of labor and cooperation among such regional central cities as Xi’an, Lanzhou, Urumqi, Almaty (the largest city in Kazakhstan), Tashkent (the capital of Uzbekistan) and Ashgabat (the capital of Turkmenistan), so as

14  Wang Songji, Bai Yongxiu, Construction of the SREB and Development and Upgrading of Urbanization in Western China [J], Ningxia Social Sciences, 2015(1): 51–59.

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to gradually realize the great cooperation, development and prosperity, and promote economic integration in the region. 4.1.2 Industrial Division of Labor and Cooperation Industry is the carrier of the construction of the SREB. The main areas of the SREB have good cooperation foundation, broad market space and complementary industrial systems, which create favorable conditions for relevant countries along the route to strengthen industrial division of labor and cooperation and build a regional value chain. Taking industry as an example, China’s industrial economy has been maintaining a sustained and rapid growth since the reform and opening up, and has become a powerful engine to promote economic and social development. After more than 30 years of development, China’s industrial output value ranks first in the world, and China has become a veritable industrial power with the output of major industrial products ranking top in the world. However, from the position of various industries in the global value chain (GVC) and their level of international competitiveness, China is still in the second half of the middle stage of industrialization and is still faced with the arduous task of industrial structure transformation and upgrading. At present, China’s economy has entered the “new normal” of medium and highspeed growth. To promote the transformation and upgrading of industrial structure under the “new normal”, we must combine “large-scale going global” with “high-level bringing in”, and comprehensively promote international production capacity cooperation through the construction of the SREB. As an important part of the SREB, Central Asia and its surrounding countries are still in the primary stage in terms of industrialization, and their industrial systems are highly complementary to that of China. Besides, they boast rich energy resources and broad market space, and have a strong desire to take a ride on the express train of China’s development so as to promote their own economic development. By strengthening industrial capacity cooperation with the countries along the route and exporting advantageous capacity to them, China will be able to combine industrial and capital advantages with the market demand of relevant countries, which not only contributes to China’s industrial transformation and upgrading but can also speed up the industrialization of relevant countries and eventually improve the economic integration in the region. Judging by the status quo and development trend of the industry in relevant countries along the route, we believe that we should actively build the industrial value chain of the SREB with the eastern coastal areas of

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China as the “leading area”, the central and western regions of China as the “hub”, and Central Asia and its surrounding countries as an important part, so as to achieve coordinated development among all economies in the region through division of labor and cooperation.15 The specific design is as follows: The eastern coastal areas of China should transfer labor-intensive production processes, actively develop technology and knowledge-intensive production processes and play a leading role in the industrial value chain of the SREB. The central and western regions of China should strive to be the “hub” of the industrial value chain of the SREB by transferring surplus production capacity in energy, chemical industry, steel, textile and other industries, and by actively undertaking the labor-intensive production processes transferred from the eastern coastal areas of China, as well as the technology, knowledge and capital-intensive production processes transferred from other countries across the globe. Central Asia and its surrounding countries, with a relatively weak industrial base, should undertake some labor-intensive production processes transferred from China and vigorously develop industries such as exploitation and primary processing of resources, energy chemical industry, as well as textile industry, so as to give full play to the comparative advantages of rich natural resources, especially oil and gas resources, and improve industrial economic development. With the formation and expansion of the industrial value chain of the SREB, industrial cooperation among relevant countries will become increasingly close and gradually build a community of common interests with a shared future for mankind. 4.1.3 Trade and Investment Facilitation Trade and investment cooperation is the key content of the construction of the SREB, and it is also an important condition for the construction of central cities along the route and the promotion of industrial division of labor and cooperation among them. According to relevant studies, trade and investment facilitation is a process of transformation from a closed 15  Bai Yongxiu, Wang Songji, Research on Coordinated Development of Industrial Economy in Core Area of the SREB from the Perspective of Value Chain Division[J], Journal of Northwest University (Philosophy and Social Sciences Edition), 2015(3): 41–49.

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economy to an open economy, which is an inevitable requirement of economic globalization and regional economic integration in the field of trade and investment.16 Achieving trade and investment facilitation through cooperation will help to eliminate the investment and trade barriers of relevant countries along the route, build a favorable business environment within the SREB, deepen trade and investment cooperation between China and other major countries along the route and improve the level of regional economic integration. In recent years, China’s trade and investment cooperation with other major countries along the route has been continuously strengthened, and China has become the most important trade partner or investment source country for many countries. It can be seen from Fig. 1.3 that since 2005, China’s investment in Russia and the five Central Asian countries has been on the rise, and the stock of investment has increased from $790,840,000 in 2005 to $16,474,580,000  in 2013, an increase of about 20 times. However, affected by such factors as the level of economic development, social systems as well as laws and regulations, there are still many trade and

Fig. 1.3  China’s investment stock in Russia and five Central Asian countries in 2005–2013. (Source: China Foreign Direct Investment Statistical Bulletin 2013, China Statistics Press, 2014: 46–50) 16  Guo Fei, Li Zhuo, Wang Fei, et al. Research on Interaction between Trade Liberalization and Investment Liberalization[M], People’s Publishing House, 2006: 3.

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investment barriers in relevant countries along the route, which is not conducive to the improvement of the economic and trade cooperation among relevant countries. We believe that measures should be taken in the following three aspects so as to promote trade and investment facilitation in the region: first, coordinate trade and investment regulations and policies of relevant countries along the route, and establish systems and regulations that are in the common interests of relevant countries and contribute to trade and investment facilitation; second, establish institutions to coordinate trade and investment disputes and deal with the interest disputes in the field of trade and investment among relevant countries along the route; finally, establish a control mechanism to deal with trade and investment risks so as to timely inform relevant countries along the route of the possible trade and investment risks, and improve their ability to deal with these risks. 4.2  Support System In the process of promoting the key construction tasks of the SREB and realizing regional economic integration, we are faced with various risks and challenges, so we must build an effective support system. Specifically, only by strengthening infrastructure connectivity can countries along the route provide effective facilities support; only by coordinating development strategies can we move toward the goal of regional economic integration; only by establishing effective cooperation mechanisms can we jointly provide platforms for relevant countries to carry out cooperation projects; only by identifying and preventing possible risks in the process of regional cooperation can we promote regional economic integration in a smooth and orderly way. To this end, we should build a support system for the implementation of the SREB regional economic integration initiative from four aspects: infrastructure connectivity construction, development strategy coordination, cooperation mechanism construction and risk identification and prevention. 4.2.1 Infrastructure Connectivity Construction Sound infrastructure is conducive to the optimal allocation of production factors among regions and the improvement of market efficiency, which is of great significance to economic growth, social progress and regional coordinated development. The SREB starts from the active East Asian economic circle in the East and extends all the way to the developed

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European economic circle in the West. In the middle is the pan Central Asian economic circle with Central Asia as its center where there is huge potential for development. In such a vast area, infrastructure network plays the role of connecting countries along the route. Infrastructure connectivity is conducive to promoting the economic development of central and western China and the pan Central Asia economic circle, and achieving common development of the economic depression areas of the SREB, which will contribute to the economic growth of the countries along the route and even that of the world. The Global Competitiveness Report 2014–2015 issued by the World Economic Forum shows that in terms of infrastructure support, Russia ranks 71st in the world, Kazakhstan 62nd, Kyrgyzstan 96th, Tajikistan 107th, and China and Uzbekistan are also in the middle, which shows that the infrastructure construction of the major countries along the route fails to meet the needs of their economic and social development. Therefore, we must step up the work on the construction of infrastructure connectivity through the building of the SREB. In this process, we should build the “Air Silk Road” focusing on aviation, high-voltage power grid and information transmission; the “Ground Silk Road” focusing on passenger railways, freight railways and high-grade highways; and the “Underground Silk Road” focusing on crude oil, natural gas and oil product pipelines. Through the three-dimensional comprehensive infrastructure network, the SREB can connect the city clusters and the central cities along the route, and build a regional economic integration corridor with the longest distance, the biggest area, the largest population, the widest market scale and the greatest development potential in the world. 4.2.2 Coordinated Development Strategies It is stated in the Vision and Actions on Jointly Building SREB and 21st Century Maritime Silk Road that “The Belt and Road Initiative is a systematic project, which should be jointly built through consultation to meet the interests of all, and efforts should be made to integrate the development strategies of the countries along the route”. We believe that the overall planning of the development strategies of the SREB involves the following three levels: first, the coordinated planning between the “SREB” and the “21st Century Maritime Silk Road”; second, the coordinated consideration of the development strategies of different countries and regions along the route; finally, the coordinated docking of development strategies of relevant provinces in the construction of the domestic sections of

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the economic belt. Among the above three levels, the second level is the most important. The integration of the SREB Initiative with Russia-led Eurasian Economic Union strategy and Kazakhstan’s Bright Road strategy has entered the operational stage. We believe that the integration of the above-­ mentioned development strategies can provide a model for the integration of strategies among relevant countries along the route. We should coordinate the SREB Initiative with the construction strategy of Russia-led Eurasian Economic Union, a cooperative organization established by Russia, Kazakhstan, Belarus, Tajikistan and Kyrgyzstan to strengthen economic and political cooperation among them and promote economic integration in the region. Strengthening the integration of the SREB Initiative and Russia-led Eurasian Economic Union strategy will help deepen the comprehensive strategic partnership of cooperation between China and Russia, promote the economic and social development of the countries related to the SREB and the Eurasian Economic Union, and accelerate the process of regional economic integration. In addition, we should coordinate the integration of the SREB Initiative with Kazakhstan’s Bright Road strategy. Kazakhstan is located at the junction of Eurasia. In order to give full play to its geographical advantages, Kazakh President Nazarbayev proposed the Bright Road strategy for economic development in his State of the Union Address in 2014, trying to build a transport hub in Eurasia by strengthening the infrastructure construction in such fields as domestic logistics, transportation and communication so as to develop transit logistics industry and promote the economic development of the country. The SREB Initiative is highly consistent with the Bright Road strategy. Strengthening the integration between them will help deepen and expand economic and trade cooperation between China and Kazakhstan, and achieve common development and prosperity. China should also integrate with other major countries along the route in terms of economic development strategies so as to ensure the orderly promotion of regional economic cooperation in the region. 4.2.3 Construction of Cooperation Mechanism There are many countries along the route with obvious differences in history, culture, religion and social system. To deepen economic and trade cooperation among these countries, we must make full use of the existing bilateral and multilateral cooperation mechanisms to coordinate and promote the smooth implementation of the SREB cooperation projects.

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Firstly, build effective bilateral cooperation mechanisms. At present, China has established an all-weather strategic partnership with Pakistan, a comprehensive strategic partnership with Russia and Kazakhstan, and a strategic partnership with Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan. The existing close bilateral cooperation relationship will help coordinate and promote the implementation of the SREB cooperation projects. For example, China and Pakistan have reached broad consensuses on jointly building the SREB and have proposed to build the China– Pakistan Economic Corridor (CPEC) into a flagship project of the SREB, which will provide an example for the construction of bilateral cooperation mechanisms of the SREB. Second, improve multilateral cooperation mechanisms. Founded on June 15, 2001, the SCO aims to strengthen all-round cooperation among its member states. By the end of 2013, it has six member states, five observer states and three dialogue partners, all of which are major countries participating in the construction of the SREB and have established good cooperative relations through the SCO framework. By giving further play to the role of the SCO, we can accelerate the construction of the SREB. In addition, we can make use of the existing multilateral cooperation mechanisms such as the China–Arab Cooperation Forum (CACF) and the Central Asia Regional Economic Cooperation (CAREC) Program, and explore the construction of new multilateral cooperation mechanisms, so as to jointly promote the regional economic integration of the SREB. Finally, build platforms for international cooperation. In the process of building the SREB, we can make use of platforms such as the Euro-Asia Economic Forum, China International Fair for Investment and Trade, China–Arab States Expo, Western China International Fair and China– Russia Expo to carry out extensive trade and investment exchange activities, and join hands to establish the International Summit of the SREB to explore the establishment of other new international cooperation platforms so as to give full play to the positive role of international cooperation platforms in the construction of the SREB. 4.2.4 Risk Identification and Prevention The SREB involves dozens of countries from the three continents of Asia, Europe and Africa and is faced with a complex and unstable international environment. Therefore, it is necessary to identify the economic, political and social risks that may be induced in the process of regional economic integration of the SREB, and formulate an effective early warning

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mechanism and response plan.17 Among them, the economic risk in the construction of the SREB mainly refers to the vulnerability of a country’s economic operation and the possibility of economic crisis; the political risk is mainly the reflection of the stability and corruption of a country’s political power as well as the effectiveness of government management; the social risk mainly reflects a country’s social conflicts, the level of legal integrity as well as ethnic and religious conflicts. To ensure the smooth implementation of the construction of the SREB, we must establish a risk assessment mechanism to evaluate all kinds of possible risks prior to their occurrence, an early warning mechanism to give early warning to the emerging risks and a response mechanism to control the risks after their occurrence, so as to effectively reduce the losses caused by the risks. The identification and prevention of all kinds of risks in the construction of the SREB will contribute to the smooth progress of regional economic integration.

5   Construction Steps The construction of the SREB, as a large and systematic project covering a wide range of regions, calls for steady and long-term promotion to achieve its desired goals. According to Yang Shu, the construction of the SREB requires at least a 30-year strategic plan to expand by stages and sections. Generally speaking, during the first ten years, focus should be placed on domestic development, steadily promoting the strategy of western development and doing a good job in the construction of Northwest China, especially in Xinjiang Uygur Autonomous Region; meanwhile, communication with foreign countries should be carried out to build a consensus of co-construction; during the second 10 years, economic and trade cooperation with Central Asian countries should be further promoted, and the infrastructure construction in the region should be further improved; during the third 10 years, the connection among China, Central Asia and Europe should be jointly promoted to form the economic growth belt across the Eurasian continent in its true sense.18

17  Dong Suocheng, Huang Yongbin, Li Zehong, Economic Development Pattern and Regional Economic Integration Mode of SREB [J], Resources Science, 2014(12): 2451–2457. 18  Yang Shu, Wang Shusen, SREB: Strategic Ideas and Challenges [J], Journal of Lanzhou University (Social Science Edition), 2014(1): 23–30.

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We believe that from the long-term goal of building an important cooperation platform for global economic integration, it will take us about 50 years to realize the three-phase objectives of achieving China–Central Asia–Russia economic integration, building a basic framework for Eurasian economic integration and forming strategic platforms for global economic integration. It can be divided into three stages, namely, the initial stage, the expansion stage and the improvement stage. 5.1  Initial Stage: China–Central Asia–Russia Economic Integration (2015–2025) Central Asia is the key region for cooperation of the SREB. At the same time, China, the five Central Asian countries and Russia have formed close economic ties laying down a solid foundation for cooperation. Therefore, the realization of China–Central Asia–Russia economic integration should be the initial stage of the construction of the SREB. This stage is also the most important one to consolidate the foundation so as to ensure the healthy development of the SREB, which can be planned to last for 10 years. At this stage under the overall framework of China–Central Asia–Russia economic integration, China–Central Asia, Russia–Central Asia and China–Russia economic integration should be promoted simultaneously. Deepening the strategic mutual trust and cooperation between China and Russia is of the greatest importance to achieving the goal of this stage. One of the tasks should be to resolve the contradictions between China– Central Asian countries integration and Russia–Central Asian countries integration, and strive for the cooperation and development of the two mechanisms, rather than mutual exclusion.19 Therefore, it is an important task to strengthen the SCO and the Russia-led EurAsEC’s function of economic coordination. China should strengthen policy communication with Russia and Central Asian countries to create a good policy environment for the construction of “the five connectivities”; continue to improve the conditions of railway and road traffic; improve the infrastructure of air routes, energy pipelines and information networks in the region; and open up the sea transportation channel from the Pacific Ocean to the Baltic Sea so as to form an 19  Wang Haiyun, Build the SREB and Promote Common Development of All Countries in the Region [J], Academic Journal of Russian Studies, 2014(1): 5–10.

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efficient and convenient interconnection network; strengthen trade and investment activities in energy, industrial manufacturing, construction, high-tech and tourism industries so as to constantly improve the degree of liberalization and facilitation of trade and investment; strengthen cooperation in local currency settlement to reduce dependence on US dollar settlement so as to enhance the international competitiveness of the region’s economy and its ability to withstand financial risks as a whole; further strengthen people-to-people friendly exchanges, and enhance mutual understanding and traditional friendship so as to lay a solid foundation of public and social support for China–Central Asia–Russia economic integration and cooperation. At the same time, China should continue to vigorously promote its western development strategy, especially the construction of “Xi’an- Lanzhou-Urumqi” Industrial Belt20 and the Yellow River Basin Economic Belt,21 so as to form the support system for development of the sections of the SREB in China. 5.2  Expansion Stage: Basic Framework of Eurasian Economic Integration (2025–2045) The realization of China–Central Asia–Russia economic integration will lay a good foundation and create favorable conditions for the economic integration between East Asia and West Asia, South Asia and EU. From now on, the construction of the SREB will enter the expansion stage, with the goal of achieving Eurasian economic integration. This stage is an important link between the past and the future to realize the vision of the SREB, which can be planned to last for 20 years. At this stage, the SREB will expand eastward to South Korea and Japan, westward to some Western Asian countries located in the border areas of 20  The Xi’an-Lanzhou-Urumqi Industrial Belt is a belt economic corridor that takes Xi’an, Lanzhou and Urumqi as three major nodes to join northwestern China with southwestern China, radiates to central and northern China and connects eastern China and western China. 21  The Yellow River Basin Economic Belt is designed to take the Yellow River and Longhai (Lanzhou–Lianyungang) Railway and Lanxin (Lanzhou–Xinjiang) Railway as the link to develop advantageous energy resources in the middle and upper reaches of the Yellow River, and develop energy deep processing industry; to develop modern agriculture relying on the Central Plains Economic Zone in the middle and lower reaches of the Yellow River to build a national grain production base; to develop modern logistics industry, and build a national comprehensive transportation hub; to develop an efficient Eco-Economic Zone relying on the Bohai Economic Circle in the Yellow River Delta so as to promote regional sustainable development.

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Asia, Africa and Europe such as Afghanistan, Iran, Turkey and Saudi Arabia as well as European Union countries and southward to ASEAN countries and South Asian countries like India and Pakistan. Most of the economic barriers of Eurasian economic exchanges will be removed and the basic framework of Eurasian Economic Integration will be established. At this stage China should continue to strengthen economic cooperation with Japan, South Korea and ASEAN countries on the basis of existing East Asian economic cooperation so as to improve the overall level of economic integration in East Asia; strengthen the integration and cooperation with countries like India and Pakistan on the basis of BRICs and G20 cooperation mechanisms; strengthen integration and cooperation with Western Asian countries in key areas such as energy and mineral industry, advanced manufacturing industry as well as high and new technology; and strengthen all-round economic cooperation with EU countries by making full use of sophisticated Eurasian passageways. 5.3  Improvement Stage: Strategic Platform for Global Economic Integration (2045–2065) The establishment of the basic framework of Eurasian economic integration will greatly improve the global economic connections. From then on, the construction of the SREB will enter the improvement stage, with the goal of forming a cooperation platform for global economic integration. It is the stage for the comprehensive realization of the SREB Initiative, which can be planned to last for 20 years. At this stage, the SREB will exert a profound impact on Africa, and the level of economic integration in Asia, Africa and Europe will be greatly improved. Oceania countries like Australia and New Zealand will also be deeply integrated into the SREB. At the same time, based on the in-depth development of Trans-Pacific and Trans-Atlantic economic cooperation, the SREB will further strengthen its economic ties westward and eastward with North America and South America, including developed countries such as the United States and Canada. All countries in the world will begin to promote global economic integration and cooperation on the basis of highly advanced economic globalization and regional economic integration. The SREB will become a cooperation platform for promoting global economic integration, and the initiative will be fully realized. In the process of promoting global economic integration the institutionalized cooperation among various regional economic integration

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organizations and governments will become very important. Through global institutionalized cooperation, countries around the world will begin to explore the establishment of a global organization to guide the global economic development. All kinds of economic barriers existing in international economic exchanges will be fundamentally removed, and the economy of all countries will operate in an open, fair, just and unified global market. The global economy will also advance from a new starting point.

6   Great Significance of SREB The SREB is a concept of Eurasian belt economic cooperation proposed in line with the trend of regional economic integration. It is of great significance to strengthen regional economic cooperation, promote world economic development, ensure China’s strategic security, promote the shift of China’s economic center westward and optimize China’s urban and demographic layout. First, it is conducive to building new organizations for regional economic cooperation and forming a new international economic pattern. With the socialization of production and the strengthening of economic ties among countries, regional economic cooperation is on the upswing. In the process of regional economic cooperation, the removal of trade barriers can help expand the scale of import and export of relevant countries, optimize the allocation of resources and enhance the international competitiveness of major countries in the region. In light of this, all the major countries in the world have been actively participating in regional economic cooperation. By now, regional economic cooperation organizations such as EU, NAFTA and ASEAN have been formed around the world. These organizations have become an important force in promoting economic globalization and participating in international activities by promoting economic integration internally and carrying out economic competition and cooperation externally. In recent years, despite China’s active participation in regional and bilateral economic and trade cooperation, China-ASEAN (10  +  1) Cooperation Mechanism is still not close enough, and the China–Japan–South Korea Free Trade Area (FTA) is making tardy progress in its construction. Under this backdrop, China should not only consolidate the China-­ ASEAN (10  +  1) Cooperation Mechanism but also accelerate regional economic cooperation westward. The member states, observer states and

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dialogue partners of the SCO and the EurAsEC have established comprehensive ties in Central Asia and its surrounding regions. Promoting regional economic cooperation on the basis of these two organizations can further enhance the development space of relevant countries. Assuming that the SREB in its narrow sense (core area + expansion area) will be built into a new regional economic cooperation organization, it can be seen from Table 1.4 that it will become a regional economic cooperation organization with the biggest area, the largest population and the third largest economic aggregate in the world, which has a large space for further growth. More importantly, after the completion of the SREB in its narrow sense as a regional economic cooperation organization, working together with EU and NAFTA, it will be conducive to accelerating the formation of a new international economic pattern. In addition, strengthening cooperation among regional economic organizations such as the SREB in its narrow sense, EU, NAFTA and ASEAN will exert a profound impact on the economic integration and globalization of Asia and Europe. Second, it will help to form new growth regions and enable the world to emerge from economic downturn. In recent years, affected by such factors as the subprime mortgage crisis in the United States, the debt crisis in Europe, the world economy witnessed weak growth, so it is urgent to build an emerging growth region to drive the world economy out of its predicament. It can be seen from Fig.  1.4 that the east section of the SREB is the East Asia economic circle with prosperous economy, and the per-capita GDP of Japan and South Korea was as high as US $40,056.50 in 2012; the west section is the European Union economic circle with Table 1.4  Comparison of SREB in its narrow sense and major regional economic cooperation organizations (2012) Name of organizations

Number of member states

Land area (10,000 km2)

Population (100 million)

GDP (trillion us dollars)

NAFTA EU SREB in its narrow sense ASEAN

3 28 16

2158.11 432.48 3962.12

4.70 5.09 31.47

19.24 16.69 13.42

10

477.76

6.08

2.32

Source: Population and GDP data are taken from the World Bank Database; land area data are taken from the attached table of the World Bank’s World Development Report 2009: Reshaping Economic Geography (Tsinghua University Press, 2009: 332–334)

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Fig. 1.4  Per-capita GDP of countries (regions) along the route in 2012. (Source: data are calculated according to the GDP and population data of the World Bank database)

developed economy, and the per-capita GDP of the countries in this region was US $32,789.78 in 2012; the middle section is China and pan Central Asia economic circle with relatively underdeveloped economy, and the per-­capita GDP of China was US $6091.78 and that of the five Central Asian countries was US $4615.38 in 2012. It can be seen that the SREB is an economic depression area in the middle. In recent years, Japan, South Korea and the European Union have witnessed sluggish economic growth, while the developing countries in the depression areas have maintained a relatively strong momentum of development. The construction of the SREB can promote the economic development of the central and western regions of China as well as the countries in the pan Central Asia economic circle, and achieve common development in the depression area of the SREB; in addition, it can help form a new growth region in the world, which is conducive to the economic growth of the countries along the route and even the whole world. As an important part of the core and economic depression area of the SREB, Central Asia has huge potential for economic development. In terms of natural resources, Central Asia is rich, especially in oil, natural gas, precious metals and non-ferrous metals, which provides the necessary resources for economic development; in terms of the foundation for

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economic development, Central Asia is developed in mining, metallurgy and processing industries, and countries like Uzbekistan have superior conditions for agricultural development, which has laid a good industrial foundation for economic development; In terms of foreign investment, the natural resources and industrial foundation of Central Asia are becoming increasingly attractive to foreign investment. The amount of foreign investment introduced in 2009–2012 is more than five times higher than that in 2000–2005, which provides sufficient financial support for the economic development of Central Asia. It can be seen that Central Asia has vast space for economic growth. Strengthening economic and trade cooperation between China and Central Asia as well as its surrounding countries is expected to help form a new economic growth region in the world to achieve the coordinated development of the SREB and enable the world to emerge from economic downturn. Third, it is conducive to safeguarding national strategic security and expanding China’s strategic space. The western region of China has a great bearing on the country’s strategic security. The construction of the SREB, which will help accelerate the development of the western region, is of great significance to maintain China’s national defense security, expand China’s strategic depth, resolve ethnic and religious conflicts, stabilize energy supply and safeguard economic security. From the perspective of maintaining national defense security, the western region is the focus of the layout of China’s national defense force. China borders with many countries in the western region where there are such factors of instability as border disputes. Through the joint building of the SREB with Central Asia and surrounding countries, we can enhance political mutual trust, promote economic and trade flows and cultural exchanges, and ensure national defense security and border stability. From the perspective of resolving ethnic and religious conflicts, the western region is the main inhabited area for ethnic minorities and religious believers, as well as the main area for the activities of ethnic separatists, religious extremists and violent terrorist forces who have caused great sufferings to China, Russia and Central Asian countries. The joint building of the SREB can coordinate the efforts of all countries to combat the “three evil forces” of terrorism, separatism and extremism, and eliminate the soil for their existence, thereby maintaining national unity and social stability. China’s oil dependence on foreign countries reached as high as

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56.4% in 2012.22 Energy security has become an important problem affecting the healthy development of China’s economy; through the construction of the SREB, China can strengthen its ties with Central Asia, West Asia and Russia, where there are rich oil and gas resources, and form an “underground Silk Road” focusing mainly on oil and gas pipeline transportation so as to improve the level of China’s energy security. From the perspective of expanding China’s strategic depth, with the rise of China’s economy, the United States and its allies have stepped up the strategic containment against China, attempting to squeeze China’s living space from the east coast through the Diaoyu Islands issue and the South China Sea issue; the construction of the SREB will enable China to form a new pattern of all-round opening up in the coastal, inland and border areas, and strengthen China’s development and opening up westward, thereby greatly expanding China’s strategic space. From the perspective of ensuring economic security, China’s economy, mainly concentrated in the eastern coastal areas, is too dependent on maritime traffic. In recent years, the risk of maritime freight transportation has been increasing. The construction of the SREB against this backdrop can enhance the economic aggregate and share of the western inland area, and expand the land transport passageways so as to ensure China’s economic security. Fourth, it will help foster China’s new economic growth pole and promote the shift of economic focus to the western regions. As the main part of the Chinese section of the ancient Silk Road, the five provinces and autonomous regions in the northwest, namely, Inner Mongolia, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region, are the bridgehead for economic and trade cooperation between China and Central Asian countries, and they are also the key areas for the construction of the Chinese section of the SREB. Since the implementation of the western development strategy in 1999, China has continuously increased its support and investment; as a result, the infrastructure construction and the economic and social development in the northwest have witnessed significant progress. It can be seen from Fig. 1.5 that the average annual economic growth rate of the five northwestern provinces and autonomous regions is higher than the national average in 2000–2012, and they are expected to become China’s 22  Huang Ye, Dependence of Crude Oil on Foreign Countries Has Increased Nine Times in a Decade [J], International Financial News, February 5, 2013.

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Fig. 1.5  Comparison of economic growth between Northwest China and the whole country in 2000–2012. (Data source: statistical bulletin of national economic and social development of the whole country and five provinces (regions) in the northwest over the years)

new economic growth pole and help shift China’s economic center to western China. But at the same time, there is still a huge gap between the overall development level of the northwest region and the eastern developed region. Affected by such factors as their position in the remote inland, the export-oriented economy of the northwest provinces and autonomous regions has been at a low level for a long time, which not only hinders the coordinated development of regional economy but also has a negative impact on the overall economic growth of China. The joint construction of the SREB by China and the Asian and European countries can help form a foreign economic corridor that runs from eastern China though middle China to western China, which will comprehensively improve the level of opening up and promote economic development of the northwestern region. In the future, the northwestern region can not only strengthen its economic connections with the eastern, northeastern and central regions of China and undertake industrial transfer from the east but can also expand its opening up to Central Asia and its surrounding countries, vigorously develop export-oriented economy targeted at Central Asia and its surrounding countries, and promote the free flow and optimal allocation of production factors in a larger space to make

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northwestern China a new economic growth pole. Since 2011, there has been downward pressure on China’s economic growth, especially in the eastern coastal areas. The construction of the SREB can improve the economic development level of northwestern China, which not only will narrow the gap between the region and the eastern developed areas and promote the coordinated development of regional economy but can also make up the deficit caused by weak economic growth in eastern China, ensure the sustained and rapid economic development and promote the shift of China’s economic center to the western region. Fifth, it will help to improve the level of urbanization in western China and optimize China’s urban and population distribution. Since the reform and opening up, with the rapid improvement of the economic development level in the coastal areas, the population in western China has migrated to eastern China in large numbers, where the urbanization level has been constantly improving. As a result, the imbalance of urban and population distribution between eastern China and western China has been constantly increasing. At present, the eastern region has a higher level of urbanization and denser population, and large cities and urban agglomerations are relatively well developed. The Pearl River Delta, the Yangtze River Delta and the three major urban agglomerations of Beijing, Tianjin and Hebei Province gathered 18% of the population with only 2.8% of the land area in 2012.23 However, the western region, with a small number of large cities as well as a low level of urbanization and urban agglomerations, gathered only 23% of the population with 57% of the land area.24 The imbalance of urban and population distribution among regions not only affects the coordinated development of regional economy, but is also not conducive to China’s strategic security. The development of large cities and urban agglomerations, as the important fulcrum of the economic belt, can be promoted, and the level of urbanization in western China, especially in northwestern China, can be improved through the construction of the SREB, which is of great significance to optimize the regional spatial layout of China’s cities and population.

23  Huang Wei, Zeng Ni, He Youhua, How Far is the Pearl River Delta City Cluster from the World Level [J], Nanfang Daily, October 31, 2013. 24  Hu Angang, Ma Wei, Yan Yilong, SREB: Connotation, Positioning and Realization Path [J], Journal of Xinjiang Normal University (Philosophy and Social Sciences Edition), 2014 (2): 5.

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During the construction of the SREB, the northwestern region can focus on building the Guanzhong City Cluster with Xi’an as its center, the City Cluster to the Northern Slope of the Tianshan Mountains with Urumqi as its center, the Yinchuan Plain City Cluster with Yinchuan as its center, Lanzhou–Baiyin–Xining City Cluster with Lanzhou and Xining as its center, and Jiuquan–Jiayuguan–Yumen City Cluster along the Hexi (Gansu) Corridor. At the same time, Xi’an will be built into an international metropolis and a leading city of the SREB, Lanzhou, Urumqi will be built into megacities, and Xining and Yinchuan will be built into regional central cities. With the completion of building the above-­ mentioned city clusters and large cities, the level of urbanization in the western region will be significantly improved. It will provide strong support for the construction of the SREB and make the process of urbanization interact well with the construction of the SREB; it can also optimize the environment for economic development of the northwestern region, improve the population carrying capacity of the region and attract the population of other regions to work in the northwest, thereby optimizing the spatial layout of cities and population.

CHAPTER 2

Connectivity Construction

The connectivity construction of the SREB involves infrastructure, rules and regulations, personnel exchanges and so on. Connectivity is an important factor in the construction of the SREB, and it also provides the basic conditions for all-round cooperation of the SREB.

1   Contents of Connectivity Construction and Their Relationship In November 2014, in his speech entitled Connectivity Spearheads Development and Partnership Enables Cooperation, Chinese President Xi Jinping stated that “The connectivity we talk about today is not merely about building roads and bridges or making linear connection of different places on surface. More importantly, it should be a three-way combination of infrastructure, institutions and people-to-people exchanges and a five-­ way progress in policy communication, infrastructure connectivity, trade link, capital flow, and understanding among peoples”.1 Banister and Berechman (2001) found that economic externalities, investment factors and political factors are the three necessary conditions for the promotion of economic growth through infrastructure

1  Xi Jinping, Connectivity Spearheads Development and Partnership Enables Cooperation, People’s Daily, November 9, 2014.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_2

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construction.2 From the three aspects of the connectivity construction of the SREB, political mutual trust, as well as communication and cooperation of rules and regulations are the first step for all countries of the SREB to move toward common development and prosperity; meanwhile, political cooperation and friendly mutual trust among countries help improve the infrastructure, especially roads, of countries along the route, resulting in interconnection among countries as well as closer and frequent political, economic and cultural exchanges, which will also lead to more sincere cooperation and political exchanges of rules and regulations among the countries. At present, countries along the route have competing political systems and different levels of economic development. Due to such complex factors as national conflicts, regional terrorist forces, international hegemonism and geopolitics, there are many misgivings about deepening cooperation and exchanges among countries. In this regard, the adoption of a mode similar to the EU’s competitive regional integration will not meet the actual needs of countries along the route. The huge political, economic and cultural differences of countries along the route determine that the SREB should achieve a regional economic integration guided by win-win cooperation, which advocates that countries with different resource endowments, political systems, levels of economic development and cultures can form a joint force of regional development through the combination of their respective advantages, while the development results can be shared by all to finally achieve regional economic development and common development of the countries in the depression area in the middle of Eurasia. The SREB is a concept of cooperation with the “road” as the link to realize the connectivity and promote the economic integration of Asia and Europe. The link by “road” means that we should promote multimodal and three-dimensional road, energy and information interconnection of Eurasia by means of modern roads, electrified railways, civil aviation, oil and gas pipelines, power transmission grids, intercontinental optical cables and communication satellites, so as to realize the aspirations of the landlocked countries in Europe and Asia to travel beyond the Pacific Ocean in the East, down to the Indian Ocean in the South and to the Atlantic Ocean in the West. The construction of infrastructure in the Eurasian 2  Banister D, Berechman J, Transport Investment and the Promotion of Economic Growth [J]. Journal of Transport Geography, 2001, 9 (3): 209–218.

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continent can give full play to the resource advantages of Central Asian countries and the geographical advantages of Asia and Europe to realize the free exchanges of goods, personnel and information among Asian and European countries, and truly promote the larger-scale Pan-Asia–Europe free economic cooperation zone. The interrelationship among infrastructure, rules and regulations, and personnel exchanges, as the three aspects of connectivity construction of the SREB, is shown in Fig. 2.1. The connectivity construction of infrastructure provides a material foundation for connectivity construction of more convenient personnel exchanges, while the connectivity construction of personnel exchanges lays a good social foundation for the connectivity construction of rules and regulations. At the same time, the connectivity construction of rules and regulations is the institutional foundation for the connectivity construction of the infrastructure of the SREB. One common purpose of the connectivity brought about by institutional cooperation and infrastructure construction of the SREB is to achieve better personnel exchanges among regions. Infrastructure construction ensures the material carrier and the communication channel for personnel exchanges. Whether it be high-level government officials

Fig. 2.1 Contents and interrelationship of connectivity construction of SREB

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carrying out political exchanges, business people carrying out trade and economic exchanges, all kinds of professionals seeking better development or students studying abroad and searching for the world’s beauty and wonders, they are all looking forward to increased political mutual trust, more convenient transportation and more smooth information flow among countries in Asia and Europe. Cooperation in people-to-people exchanges of the SREB consolidates the social foundation of the economic belt. Through personnel exchanges and mutual learning, people in countries along the route can enhance communication and achieve a common understanding.

2   Research on SREB Infrastructure Construction 2.1  Contents and Significance of SREB Infrastructure Construction 2.1.1 Contents of SREB Infrastructure Construction According to the definition in the World Bank Development Report 1994, infrastructure consists of economic infrastructure and social infrastructure. “Economic infrastructure” in its general sense refers to facilities that provide services for regional economic production and residents’ lives, such as roads, telecommunications, energy networks and bridges, while “social infrastructure” refers to soft facilities in culture, education and social security. In terms of infrastructure construction of the SREB, more emphasis should be placed on the construction of economic infrastructure. In essence, the purpose of infrastructure construction of the SREB is to achieve a more smooth and free flow of production factors such as personnel, means of production, products, technology and information in the whole economic belt. Specifically, the infrastructure conditions of the SREB should be improved from three aspects: the transportation system of railways, highways, pipelines and aviation; the energy and power system of gas and oil pipelines as well as the power supply network; and the communication system of the telecommunication network. 2.1.2 Significance of SREB Infrastructure Construction The Silk Road in its traditional sense refers to the trade route running through northern Asia and Europe, through which a group of caravans

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with camel bells were loaded with splendid silk products and embarked on a long journey to Central Asia and Europe. Caesar the Great wearing silk clothes was warmly received in the Roman amphitheater, and the splendid silk became the favorite of upper-class people in ancient Rome and Egypt. Therefore, China, a country rich in silk, was naturally called the State of Serica and the Chinese were also called the Sericans. Later, historians called the trade route between China and the West the Silk Road. In terms of historical span, the Silk Road lasted for more than 2,000 years, which can be divided on the basis of Chinese dynasties into four periods: the period before the Qin Dynasty (before 221 B.C.), the period of the Han and Tang dynasties (202 B.C.–A.D. 907), the period of the Song and Yuan dynasties (960–1368) and the period of the Ming and Qing dynasties (1368–1911). At the same time, because the Silk Road involved both land and sea routes, it can also be divided into the Land Silk Road and the Maritime Silk Road. The former is further divided into the Northern Silk Road and the Southern Silk Road according to its different geographical directions, and it can also be subdivided into the Grassland and Forest Silk Road, the Alpine and Canyon Silk Road, as well as the Desert and Oasis Silk Road according to the different geographical landscapes of the areas along the route. The Silk Road in its general sense refers to the Desert and Oasis Silk Road running through China’s Xinjiang and Central Asia. As China’s silk was the most famous commodity traded on the ancient Silk Road, this ancient trade route running through the East and the West came to be named the Silk Road and has been famous throughout history. In addition, most of China’s four major inventions were spread to the West along the route. In return for the export of silk, jade jewelry, spices and other products were transported to the oriental world along this trade route. Therefore, the Silk Road was also known as the Fur Road, the Jade Road or the Spice Road. Central Asia, a region along the Silk Road, is called the Western Region by China. It rose with prosperity and fell with the decline of the Silk Road. In the fifteenth century, the Ottoman Empire boycotted trade with the West and closed this trade route running through the East and the West. The closure of the Silk Road initiated the Age of Discovery (1453–1660) and the world entered the era of navigation with the opening of new routes. The ancient Land Silk Road was gradually replaced by sea routes. Driven by the western colonists’ dream for gold, ships ventured into the

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high seas and sailed to China on the other side of the ocean, a place Marco Polo called “the land of gold”. But the once-prosperous international trade route is much more desolate today. The rich oil, natural gas and mineral resources in western China and Central Asian countries like Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan have not brought considerable and steady economic growth to these areas. Instead, the lack of sea transportation and backward land transportation facilities has seriously hindered the social and economic prosperity and development in the region. The once-­ thriving Central Asian countries are declining due to the inconvenience of transportation, and the gap between these countries and other developed countries in the world is widening. The coastal areas of eastern China are gradually getting rich thanks to China’s reform and opening up, but the gap between eastern China and western China is also widening. At the same time, the economic development in the regions along the same latitude from the coastal cities in eastern China to Western Europe presents an obvious U-shaped line, forming a huge economic depression belt in the hinterland of the Eurasian continent (Fig. 2.2).

Fig. 2.2  Asia–Europe economic depression belt. (Source: data are calculated on the basis of population and GDP data in the World Bank Database 2013)

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The role of transport infrastructure in promoting economic growth has always been a topic of concern to researchers in the field of economics. Adam Smith believed that perfect inland shipping was the main reason for the early beginning of agriculture and manufacturing industry, and the earliest improvement in industrial division of labor often started in riverine and coastal areas where the shipping industry was developed; therefore, a country should build roads, bridges, ports and other public facilities to promote industrial division and economic growth.3 Friedrich Liszt, a representative of the German History School, also pointed out that transportation and other social systems are sources of production growth.4 In the 1940s, new progress was made in the research on the relationship between such infrastructure as transportation and economic growth. Paul Rosenstein-Rodan put forward the development theory of the “Big Push Model”, regarding infrastructure as the first capital to be invested first, and infrastructure such as transportation as the decisive factor in the process of industrialization. In his theory of “Vicious Cycle of Poverty (VCP)”, Ragnar Nurkse pointed out that to change the predicament of a vicious cycle, underdeveloped countries must invest on a large scale in all industries, infrastructure industry included. Before the rise of the empirical research paradigm, economists’ understanding of the impact of such infrastructure as transportation on economic growth was mostly based on qualitative analysis without convincing evidence. With the help of the World Bank, Aschauer (1989) innovatively used empirical methods to study the effect of infrastructure on economic growth, arriving at the conclusion that the decline of total factor productivity in the United States in the 1970s and 1980s was mainly caused by the decline in infrastructure investment, and the output elasticity of such infrastructure as transportation was calculated to be 0.39.5 Holtz Eakin (1994) estimated the impact of infrastructure capital on economic growth on the basis of separating infrastructure investment (capital) from total investment (capital), arriving at the conclusion that infrastructure has an

3  Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations [M], (Chinese edition translated by Wang Dali and Wang Ya’nan): The Commercial Press, 1983: 17–18. 4  Friedrich Liszt, The Natural System of Political Economy [M], (Chinese edition translated by Yang Chunxue), The Commercial Press, 1997: 45–46. 5  Aschauer D. A, Is Public Expenditure Productive? [J], Journal of Monetary Economics, 1989, 23 (2): 177–200.

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important and significant impact on economic growth.6 The research on developed countries by Banister and Berechman (2001) shows that, because of the multiplier effect, infrastructure investment will expand output, increase traffic capacity after it is put into use and form economic benefits such as spatial diffusion; in addition, transportation infrastructure will promote economic growth through the aggregation effect.7 On the basis of these foreign scholars’ research, many domestic scholars also employed relevant theories to study the relationship between China’s infrastructure such as transportation and its economic growth. For example, Fan Jiuli and Bai Baoli (2004)8 calculated that the output elasticity of infrastructure investment to per-capita GDP in Western China was much higher than the national average, reaching 0.1423. Guo Qingwang and Jia Junxue (2006),9 Wang Renfei and Wang Jinjie (2007)10 respectively used the VaR method to analyze the relationship between infrastructure and economic growth. Their research results show that both the overall level and the specific structure of infrastructure investment in China have a strong, long-lasting positive impact on output with relatively short time lag; therefore, they hold that infrastructure investment is an important driving force to realize rapid and sustainable economic growth. Liu Shenglong and Hu Angang (2010)11 used China’s provincial panel data from 1988 to 2007 to verify the spillover effect of transportation, energy and information infrastructure on China’s economic growth. The results show that transportation and information infrastructure have a significant spillover effect on China’s economic growth, while energy infrastructure has no significant spillover effect. The research by Zhang

6  Holtz-Eakin D, Public-Sector Capital and the Productivity Puzzle [J], Review of Economics and Statistics, 1994, 76(1): 12–21. 7  Banister D, Berechman J., Transport Investment and the Promotion of Economic Growth [J], Journal of Transport Geography, 2001, 9(3): 209–218. 8  Fan Jiuli. Bai Baoli, Research on Infrastructure Investment and Regional Differences in China’s Economic Growth [J], Human Geography, 2004 (2): 35–38. 9  Guo QingWang, Jia Junxue, Effect of Infrastructure Investment on Economic Growth [J], Economic Theory and Business Management, 2006 (3): 36–41. 10  Wang Renfei, Wang Jinjie, Infrastructure and China’s Economic Growth: A Study Based on VaR Method [J], The Journal of World Economy, 2007 (3): 13–21. 11  Liu Shenglong, Hu Angang, Transportation Infrastructure and Economic Growth: Perspective of China’s Regional Differences [J], China Industrial Economics, 2010 (4): 14–23.

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Xueliang (2012)12 shows that, after considering the spatial spillover effect in the econometric model, the output elasticity value of transportation to regional economic growth is still around 0.05, and the driving role is still very obvious. Li Zhongmin et  al. carried out a research on the most important 17 cities along the New Silk Road transportation artery Lanzhou–Lianyungang Railway and Lanzhou–Xinjiang Railway by using the multi-dimensional factor spatial panel data model to consider the spatial spillover effect of traffic infrastructure, arriving at the conclusion that the reduction of transportation costs brought by the improvement of transportation capacity in the New Silk Road region contributes to its economic growth. Since Lucas, many scholars have connected infrastructure with total factor productivity (TFP) to investigate its spillover effect on the economy. Chinese scholars Liu Binglian et al. (2010)13 found that the improvement of China’s transportation infrastructure from 1997 to 2007 had exerted a significant driving effect on the total factor productivity. Zhang Guangnan et al. (2013)14 studied from the perspective of micro-­enterprises, finding that the distribution of China’s manufacturing industry is highly consistent with the spatial distribution of infrastructure, and believing that this is due to the reduction of the average costs and marginal costs of production of local manufacturing enterprises brought by the spatial spillover of infrastructure. From the historical experience of both developed and underdeveloped countries, we can see that infrastructure plays an important role in the takeoff and development of a country’s economy. From the perspective of micro-enterprises, infrastructure construction and investment can reduce the costs and promote the agglomeration of enterprises; from the perspective of intermediate (regional) level, the differences in the economic development of different regions in the same country are largely caused by the differences in infrastructure construction and investment; and from the perspective of national macroeconomic level, we can find that the main 12  Zhang Xueliang, Does China’s Transport Infrastructure Promote Regional Economic Growth? Also on Spatial Spillover Effect of Transport Infrastructure [J], China Social Sciences, 2012 (3): 60–77. 13  Liu Binglian, Wu Peng, Liu Yuhai, Transport Infrastructure and TFP Growth in China: A Spatial Panel Econometric Analysis Based on Provincial Data [J], China Industrial Economics, 2010 (3): 54–64. 14  Zhang Guangnan, Hong Guozhi, Chen Guanghan, Infrastructure, Spatial Spillover and Manufacturing Costs Effect [J], China Economic Quarterly, 2013 (10): 285–304.

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infrastructure construction and investment are long-term factors for economic growth. In addition, infrastructure also plays a significant role in improving the quality of economic growth or TFP. The infrastructure construction of seven countries, including China, Russia and the five Central Asian countries, still lags behind that of the developed countries and some other developing countries in the world. According to the Global Competitiveness Report 2014–2015 issued by the World Economic Forum, in terms of the ranking of infrastructure development, Russia jumped from 93rd in 2013 to 71st; Kazakhstan jumped from 64th in 2013 to 62nd; Kyrgyzstan ranked 96th; Tajikistan was in the last place, ranking 107th; China was only in the middle. Speeding up the infrastructure construction of countries along the route can promote the economic development of countries and regions along the route as well as the common development of the countries in the depression area in the hinter land of Eurasia; besides, it can form a new area of growth in the world, which is conducive to the economic growth of the SREB and even the whole world.15 2.2  Analysis of the Status Quo of Infrastructure Along the Route 2.2.1

S tatus Quo of Transportation Facilities of Countries in SREB Core Area As the seven countries in the core area of the new SREB, China, Russia and the five Central Asian countries represented by Kazakhstan have scored great achievements in infrastructure construction, which has contributed greatly to the local economic development and promoted the growth of the economy and trade among relevant countries. However, compared with other countries in the world, these seven countries are relatively backward in infrastructure construction, which has become an important obstacle to further regional cooperation and economic integration. As the largest developing country, China has made great progress in promoting its infrastructure construction in recent years. By the end of 2012, the total mileage of highways in China has reached 4.238 15  Bai Yongxiu, Wang Songji, Background and Geopolitical Strategy of the SREB [J], Reform, 2014 (3): 64–73.

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million km, of which the mileage of expressways ranks first in the world. The total mileage of railways in China has exceeded 120,000 km, of which the total mileage of high-speed railways has reached 11,028 km, and the mileage of high-speed railways under construction has reached 12,000 km, making China a country with the longest mileage of high-speed railway in operation and the longest mileage of high-speed railway under construction in the world.16 In 2013, the number of civil aviation transport aircraft in China reached 2,179; the total turnover of civil aviation transport was 67.3 billion ton-km, the passenger transport volume was 354 million passengers, and the cargo and mail transport volume was 5.57 million tons. China’s air passenger transport volume ranks second in the world.17 Russia is the largest country in the world with a huge demand for such infrastructure as transportation. In terms of railway, as of 2006, the railway mileage of Russia had reached 85,200 km, but the railways constructed were mainly concentrated in Europe; the highway construction mileage of Russia had reached 982,000 km, ranking sixth in the world; in terms of air transport, the air transport volume of Russia in 2010 was 1.0 million tons, accounting for only 0.01% of the total volume of all freight forms.18 Russia was still backward in air transport, still using domestically built aging aircraft. Among the five Central Asian countries, Kazakhstan has the largest land area and the best economic situation in the Commonwealth of the Independent States (CIS) except Russia and enjoys comparatively good infrastructure. The mileage of railways in the country reached 14,200 km (3700 km of which are electrified lines, accounting for 27% of the total mileage), and the mileage of highways reached 96,800  km. However, there were only a few expressways in Kazakhstan, the construction of which has just begun in recent years.19 Tajikistan’s traffic is dominated by highways, accounting for 85% of the total transportation volume of the 16  The Total Mileage of China’s High-speed Rail Reaches Half of the World, People’s Daily (Overseas Edition), March 6, 2014. 17  New Highlights of Civil Aviation in 2013: Behind the 354 Billion Passenger Traffic Volume, xinhua. com, 2013-12-23, http://news.xinhuanet.com/ fortune/2013-12/23/c_118675010.htm. 18  Russian Air Cargo Transport Market Survey, Foreign Trade, www.dbw.cn, 2011-8-19. http://commerce.dbw.cn/system/2011/08/19/000391803.shtml. 19  Overview of Infrastructure in Kazakhstan, website of the Ministry of Commerce, 2008-1-1, http://kz.mofcom.gov.cn/aarticle/zxhz/ zzjg/200801/20080105321063.html.

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country, with a total mileage of 13,700  km. In terms of railways, the length of railways in the country is only 621 km, of which 114 km has been in extended service.20 Uzbekistan enjoys a better transportation infrastructure, with a total length of 184,896 km of highways, many of which meet modern international standards; the total length of railways is 4,393 km, and the distribution level of the railway network is higher than that of Russia and the other four Central Asian countries.21 Turkmenistan’s transportation is dominated by railways, highways and oil and gas pipelines, with a total length of 2,300  km of railways and 13,600  km of highways.22 Kyrgyzstan is a typical inland country, and highways are its most important mode of transportation, with a total length of more than 34,000 km, connecting the capital cities and major towns of Kyrgyzstan, handling most of the passenger and freight transport in the country and the railway mileage is only 417 km.23 See Table 2.1 for the stock of land transportation facilities in the core area of the SREB in 2009. After decades of development, a comprehensive transportation network consisting of railways, highways, civil aviation and other modes has been initially formed in the SREB region. The railway starts from the Alataw Pass City of Xinjiang Uygur Autonomous Region, China, and Horgos Railway Port, where it joins the Kazakhstan railway, passes through Astana (Kazakhstan) and Moscow (Russia) before it reaches the Baltic Sea in Europe (Helsinki, Rotterdam), with a total length of about 11,000 km; it can also pass through Almaty (Kazakhstan) to the south and reach Central Asia, West Asia, Persian Gulf and North Africa. In terms of the railways along the route, China, West Asia, Europe and North Africa (Egypt) use standard railway gauge

20  Travel in Tajikistan, cs.mfa.gov.cn, 2013-12-5, http://cs.mfa.gov.cn/zggmcg/ljmdd/ yz_645708/tjkst_647508. 21  Guide to Mining Investment in Central Asia-Republic of Uzbekistan, China Mining, 2014-4-11, http://www.chinanaming.org.cn/index.php?m=content&c=index&a=show&c atid=99&id=8009. 22  Turkmenistan’s Efforts to Develop Foreign Transportation Cooperation, website of the Ministry of Commerce, 2014-7-11, http://tm.mofcom.gov.cn/article/ jmxw/201407/20140700659468.shtml. 23  Economic Overview of Kyrgyzstan, China Trade Promotion, 2003-10-20, http://www. tdb.org.cn/news/21127.

3,860,800 65,500 47

982,000 85,200 199

Russia 96,800 14,200 271

Kazakhstan 13,700 621 38

Tajikistan 34,000 417 59

Kyrgyzstan

Data source: global macroeconomic data from Sina Finance, 2015-1-2. http://finance.sina.com.cn/worldmac

Road total mileage/km Railway total mileage/km Vehicle ownership/1000 persons

China

Table 2.1  The stock of land transport facilities in SREB core area in 2009

18,500 4,227

Uzbekistan

13,600 3,115 106

Turkmenistan 2  CONNECTIVITY CONSTRUCTION 

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(1,435 mm), while Central Asia and Russia adopt the wider “broad gauge” (1,520 mm). The highway in the SREB starts from Xinjiang Uygur Autonomous Region and Yunnan Province of China through highway ports, and then it joins the Asian highway network before it is connected to the European highway network in Moscow and Bulgaria, respectively, and can reach Central Asia, West Asia, Europe, North Africa and the Indian Ocean. All the roads in Central Asia and Central and Eastern European countries can be connected, but they are of low grade. In recent years, the traffic in part of the northern section of the China–Pakistan Karakoram Highway (known informally as the KKH) has been disrupted due to the barrier lake. In terms of civil aviation, in the SREB, China has air links with Almaty, Astana and Aktyubinsk in Kazakhstan; Osh and Bishkek in Kyrgyzstan; Dushanbe and Khujand in Tajikistan; Ashgabat in Turkmenistan; Tashkent in Uzbekistan; Islamabad and Karachi in Pakistan; New Delhi, Bengaluru, Chennai, Kolkata and Mumbai in India; Dhaka and Chittagong in Bangladesh; Mandalay and Yangon in Myanmar; Prague in Czech Republic; and Budapest in Hungary. 2.2.2 Construction of Main Transportation Routes in the SREB According to the Institute of Geographic Sciences and Natural Resources Research of the Chinese Academy of Sciences (CAS), the transportation routes along the route can be divided according to different latitudes and spatial directions into three passages: the northern passage dominated by the Eurasian Continental Bridge, the central passage dominated by oil and gas pipelines and the southern passage dominated by transnational highways.24 Specifically, the northern passage runs roughly along the Second Eurasian Continental Bridge railway line, starting from the Alataw Pass Port in Xinjiang Uygur Autonomous Region of China through Astana (Kazakhstan), Yekaterinburg (southern Russia) and Minsk (Belarus) into northern Europe, running onward into Western Europe through Warsaw (Poland) and Berlin (Germany), and finally reaching Rotterdam (Netherlands), the world’s largest port. The central passage runs roughly along the Central Asia–China oil and gas pipeline, starting from Irkeshtam Port in Xinjiang Uygur Autonomous Region of China, passing through Kyrgyzstan, Tajikistan, Uzbekistan and other Central Asian countries, 24  Comprehensive Interpretation of the SREB, People’s Tribune. 2014-329, http://www. rmlt.com.cn/eco/caijingzhuangti/special/sichouzhilu.

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arriving in Turkmenistan and running onward along the South Bank of the Caspian Sea, Iran and Turkey before it finally reaches Europe. The southern passage runs roughly along the Pan-Asian Highway, passing through Afghanistan, Pakistan and running onward to Western Asia and the Persian Gulf through Iran before it reaches North Africa through Egypt. 2.2.3

S tatus Quo and Problems of Railway Connectivity Construction in the SREB

(1) Status Quo of Railway Connectivity Construction Compared with the First Eurasia Continental Bridge,25 the Second Eurasian Continental Bridge is a more important way of railway interconnection of countries along the route. With a total length of 10,900 km, it starts from Lianyungang of China’s Jiangsu Province in the east, and passes through such Chinese cities as Xuzhou, Shangqiu, Kaifeng, Zhengzhou, Luoyang, Xi’an, Baoji, Tianshui, Lanzhou and Urumqi to the Alataw Pass Port in Xinjiang Uygur Autonomous Region of China, where it enters Kazakhstan and runs onward through Russia, Belarus, Poland and Germany until it reaches the Port of Rotterdam of Netherlands in the west. Compared with those of the First Eurasian Continental Bridge, the regions along the Second Eurasian Continental Bridge boast richer natural resources and better economic development. In terms of transportation distance, the Second Eurasian Continental Bridge is more than 2,000 km shorter than the First Eurasian Continental Bridge, and it helps establish the connection between China and the Central Asian countries. On December 2, 2011, Horgos–Altynkol Railway, the second railway between China and Kazakhstan, was open to traffic and became another westward international railway line in China besides the Alataw Pass railway line. After reloading at Horgos Port in Xinjiang Uygur Autonomous Region of China, it passes through Almaty (Kazakhstan), Tashkent (Uzbekistan), Mary (Turkmenistan), Mashhad and Tehran (Iran) and arrives at Istanbul (Turkey) where it joins the European railway network. Chongqing–Xinjiang–Europe International Railway intermodal transport 25  The First Eurasian Continental Bridge, also known as the Siberian Continental Bridge, takes the Siberian Railway as the main line, starting from Vladivostok in the East and arriving at Rotterdam Port in the Netherlands in the West.

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Table 2.2  Countries and cities along the main international railways of “SREB” Railway name

Countries and cities along the main international railways

Second Eurasian Continental Bridge

Lianyungang–Xuzhou–Shangqiu–Kaifeng–Zhengzhou– Luoyang–Xi’an–Baoji–Tianshui–Lanzhou–Urumqi–Alataw Pass–Aktogay (Kazakhstan)–Astana (Kazakhstan)– Yekaterinburg (Russia)–Minsk (Belarus)–Brest (Belarus)– Warsaw (Poland)–Berlin (Germany)–Rotterdam (Netherlands) Chongqing–Xi’an–Lanzhou–Urumqi–Alataw Pass–Dostyk (Kazakhstan)–Iletsk (Russia)–Krasnoye (Russia)–Brest (Belarus), Malaszewicze (Poland)–Duisburg (Germany)– Antwerp (Belgium)

Chongqing–Xinjiang– Europe International Railway intermodal transport corridor

corridor is a further optimized and improved international logistics corridor based on the former Second Eurasian Continental Bridge. The new route starts from Chongqing West and arrives in Duisburg, Germany, covering a distance of 11,179 km. The domestic section of the railway passes the inland cities of Xi’an, Lanzhou and Urumqi, and enters Kazakhstan in Central Asia from the Alataw Pass in the Börtala Mongol Autonomous Prefecture of the Xinjiang Uygur Autonomous Region, China. The international section of the railway travels through Kazakhstan, Russia, Belarus and Poland before it reaches Germany. In 2012, this international route continued to extend westward from Duisburg in Germany to Antwerp in Belgium, a full extension of 202 km, directly connecting Chongqing with Belgium, the country where the EU headquarters are located.26 See Table 2.2 for countries and cities along the main international railways of “SREB”. (2) Problems First, some sections of the railway are missing, and the backbone channels have not been joined up. Due to complex international political relations and the economic conditions of relevant countries, some sections of most of the railways in the SREB are still missing and the construction has not been completed yet. For example, the project of 26  Chongqing–Xinjiang–Europe International Railway Intermodal Passage, official website of Yuxinou (Chongqing) Logistics Co., Ltd., March 6, 2015, http://www.yuxinoulogistics.com.

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China–Kyrgyzstan–Uzbekistan Railway (330 km) has been under discussion since the 1990s, but its construction has not been launched yet. Railway connectivity has not been achieved between China and countries like India, Pakistan, Kyrgyzstan and Afghanistan, and it actually has not been achieved among all the countries along the route. Second, different railway sections along the route are of different technical standards, complex track changing and low transportation efficiency. Take the Second Eurasian Continental Bridge as an example. The railway sections of China, Germany, the Netherlands and other European Union countries are standard gauge (1,435 mm) while those of Russia, Kazakhstan and other CIS countries are the wider “broad gauge” (1,520  mm). Therefore, the trains running on the Second Eurasian Continental Bridge need to switch tracks many times, which cause lower transportation efficiency due to the increase in transit time. In addition, the railway sections of India, Bangladesh, Pakistan and other South Asian countries are of the gauge of 1,676  mm, while the standard gauge system of 1,435  mm is adopted in Iran, Turkey and other countries. Goods from China need to be reloaded at least twice before they arrive at their destinations in Western Europe, which leads to high transport costs.27 Third, many countries along the route are backward in the economy and they lag behind developed countries in the construction of transportation infrastructure such as railways. Most of the countries along the route are underdeveloped, some of which, such as Afghanistan, are even extremely underdeveloped. In these countries, the technology in infrastructure construction is backward and the capital needed for infrastructure construction is far beyond their own economic strength, making it difficult for them to independently carry out the construction of their own transportation facilities such as railways. At the same time, the low rate of return and the long return cycle on infrastructure investment cause difficulties in international financing; as a result, most of the ongoing projects are making slow progress and the construction of some projects has even been halted. Finally, freight trains yield insufficient profit due to the high no-load rate as a result of insufficient supply of goods for transportation on the return trips from Europe. Besides a few countries such as Germany and 27  China Europe Railway Freight Operating at High Costs due to Insufficient Goods and High No-load Rate, Net Ease Finance and Economics, 2014-8-10, http://money.163. com/14/0810/21/a3ampjvt00252605.html.

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the Netherlands, the existing customers along the Second Eurasian Continental Bridge are mainly concentrated in Kazakhstan and Uzbekistan in Central Asia, but most of the goods exported to the east by these countries are energy goods, which mostly rely on pipeline transportation, resulting in insufficient east-bound goods, high no-load rate and insufficient profit of freight trains. 2.2.4

S tatus Quo and Problems of Highway Connectivity Construction in the SREB

(1) Status Quo of Highway Connectivity Construction Compared with the railway connectivity construction, more remarkable achievements have been scored in highway connectivity construction in the SREB.  Starting from China’s domestic road network, the highways can extend westward to most countries in Central Asia, West Asia and Europe, and the road network of the SREB has been basically formed. North-line Highway: it starts from the Port of the Alataw Pass, Xinjiang Uygur Autonomous Region, and China, enters Western Europe via Kazakhstan, Russia, Belarus, Poland along the highways of AH68, AH7, E30, and passes through Germany to arrive at the Netherlands. Middle-line Highway: it starts from the Port of Irkeshtam, Xinjiang, Uygur Autonomous Region, China, passes through Kyrgyzstan, Uzbekistan, Turkmenistan, Iran, Turkey along the highways of AH65, AH66, AH1 before it joins the European road network and arrives in Berlin, Germany, via Bulgaria, Serbia, Hungary, Austria and Czech. South-Line Highway: when the middle-line highway arrives in Iran, it branches into two highways: one runs southwestward to arrive in Jordan through Iraq before it finally arrives in North Africa through Egypt; the other highway passes through Iran and arrives in the Persian Gulf along the highways of AH72 and AH75. In addition, the government of Kazakhstan has begun to design and build the Western Europe–Western China Highway, which is expected to be open to traffic in 2015. This road starts from the Port of Horgos in Xinjiang Uygur Autonomous Region, China, passes through Kazakhstan

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and Russia before it enters Europe. It will become another main road connecting Asia and Europe.28 (2) Problems To begin with, the existing road network is of relatively low grade. In the pan-Eurasian highway network, the highway facilities of countries adjacent to China in Central Asia and South Asia are generally in poor condition, with low technical level and insufficient traffic capacity. Some highways are only equivalent to the county-level highways in China. In addition, no uniform traffic standard for road transportation has been formed. In the process of road transportation, different countries have different systems and regulations. Cross-border road transportation is often limited by vehicle load and pollutant emission standards when the vehicles pass through other countries, and no unified road traffic standard has been formed among countries. 2.2.5

S tatus Quo and Problems of Air Connectivity Construction in the SREB

(1) Status Quo of Air Connectivity Construction Compared with the construction of railway and highway transportation facilities, air connectivity in the SREB has witnessed the fastest development. At present, 28 countries related to the SREB have signed bilateral agreements with China, and 18 of the agreements have been implemented. Among the major countries in the SREB, the main direct flights between China and Russia include Beijing–Moscow, Guangzhou–Moscow, Shanghai–Moscow, Urumqi–Moscow and Beijing–St. Petersburg direct flights routes; China and Kazakhstan have established Urumqi–Astana and Urumqi–Almaty direct flights routes; China and Tajikistan have established Beijing–Dushanbe direct flight route; China and Uzbekistan have established Beijing–Tashkent and Urumqi–Tashkent direct flights routes; China and Kyrgyzstan have established Beijing–Bishkek direct flight route; China and Turkmenistan have established Beijing–Ashgabat and Urumqi– Ashgabat direct flight routes. In the direction of South Asia, China has 28  Road Interconnection Supports the Construction of SREB, International Online, 2014-3-14, http://gb.cri.cn/42071/2014/03/14/6871s4464170.htm

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opened direct flights with such countries as India, Pakistan and Bangladesh, including direct flights from Beijing, Guangzhou, Shanghai to New Delhi and from Kunming to Kolkata between China and India; direct flights from Beijing to Islamabad between China and Pakistan; direct flights from Kunming to Dhaka between China and Bangladesh. In addition, China has also established direct flights with countries in the Middle East such as Iran, Saudi Arabia and the United Arab Emirates; in Europe, China has generally established direct flights with major Western European countries, and 10 of the 16 countries in Central and Eastern Europe have signed bilateral air transport agreements with China. The construction of the air traffic network of the SREB has been basically completed, and with the rapid development of air connectivity, direct flight routes have been established in all major countries. China’s Beijing, Shanghai, Urumqi; Russia’s Moscow, Kazakhstan’s Almaty and Germany’s Frankfurt have become the most important aviation nodes in the air connectivity of the SREB, playing an important role in the development of air traffic connecting the entire SREB. (2) Problems Most of the existing airports in Central Asian countries were built in the Soviet era, and their supporting facilities are relatively backward, which could not fully meet the needs of the current and future development of civil aviation. Moreover, most of these countries are underdeveloped economies with scanty national financial resources to support the large-­ scale maintenance and construction of their infrastructure. In addition, at present, China and countries in Central and Eastern Europe are only carrying out low-level economic and trade exchanges, so there are fewer direct flights with the countries in these regions, and few personnel exchanges lead to difficulties in maintaining the operation of the flights that have been opened. 2.2.6

S tatus Quo and Problems of Telecommunication Connectivity Construction in SREB

(1) Status Quo of Telecommunication Connectivity Construction With the development of the Internet technology, the number of Internet users in the countries of the SREB core area has been increasing

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Fig. 2.3  Number of Internet users in major countries along the route over the years. (Global Macro economic Data, Sina Finance, 2015-1-2, http://finance. sina.com.cn/worldmac)

year by year (as shown in Fig.  2.3). Among them, the growth rate of Internet users in Kazakhstan is the highest, reaching an average annual growth rate of more than 50%; in recent years, the number of Internet users in Russia, China and Kazakhstan has exceeded the world average during the same period, while the number of Internet users in Tajikistan, Kyrgyzstan, Uzbekistan and Turkmenistan is lower than the world average during the same period; the number of Internet users in Turkmenistan only accounted for 25.17% of the world average in 2013, and the country lags far behind other countries in its Internet development. In the Global Information Technology Report 201429 released by the World Economic Forum, Kazakhstan’s Network Readiness Index (NRI) ranks 38th (ranking first among the CIS countries), Russia 54th and China

29  The Global Information Technology Report 2014 evaluates the digital ecosystems of 148 economies through 54 indicators. It measures the capabilities of these countries and regions to use science and technology to promote economic growth and improve social welfare. It also ranks these countries according to their network readiness index so as to understand how these markets use information and communication technology (ICT) to enhance their economic productivity and promote social development.

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62nd in the world.30 Generally speaking, there is still a huge digital gap between emerging countries represented by China and Russia and developed economies in the field of information technology, but these emerging countries are trying to catch up. In 1992, China’s initiative to build the Trans-Asia-Europe (TAE) fiberoptic communication line received positive responses from countries along the route. The cable line, the longest land optical cable system in the world so far, starts from Shanghai in the East, passes through such Chinese cities as Nanjing, Xuzhou, Zhengzhou, Xi’an, Lanzhou and Urumqi, leaves China’s Port of Horgos for the west, and then passes through such countries as Kazakhstan, Kyrgyzstan, Poland and Ukraine before it finally arrives in Frankfurt, Germany, with a total length of 27,000 km.31 On October 14, 1998, the TAE fiberoptic communication line was officially open to use, becoming an important sign of the beginning of telecommunication interconnection cooperation among countries along the route. On April 14, 2004, Asia-­ Europe Land Optical Cable Network, China’s first large-capacity cable network adopting the Synchronous Digital Hierarchy (SDH), officially opened. The cable line, with a total length of 7,500 km, starts from China, passes through Mongolia to Russia and extends to many European countries, greatly promoting the connectivity construction of the Asia–Europe land information network.32 In terms of direct optical cable connection among Central Asian countries, in 2007, China and Kazakhstan officially started the construction of the domestic extension transmission system of China–Kazakhstan international optical cable interconnection project, directly connecting the regions of Korla and Hoxut in Xinjiang Uygur Autonomous Region of China with a total length of 110 km. On May 22, 2012, China Telecom and Kazakhtelecom signed an agreement in Kazakhstan on the construction of a second optical cable docking station in the Alataw Pass-Dostyk region on the border between China and Kazakhstan, and the signing of the agreement has also become another milestone in deepening cooperation in the field of telecommunications between China and Kazakhstan. In 30  The Global Information Technology Report 2014, China Economic, 2014-5-6, http:// intl.ce.cn/specials/zxgjzh/201405/06/120140506_2771813.shtml. 31  Cao Shuxian, TAE fiber optic communication line is fully opened, China CIO News, Issue12, 1998:31. 32  China’s first large-capacity Asia-Europe Land Optical Cable Network officially opened. www.xinhuanet.com.2004-4-14.http://news.xinhuanet.com/newscenter/2004-04/14/ content_1419616.htm.

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2009, China and Kyrgyzstan laid the first China–Kyrgyzstan international optical cable, which also marked the direct interconnection between China and Kyrgyzstan in the field of telecommunications. At present, in addition to the TAE fiberoptic communication line, China has realized direct optical cable interconnection with countries along the route such as Russia, Kazakhstan and Kyrgyzstan. China–India and China–Pakistan international optical cables will also be opened to use soon. The interconnection between China and countries along the route in the field of telecommunications will become more smooth. (2) Problems First, the fiberoptic cable connection covering the whole area has not been realized in the SREB regions. At present, China has not yet realized the interconnection of optical cables with some neighboring countries and nonadjacent third countries, and there is still the problem of coordination among countries in the transit of optical cables. Only the main line of the TAE land optical cable has been built, and the construction of an information optical cable network covering the whole region has not been completed yet. Second, some countries along the route are backward in the construction of telecommunication infrastructure. The telecommunication industry of the countries along the route with the five Central Asian countries as the core is still in its primary stage. The infrastructure construction of telecommunication network is backward, with insufficient investment and low penetration rate, and the investment of capital and technology in a telecommunication network is urgently needed. Finally, a unified communication standard has not yet been achieved in the SREB.  The technical standards of telecommunication networks in countries along the route are not consistent, which causes difficulties in coordination and increases difficulties in interconnection and networking of telecommunication networks, resulting in low efficiency and high costs of information transmission. 2.2.7

S tatus Quo and Problems of Oil and Gas Pipeline Connectivity Construction in the SREB

(1) Status Quo of Oil and Gas Pipeline Connectivity Construction

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The countries and areas along the route, with the Middle East, Central Asia and Russia as the most important oil- and natural gas-producing areas, are rich in oil and natural gas resources. The proven oil reserves of the Middle East account for about half of the world’s total, the Central Asia–Caspian Sea region has 32.8 billion tons of oil reserves, accounting for about 8% of the world’s total, and Russia’s oil reserves account for about 6% of the world’s total. The countries of Russia, Iran and Turkmenistan along the route have the most abundant natural gas reserves. In 2012, Russia’s total proven natural gas reserves reached 68.4 trillion cubic meters, accounting for more than 25% of the world’s total; Iran and Turkmenistan also ranked the second and the fourth in the world in terms of natural gas resources. However, at the same time, there is a serious mismatch between oil- and natural gas-producing and consumption areas along the route. The main consumption markets are concentrated in the regions of Western Europe, East Asia and Southeast Asia, where there is a strong oil processing capacity. Therefore, there is great potential for energy cooperation among the countries along the route. China and Central Asian countries carry out the deepest cooperation in the field of energy. Before the opening of oil and gas pipelines among China, Russia and three Central Asian countries, oil and liquefied natural gas were mainly transported by road and railway. Since 2004, Russia has supplied about 6,400,000 tons of oil to China by railway. In 2006, the amount exceeded 15 million tons, and the amount of oil transported by railway seems to be increasing. Since the planning, construction and operation of oil and gas pipelines, this situation has improved to some extent. In the future, pipeline transportation will become the main mode for China to import oil and gas from Russia and Central Asian countries. So far, China has built four cross-border oil and gas pipelines, namely, the China–Kazakhstan oil pipeline, the China–Central Asia natural gas pipeline, the China–Russia crude oil pipeline and the China–Russia natural gas pipeline (see Table 2.3 for details). China–Kazakhstan oil pipeline: with a total length of 2,798 km, it starts from Atyrau in the Caspian Sea in the west, passes through Aktyubinsk in Kazakhstan and ends at China’s Alataw Pass on the border between China and Kazakhstan. It is divided into three phases: the Atyrau–Kenkiyak section, with a length of 448.8 km, is the preliminary phase. It was completed and put into operation at the end of 2003, with an annual oil transportation capacity of 6 million tons. The first phase, starting from Kazakhstan’s Atasu to China’s Alataw Pass with a length of 962.2  km, was put into

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Table 2.3  Important transnational oil and gas pipelines in the SREB Name

Length (km)

Type

Caspian offshore oil pipeline (Kazakhstan) Baku–Tbilisi–Ceyhan pipeline (BTC) (Azerbaijan–Georgia– Turkey) China–Kazakhstan crude oil pipeline China–Russia crude oil pipeline Russia–Turkey natural gas pipeline

1,580 1,768

Oil Oil

2,798 999 1213

Arab gas pipeline

1200

Central Asia–China natural gas pipeline

1833

Oil Oil Natural gas Natural gas Natural gas

Source: Website of Center for China in the World Economy (CCWE), Tsinghua University, http://www. ccwe. tsinghua.edu.cn

commercial operation in July 2006. The Kenkiyak–Kumkol section, with a length of 761 km, is the first stage of the second phase. It was put into commercial operation in October 2009. By then, the whole line from western Kazakhstan to Xinjiang Uygur Autonomous Region of China has been joined. The second stage of the second phase is the reconstruction and expansion of the stations along the pipeline. By the end of 2015, the China–Kazakhstan oil pipeline has achieved an oil transportation capacity of 20 million  tons per year. Since the commissioning of the China– Kazakhstan crude oil pipeline, it has delivered more than 70 million tons of oil to China.33 China–Central Asia natural gas pipeline: the first transnational long-­ distance natural gas pipeline built by China, it begins at Gedaim (188 km) on the right bank of Amu Darya River on the Turkmenistan/Uzbekistan border, and passes through central Uzbekistan (525  km) and southern Kazakhstan (1293  km) before it arrives at Horgos in Xinjiang Uygur Autonomous Region, China, where it enters China and becomes part of China’s second line of the West-to-East Natural Gas Transportation Project. The pipeline consists of four parallel lines, Line A, Line B, Line C and Line D, each measuring 1,833 km in length. At present, Line A, Line 33  Central Asia Oil and Gas Pipeline Lights up the SREB, Economic Information Daily, 2014-11-17, http://jjckb.xinhuanet.com/2014-11/17/content_527523.htm.

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B and Line C have been put into operation in an all-round way. By the end of 2015, these lines will have had a gas transmission capacity of 55 billion cubic meters per year. The construction of Line D is now advancing steadily. China–Russia crude oil pipeline: with a total length of 999.04  km (72 km in Russia and 927.04 km in China), it starts from the Skovorodino offtake station of the Russian Far East crude oil pipeline, enters China at Mohe County and ends in Daqing of northeastern China’s Heilongjiang Province. It was put into operation in January 2011. The contract period is 20 years and the designed annual delivery capacity is 15 million tons, which can be increased to 30 million tons under the agreement reached by both parties.34 China–Russia natural gas pipeline: the China–Russia natural gas pipeline is divided into the east line and the west line. The east line starts from Kovykta Gas Field (Irkutsk) in eastern Siberia in Russia, to Chita and Buryat, and ends at Beijing (terminal). The contract period is 30 years, and it is expected to be open to use in 2018, with a maximum gas supply capacity of 38 billion cubic meters per year. The west line starts from Krasnoyarsk in western Siberia in Russia to Gorno-Altaisk and Lunnan County of Xinjiang Uygur Autonomous Region, China, with a total length of 2800 km, where it connects with China’s West-to-East Natural Gas pipeline ending at Shanghai, with a gas supply capacity of 30 billion cubic meters per year. During the Conference on Interaction and Confidence Building Measures in Asia (CICA) summit in 2014, China signed with Kyrgyzstan and Tajikistan, respectively, the Memorandum of Understanding on the Establishment of the Coordination Committee for Implementing Cooperation Agreement on China–Kyrgyzstan Natural Gas Pipeline Construction and Operation and the Agreement on the Establishment of the Management Committee for Implementation of the China- Tajikistan Natural Gas Pipeline Project. The signing of these agreements has opened the door to energy cooperation between China and Kyrgyzstan as well as Tajikistan. Pipeline transportation plays an important role in the important oil and gas production regions of the five Central Asian countries and Russia. At present, the total length of oil transportation pipelines put in operation in Kazakhstan is 11,000 km (including 2,798 km of China–Kazakhstan crude 34  China-Russia Crude Oil Pipeline Officially Put into Operation, Sohu News, 2011-1-1, http://news.sohu.com/20110101/n278633950.shtml.

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oil pipeline); Turkmenistan’s pipelines are mainly natural gas pipelines, with a construction length of about 8,000 km, including five natural gas pipelines for export, and 280 km of oil pipelines; Uzbekistan’s natural gas pipeline ranks first among the five Central Asian countries in terms of operation mileage with a total length of more than 13,000 km and a gas transmission capacity of 55 billion cubic meters, which can not only meet the domestic demand for gas export and transportation but also ensure the gas transit transportation for neighboring Turkmenistan. On June 30, 2011, the east section of Central Asia’s second line of the West-to-East Natural Gas Transportation Project was completed in Guangzhou, marking the joining up of the longest natural gas pipeline in the world with a total length of more than 10,000 km, which is also a milestone in strengthening the construction of energy connectivity among countries along the route. (2) Problems Some of the existing oil and gas pipelines, with a low transportation capacity, have exceeded their service life. As members of the Soviet Union, most of the oil and gas transportation pipelines in the five Central Asian countries were built in the twentieth century, many of which have reached their designed service life, whose actual transportation capacity is far lower than the designed transportation capacity. It is extremely urgent to construct new larger-diameter and greater-capacity oil and gas pipelines. In addition, oil and gas pipelines in oil-producing countries have not yet been fully connected. At present, the oil and gas pipelines in the five Central Asian countries have not yet joined up with those in such major oil- and gas-producing countries in the Middle East such as Iran and Iraq. Energy connectivity between the energy-rich areas of Asia and Europe has not yet been realized, and the advantages of pipeline transportation have not yet been brought into full play. 2.2.8

S tatus Quo and Problems of Power Grid Connectivity Construction of the SREB

(1) Status Quo of Power Grid Connectivity Construction Central Asia is rich in such energy resources as water and coal and has great potential for power generation. Among them, Kyrgyzstan and

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Tajikistan mainly generate hydropower, with a total development potential of 142.1 billion kW·h, accounting for 80% of the total installed capacity of Kyrgyzstan; the actual hydropower generating capacity of Tajikistan is approximately 263.5 billion kW·h, ranking the eighth in the world and accounting for 94% of the total installed capacity of the country. Kazakhstan mainly generates thermal power, accounting for about 88% of the total installed capacity of the country, while hydropower only accounts for 10%. Besides, Turkmenistan mainly generates natural gas power. By 2020, Central Asia will have become a very important power supply base in the SREB with an estimated total installed capacity of 8,100 kW. The current power grid system of the five Central Asian countries is the outcome of the reconstruction of that of the Soviet Union, with a long chain distribution from low to high latitudes. The working voltage of the main power grid is mainly 500 kV and 220 kV. Since the independence of the Central Asian countries in the 1990s, the power grid connectivity among these countries has been weakened, and it was further weakened when Turkmenistan disconnected the 500  kV and 220  kV power grids with Uzbekistan in May 2003.35 Kazakhstan’s power grid system is better constructed among the five Central Asian countries. The high-voltage power transmission network over 110  kV directly under Kazakhstan Electricity Grid Operating Company (KEGOC) has a total length of 24,400  km (including 1,420  km of 1,150  kV, 6,420  km of 500  kV, 16,000 km of 220 kV and 560 km of 110 kV). However, Kazakhstan’s power grid is faced with the problems of uneven national distribution and disconnection of the three regional power grids. Among the three existing domestic power grid systems in Kazakhstan, the power grid in southern Kazakhstan, including Almaty City, together with the power grids in Tajikistan, Turkmenistan and Uzbekistan, forms the Central Asia power joint system; the power grid in western Kazakhstan including Atyrau is connected to the Russian power grid; and the eastern and northern regions, with more than 70% of the total installed capacity of the country, have an independent power grid system. At present, Kyrgyzstan has more than 6,600 km of transmission lines of 110 kV and above, and 495 transformer substations from 35 kV to 500 kV

35  Yao Jiangang, Tang Jie, Li Xiquan, et  al. Research on Bidding Trading Mode of Generation-side Power Market [J], Proceedings of The Chinese Society for Electrical Engineering, 2004 (5): 78–83.

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with a total transmission capacity of 10,368 MW.36 On August 1, 2012, the North-South transmission and transformation artery project of Kyrgyzstan, a 500 kV transmission and transformation project from Datka to Keming contracted by TBEA Co., Ltd., was officially launched. The completion of the project will greatly improve the situation of the extreme power shortage in southern Kyrgyzstan.37 Very similar to the situation in Kazakhstan, Tajikistan’s national power grid system is divided into three regional power grids due to the barrier of domestic terrain: the southern power grid from Dushanbe to Vakhsh, the northern power grid of Soghd and the power grid of Badakhshan Autonomous Prefecture, which, without being connected to each other, undertake the task of local power supply for their respective regions.38 On September 8, 2009, Tajikistan’s 500 kV national main power grid project contracted by TBEA Co., Ltd. was successfully completed, ending Tajikistan’s history of no national independent power grid. The completion of the project also alleviates the power shortage in the southern part of Tajikistan in the winter dry season and improves the national power transmission and transformation efficiency.39 There are several power transmission and transformation lines in Turkmenistan, and the total length of the main power transmission lines above 110 kV reaches 10,349 km, of which the total length of 110 kV power transmission lines is 7,600  km, and the total length of 220  kV power transmission lines is 2,000 km; there are also two 500 kV power transmission and transformation lines with a total length of 749 km: the Mary-Karakul line (370 km) and the Xiejin-Dashoguz line (379 km).40 36  Brief introduction of Kyrgyzstan Energy, website of the Ministry of Land and Resources of the People’s Republic of China, 2010-8-29, http://www.mlr.gov.cn/ zljc/201008/120100828_754253.htm. 37  Xinjiang will become the foothold in power grid construction cooperation between China and Central Asian countries, www.xjnengyuan.com, 2012-9-10, http://xjny.ts.cn/ content/2012-09/10/content_72222580.htm. 38  Status Quo and Future Planning of Power Grid in Tajikistan, International Electric Powercn. net, 2005-12-8, http://www.chinapower.com.cn/newsarticle/1027/ new1027422.asp. 39  TBEA power transmission and transformation project officially put into operation, China powergrid, 2009-9-9, http://www.chinapower.com.cn/companyproduct/viewenterprises.asp?newsid=1000040864. 40  Profile of Turkmenistan Energy, website of the Ministry of Land and Resources of the People’s Republic of China, 2010-7-16, http://www.mlr.gov.cn/zljc/201007/ t20100716_154954.htm.

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The power grid system of Uzbekistan plays a key role in the power grid of Central Asia. The power generation equipment of Uzbekistan accounts for 50% of the total installed capacity of power in Central Asia; in addition, the transmission lines of Uzbekistan, with a total length of nearly 240,000 km, are connected with the power grids of the other four Central Asian countries and play a key role in the power distribution in the region. During the six years from 2009 to 2014, Uzbekistan invested about 3.7 billion US dollars in the transformation and reconstruction of 37 power facilities in the country. At present, six large-scale power grids have been reconstructed and 12 are still under reconstruction. The electric power cooperation between China and Russia began in the 1990s. On July 1, 1992, the transmission line from Blagoveshchensk of Russia to Heihe of China was officially switched on for power transmission; on July 20, 1996, Sivaki-18th Station of Daxinganling line, the second transnational transmission line between China and Russia, was officially put into operation for power transmission. On March 21, 2006, State Grid Corporation of China (SGCC) and Russian Joint Stock Company-Unified Energy System of Russia, RAO UESR (UES of Russia) signed an Agreement Between State Grid Corporation of China and Russian Joint Stock Company on Comprehensively Carrying out the Feasibility Study of Power Supply from Russia to China. It is estimated that by the end of 2015, the power supplied from Russia to China will reach 38 billion kW·h.41 It can be seen from Table 2.4 that in 2009, China’s electricity production and consumption were basically the same, while there was still a considerable amount of electricity surplus in the five Central Asian countries and Russia. By 2013, China’s electricity consumption has reached 5.3 trillion  kW·h, and the power installed capacity has increased to 1.25 billion  kW, becoming the largest country in the world in terms of power installed capacity. Meanwhile, China’s demand for power has been maintaining a high growth rate in recent years. From the current fundamentals of improving China’s energy consumption structure, China not only needs to import primary energy such as oil and natural gas from Russia and Central Asian countries but also needs to increase the import of clean power so as to achieve clean, low-carbon and sustainable development of energy. 41  He Jinghua, Reflections on Economic and Trade Cooperation of Electric Power between China and Russia [J], Northern Economy and Trade, 2015 (2):127–129.

9,900.45 6,132.98 1.43 8770.161

37,000 2,631.4 13.57 35708.1

Russia

0.170375 757.8399

4,448.07

787.1

Kazakhstan

0.067834 134.6702

1,985.29

161.27

Tajikistan

0.053833 74.60016

1,385.77

111

Kyrgyzstan

Data source: Global Macroeconomic Data, Sina Finance, 2015-1-2. http://finance.sina.com.cn/worldmac

Total generating capacity/100 million kW·h Power consumption per capita/ kW·h Total population/100 million Total power consumption/100 million kW·h

China

0.277674 454.2497

1,635.91

499

Uzbekistan

Table 2.4  Total power generation and consumption of countries in the core area of the SREB in 2009

0.049797 121.8005

2445.94

159.8

Turkmenistan

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The connection between Central Asia and China’s power grids will yield significant benefits. The connection of the power grids in Central Asia and Northwest China can give full play to the function of optimized allocation of power grid resources. Bordered by Xinjiang Uygur Autonomous Region, China, both Tajikistan and Kyrgyzstan have a high proportion of hydropower installed capacity with electricity surplus in summer and electricity shortage in winter. However, the power grid in Northwest China mainly uses coal power installed capacity. Its connection with the power grids in Central Asia, especially with those in Tajikistan and Kyrgyzstan, can realize cross-border mutual aid in winter and summer in terms of power supply, improve the utilization of clean energy, and promote regional energy conservation and emission reduction. (2) Problems First, the current power supply network of Central Asian countries is still operating in the pattern of the Soviet era. Countries like Kazakhstan and Tajikistan have not established their own independent national power grids, and a national power supply coordination mechanism has not yet been formed; as a result, power supply is still carried out separately within each region in these countries. Second, the Central Asian countries are backward in power transmission technology, with aging power grids, high power transmission loss and low transmission efficiency. The power transmission loss accounts for more than 50% of the total loss, and the power network is in urgent need of optimization and upgrading. Third, the unified power grid system in Central Asia cannot adapt to the power coordination and supply among Central Asian countries. Great contradictions still exist among Central Asian countries in terms of power supply, and the construction of new transnational and international transmission lines is urgently needed. Fourth, the power capacity in Central Asian countries cannot meet the current and future power consumption demand for economic and social development, which requires the construction of new power infrastructure. Finally, the trade between China and Russia, as well as China and the Central Asia countries in the field of electricity, is small in scale, the transmission capacity of the transnational transmission system is poor and the power cooperation is still limited to nuclear power and hydropower.

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2.3  Research on Implementation Plan of Infrastructure Construction of the SREB 2.3.1

 riority Should be Given to Capital Raising P for Infrastructure Construction Many of the countries along the route are developing countries with poor infrastructure construction that calls for improvement. However, these countries are relatively backward in their economy and do not have enough financial resources to support the large-scale construction of such infrastructure as traffic, information and energy facilities. Therefore, various sources of domestic and foreign funds should be sought and a pool of funds should be built to support the infrastructure construction of the SREB. First, the construction funds of the Silk Road Fund (SRF) and the Asian Infrastructure Investment Bank (AIIB) should be put into full use. At the same time, BRICs and SCO member states should also actively carry out consultations to speed up the operation and preparation of the BRICs Development Bank and the SCO Development Bank. Second, a new mode of capital operation of joint investment and mutual benefit in infrastructure construction should be actively explored. Third, social capital should be actively introduced into the infrastructure construction of the SREB, and private investment should be encouraged in the form of creditor’s rights and equity. Finally, bilateral local currency settlement of countries along the route should be actively promoted, and the multilateral settlement system of the SREB should also be promoted at an appropriate time. The scale of currency exchange should be expanded and financial cooperation should be deepened among countries along the route so as to provide more convenient financial services for accelerating infrastructure construction. 2.3.2

S econd Eurasian Continental Bridge International Cargo Intermodal Transport Company Should Be Organized In actual operation, due to the problems of long journey time and high freight costs, the Second Eurasian Continental Bridge, with low operational efficiency, shows obvious disadvantages compared with the First Eurasian Continental Bridge and maritime transportation. The establishment of an intermodal transport company jointly operated by many countries is one of the effective means to improve the operational efficiency of the Second Eurasian Continental Bridge. It is suggested that the countries in transit of the Second Eurasian Continental Bridge, including China,

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Kazakhstan, the Russian Federation, Belarus, Poland, Germany and the Netherlands, should be taken as the main shareholders, and Kyrgyzstan, Uzbekistan and other Central Asian countries should be included as the member shareholders to jointly establish the Second Eurasian Continental Bridge International Cargo Intermodal Transport Company responsible for the transportation business of the continental bridge. The new operation mode of a lump-sum payment for one journey should be implemented, and the intermediate links such as customs declaration and agency should be simplified so as to improve efficiency and reduce costs. 2.3.3 Construction of Key Projects Should Be Sped Up At present, the operation efficiency of such infrastructure as traffic, oil and gas pipelines, power grids and optical cables along the route is not high, and all-round connectivity has not yet been realized, which results from the imperfect construction of key traffic sections and key projects in the regions. Therefore, emphasis should be placed on speeding up the infrastructure construction in key parts of some regions so as to accelerate the realization of infrastructure connectivity in the SREB. In terms of railway construction, the planning and construction of China–Kyrgyzstan–Uzbekistan Railway, China–India Railway, China– Pakistan Railway and China–Afghanistan Railway should be accelerated so as to achieve the railway connectivity from China to South Asia and West Asia. In terms of the construction of energy facilities, it is necessary to speed up the oil and gas pipeline connection between Central Asian countries and other major oil- and gas-producing countries such as Iran and Iraq so as to achieve oil and gas connectivity from the Persian Gulf through Central Asia and Western China to Eastern China; in addition, it is necessary to upgrade the existing power supply grid network of Central Asian countries, and plan and design a new cross-border power supply system in Central Asia so as to promote the power grid connectivity between China and Central Asian countries, especially between China and Kyrgyzstan as well as Tajikistan, and realize the cross-season allocation of power resources. In terms of the construction of such information facilities as optical cables, the realization of optical cable connectivity between China and other neighboring countries such as Uzbekistan, Tajikistan and Turkmenistan, and optical cable connectivity between China and Central Asia, West Asia as well as North Africa should be accelerated so as to

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realize the direct connection of land optical cables between East Asia and West Asia as well as North Africa. 2.3.4

I nfrastructure Design Standards Should Be Unified and Facility Technology Should Be Improved To realize the standardized and uniform track gauge of all sections of the Second Eurasian Continental Bridge is an important means to solve the problem of the low transportation efficiency of the bridge. Without changing the 1,520  mm wide track gauge system of Central Asian countries, Russia and other CIS countries, we should make full use of the facilities such as original stations, cargo distribution centers and maintenance stations, and build a new track of standard gauge (1,435 mm) in the middle section of the Second Eurasian Continental Bridge so as to achieve a standard track gauge of 1,435 mm throughout the line of the Second Eurasian Continental Bridge. At the same time, China should speed up consultations and negotiations with Kazakhstan on the construction of the standard gauge railway from the Port of Horgos to Almaty, and realize the opening of the Almaty–Bishkek–Tashkent–Ashgabat standard gauge railway at an earlier date. In addition, China should speed up the upgrading of electrification of the railways in the middle section of the Second Eurasian Continental Bridge, Central Asian countries and eastern Russia, and improve railway supporting facilities such as stations and maintenance stations; the building of the Eurasian high-speed railway should be planned so as to greatly reduce the journey time from the west coast of the Pacific Ocean to the east coast of the Atlantic Ocean.

3   Study on Institutional Connectivity of the SREB 3.1  Railway Transportation 3.1.1 Status Quo of Railway Transportation The connectivity of road traffic is an important prerequisite and effective guarantee for the construction of the SREB. At present, there are three main railway lines connecting Eurasia: the first is the Eurasia Continental Bridge, which starts from Vladivostok in Russia and passes through Siberia railway before it finally reaches the Port of Rotterdam in Europe. The second is the Second Eurasian Continental Bridge, which starts from

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Lianyungang in China and passes through Eurasian countries before it finally reaches the Port of Rotterdam in Europe. The third great passage between Europe and Asia is the Chongqing–Xinjiang–Europe International Railway, which was officially commissioned in 2013. The Second Eurasian Continental Bridge was highly expected, but it has not played its due role due to poor coordination and institutional reasons. Compared with the Second Eurasian Continental Bridge, the Chongqing–Xinjiang–Europe International Railway is much better: the railway line passes through many Asian and European countries, but customs declaration, inspection and customs clearance can be done at one time, and it is not necessary to be transferred and reloaded during the journey, which greatly improves the efficiency and safety of transportation, and provides one fast and convenient international passage for the movement of goods between Europe and Asia. Moreover, the Wuhan–Xinjiang– Europe International Railway saw its maiden journey from Wuhan in 2012, the Chengdu–Europe International Railway from Chengdu in 2013, and the Chang’an International Railway from Xi’an at the end of 2013. All these lines opened up new international freight railway logistics channels between Europe and Asia. In addition, many railways along the route are under planning or construction, which will provide more options for exchanges and communication between Europe and Asia. 3.1.2 Problems The customs clearance procedures of the transport routes between Europe and Asia are very complex, which leads to increased transportation costs and weakened competitiveness of railway transport. The customs clearance system of Eurasian countries will have a huge impact on the costs and time of railway transportation between Europe and Asia. In order to protect the competitive edge of the domestic section of the first Eurasian Continental Bridge in international railway transportation, Russia adopts trade protectionism and provides less favorable treatment for the second Eurasian Continental Bridge, which makes its customs clearance procedures much more complicated than that of the first Eurasian Continental Bridge, and the Second Eurasian Continental Bridge also charges much more than the first Eurasian Continental Bridge, thereby greatly increasing the transportation costs and journey time. The corruption of countries along the line is very prominent and customs officers often extort money from transit trains, resulting in a large number of gray costs on the

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international transport routes.42 As a result, uncertainties exist in terms of journey time and costs, which greatly weakens the competitiveness of the Second Eurasian Continental Bridge. In addition, great differences exist in the laws and regulations concerning railway transportation of the countries along the international railways, which makes coordination much more difficult. Transnational logistics transportation involves many aspects, and every country has its own set of laws and regulations on means of transport, customs clearance as well as inspection and quarantine. Inevitably, there will be some contradictions and conflicts between these laws and regulations, which will reduce the efficiency of international logistics transportation. In addition, countries along the Second Eurasian Continental Bridge have not signed a unified international cargo transport treaty.43 Due to the lack of a unified multilateral treaty, it is difficult to apply unified rules; as a result, there are more customs clearance procedures, and logistics costs are constantly increasing. 3.1.3 Solutions Countries along the route should strengthen information exchange, establish information-sharing platforms and actively promote the signing of unified multilateral treaties. Timely exchange and sharing of information is a necessary guarantee for the smooth operation of international logistics channels. At present, many complex legal subjects, relations and rules are involved in the field of transportation and logistics along the route. Worse still, there are many treaties and conventions, while different countries have joined different conventions, all of which makes coordination very difficult. The best solution is that all countries of the SREB sign a unified multilateral agreement and establish unified rules, but this goal is very difficult to achieve in the short term. At present, what all countries can do is to strengthen the communication and exchange of information, build an efficient and convenient information-sharing platform, continuously enhance the transparency of policies and systems of all the countries, promote cooperation among countries and gradually promote the unification

42  Luo Gang, Discussion on Coordination and Promotion of Transportation and Logistics System in the Construction of “SREB”, Research on Development, 2014 (2): 45–49. 43  Chen Yundong, Legal Thinking on the Construction of the Third Eurasian Continental Bridge [J], Academic Exploration, 2008 (2): 67–71.

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of certain rules and systems so as to pave the way for the signing of unified multilateral treaties. In addition, countries along the route should establish and constantly improve dispute resolution mechanisms. These countries have different systems and interests, which inevitably leads to conflicts and disputes in the construction and operation of transportation lines. Without efficient dispute resolution mechanisms and a fair and just judicial environment, there will be great resistance to cooperation between countries when contradictions arise. Therefore, the establishment of dispute settlement systems is an important guarantee for smooth transportation and economic cooperation in the SREB. Only in this way can we gradually remove trade barriers among countries and reduce unnecessary mutual suspicion so as to promote the development of the SREB. 3.2  Trade and Investment 3.2.1 Status Quo of Trade and Investment The economic and trade cooperation between China and Central Asian countries is highly complementary. In terms of trade structure, the industrial structure of Central Asian countries is generally single, and most of the export commodities are energy and mineral resources as well as agricultural and sideline products. China’s exports to Central Asian countries are relatively balanced, with large-scale machinery and labor-intensive products as well as some high-tech products. It can be seen that China and Central Asian countries are highly complementary in terms of resources and products with comparative advantage. Since the opening of the Second Eurasian Continental Bridge, the economic and trade cooperation between China and Central Asia has witnessed rapid development, and the trade structure and level have been greatly improved. In 2013, China’s trade volume with the Central Asian countries of Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan reached US $50.2 billion.44 China has become the largest trading country of Kazakhstan and Turkmenistan. At the same time, China has become the largest investor in Uzbekistan and Kyrgyzstan and the second-largest investor in Tajikistan.45 China and Central Asian countries have scored great achievements in economic and  China Statistical Yearbook 2014, China Statistical Publishing House, 2014.  Hui Ning, Yang Shidi, Connotation, Cooperation Content and Realization Path of the SREB [J], Journal of Yan’an University (Social Science Edition), 2014 (4): 60–66. 44 45

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trade cooperation, which, to a certain extent, has contributed to the rapid economic development of Western China. There is a solid foundation for the economic and trade cooperation between China and European countries. European countries, with advanced technology and outstanding innovation ability, are placed at the high end of the industrial chain. With the rapid development of China’s economy and the constant improvement in its economic strength, China has a very broad market, but at the same time, it is faced with tremendous pressure from the adjustment and upgrading of its economic structure. Therefore, there is a broad foundation for the economic and trade cooperation between China and the EU.  Since the comprehensive strategic partnership of cooperation between China and the EU was established, the scale of economic and trade cooperation between China and European countries has been expanding. In 2013, the trade volume between China and European countries reached 781.1 billion US dollars,46 and China and European countries have become important trading partners. Since the 1990s, China has signed a series of legal documents with Central Asia and other relevant countries, covering such aspects as economic and trade cooperation and investment protection. Some progress has also been made in the mechanisms of economic and trade cooperation. At present, the cooperation institutions mainly include the China-­ Kazakhstan Intergovernmental Committee for Economic and Technological Cooperation, the China-Kazakhstan Cooperation Committee, the China-Kyrgyzstan Intergovernmental Committee for Economic and Trade Cooperation, the China-Uzbekistan Intergovernmental Committee for Economic and Trade Cooperation and the China-Turkey Intergovernmental Committee for Economic and Trade Cooperation. These institutions provide good platforms for economic and trade cooperation between China and Central Asian countries.47 These legal systems and cooperation mechanism platforms provide the legal basis and institutional guarantee for the economic and trade cooperation between countries along the route.

 China Statistical Yearbook 2014, China Statistical Publishing House, 2014.  Wu Hongwei, Political and Economic Relations between China and Central Asian Countries: Review and Prospect [J], Journal of Xinjiang Normal University, 2011 (2): 39–46. 46 47

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3.2.2 Problems Some legal provisions signed between China and relevant countries are simple and outdated with weak binding force. The economic and trade agreements signed between China and Central Asian countries in the 1990s mainly aimed at giving each other the most favored nation treatment in terms of import and export commodities, customs duties and other customs formalities. However, at present, China and some Central Asian countries have joined the World Trade Organization (WTO), and other countries are also actively negotiating for accession to the WTO. Therefore, there is no need for the existence of the most favored nation treatment in the treaties signed between China and Central Asian countries. Moreover, most of the treaties are simple in content and lack detailed rules, thus making it difficult to implement them. In addition, these treaties lack the binding force to restrict the actions of the parties involved, and the states have more freedom to decide whether to comply with and fulfill their obligations under the treaty.48 In addition, the countries along the route have quite different laws and regulations, unstable policies and regulations, and a poor environment for law enforcement. There are many laws and regulations in Central Asia, but they lack transparency, coherence and predictability. In these countries, presidential decrees and cabinet documents often replace the legal systems to intervene in economic activities. This instability of laws, policies and regulations has a very negative impact on economic and trade cooperation. There are many restrictions on the application for work visas, putting forward many requirements for foreign employees in terms of education level, length of service, work experience and so on, and the application and approval procedures for a work permit are very complicated, which increases the costs of cooperation between the two sides and creates obstacles to the exchanges between enterprises in various countries. In terms of investment, relevant countries have formulated strict examination and approval systems for foreign investment. They have not only set up various market access barriers and harsh conditions for foreign investment, but the government also has great power to levy private investment and properties, so the enterprises are faced with very high investment risks.

48  Yuan Lihua, An Analysis on the Legal Guarantee of Sub-regional Economic Cooperation in the SREB [J], Journal of Lanzhou University of Finance and Economics, 2014 (4): 28–35.

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3.2.3 Solutions We need to strengthen the communication and exchanges between governments on policies and regulations, and continue to enhance economic and trade cooperation. The legal system of a country is closely related to its domestic political, economic and social environment, and will not undergo great changes in a short period of time. Therefore, we need to track and analyze the policies, regulations and legal systems of these countries, and strengthen the negotiation and exchanges between government departments so as to gradually improve the current situation; we need to promote cooperation in the areas of reciprocal tariff, capital and information, and gradually establish a regional economic and trade cooperation mechanism so as to lay the foundation for the gradual removal of trade and investment barriers in the region. In addition, China should play a leading role in the negotiation of regional treaties and promote the formulation of international treaties with a stronger binding force that can reduce the institutional barriers of economic and trade cooperation among countries in a short period of time and play an important role in improving the legal environment of all countries. At the same time, it is necessary to establish the mechanism for the implementation of international treaties so as to achieve the intended effects of these treaties. An expert committee should be set up to supervise the implementation of the treaties by all countries, urge them to fulfill their obligations, find difficulties and problems in the process of implementation and discuss corresponding countermeasures for all countries. 3.3   Technological Exchanges and Cooperation 3.3.1 Status Quo of Technological Exchanges and Cooperation The progress of science and technology is playing an increasingly important role in the process of economic development. With the gradual deepening of the construction of the SREB, relevant countries will have more opportunities for exchanges and cooperation in the field of science and technology. In recent years, cooperation and exchanges between China and Asian and European countries in the field of science and technology have been developing rapidly. With the support of the Ministry of Science and Technology of the People’s Republic of China, the construction of the China-Central Asia Science and Technology Cooperation Center has been launched in the Xinjiang Uygur Autonomous Region, China,

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covering such aspects as science and technology information exchange, technology output, academic exchange and talent training. After its completion, the center will play an important role in international science and technology cooperation in Central Asia. In 2011, the first China-Eurasia Expo Science and Technology Cooperation Forum was held in the Xinjiang Uygur Autonomous Region, China, which has become an important platform for science and technology cooperation and exchanges between China and Asian and European countries.49 In the field of agricultural science and technology cooperation, relevant countries have their own advantages and disadvantages, and there is a large space for technological exchanges and cooperation. In the field of energy science and technology cooperation, China has obvious advantages, while Central Asian countries are rich in energy resources; China provides technology to Central Asian countries, and Central Asian countries provide energy to China, so the energy science and technology cooperation between the two sides are of great significance. In the field of climate and environmental science and technology, China and Central Asian countries are faced with the common challenges of improving the harsh climate and protecting the environment. China has signed a series of rules and agreements on improving the climate and protecting the environment with Central Asian countries, which demonstrates the determination to strengthen science and technology cooperation in the field of climate and environment and to jointly cope with the challenges.50 The EU has advanced science and technology as well as strong innovation capability. Many technologies and equipment imported by China come from the EU. With the construction of the SREB, China will strengthen its cooperation with the EU in such fields as information technology, biotechnology, clean energy technology, energy development technology and high-tech manufacturing technology. 3.3.2 Problems The technological exchanges and cooperation between China and Central Asia are still relatively weak and lack policy support. China and Central Asian countries have scored some achievements in technological exchanges, 49  Hui Ning, Yang Shidi, Connotation, Cooperation Content and Realization Path of the SREB [J], Journal of Yan’ an University (Social Science Edition), 2014 (4): 60–66. 50  Ma Lili, Ren Baoping, SREB Development Report 2014, China Economic Publishing House, 2014: 502–505.

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but on the whole, the scale of technological exchanges and cooperation between the two sides is still relatively small. Most of the projects are small and there are few large-scale technological cooperation projects, leading to few benefits of technological exchanges and cooperation. The technological exchanges and cooperation between the two sides lack policy support, reasonable planning and clear goals. Moreover, due to the changeability and lack of consistency and coherence of policies, some policies conflict with each other, making it difficult to carry out technological exchanges and cooperation smoothly. In addition, the mechanism of technological exchanges and cooperation between China and Central Asian countries is not perfect, and the technological exchanges and cooperation between China and Central Asian countries are relatively single, mainly in the form of scientific and technological investigations and academic conferences. The exchanges and cooperation are not deep enough, and deep-level exchanges and cooperation are very limited, so the benefits of technological exchanges and cooperation are naturally not high. Generally, the legal systems of Central Asian countries are not perfect, which leads to the imperfect mechanisms of technological exchanges and cooperation between China and these countries, making technological exchanges and cooperation non-standard. Without good mechanisms of technological exchanges and cooperation, many cooperation projects cannot be carried out smoothly, which greatly increases the resistance of technological exchanges and cooperation between the two sides. Moreover, different policies and standards of different countries greatly limit the space for exchanges and cooperation between the two sides. 3.3.3 Solutions We need to increase the breadth and depth of technological exchanges and cooperation. China and Central Asian countries should pay more attention to the technological exchanges and cooperation in areas not related to resources but related to social welfare and people’s livelihood, such as transportation, education, communication and infrastructure. The technological exchanges and cooperation in infrastructure such as roads, railways, communications, information and electricity in the region should be expanded. We need to increase investment in the fields of information, ecology, communication and chemical industry; expand cooperation space in high-tech fields; and promote the development and upgrading of bilateral technological exchanges and cooperation projects. In addition, the

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two sides should strive to achieve the efficient integration of talents, capital and technology by establishing a joint laboratory and R&D center, setting up a common goal and integrating the superior resources of both sides so as to jointly solve the technological problems and improve the labor productivity and the science and technological competitiveness. We need to give full play to the guiding role of the governments to strengthen institutional cooperation and promote the improvement of cooperation mechanisms. The governments are an important driving force for technological exchanges and cooperation. Therefore, they should make long-term strategic development plans for the long-term and common interests of both sides, strengthen guidance to governments of all countries and standardize their behaviors through regional organizations such as the SCO so as to ensure smooth technological exchanges and cooperation. In addition, we need to learn from the advanced cooperation mechanisms of other regions, constantly mend the loopholes and promote the constant improvement and perfection of the existing cooperation mechanisms. Finally, we should make good use of the international legal systems and give full play to the binding force of international law so as to promote the standardization and internationalization of the mechanisms for technological exchange and cooperation.51 3.4  People-to-People Exchanges 3.4.1 Status Quo of People-to-People Exchanges On the whole, China has close top-level exchanges and frequent non-­ governmental exchanges with countries along the route. With expanding people-to-people exchanges and cooperation, deepening cooperation platforms and improving cooperation mechanisms, there are broad prospects for further development. The governments are the main force in promoting people-to-people exchanges. In 2013, China signed a joint declaration on establishing or deepening strategic partnerships with all Central Asian countries and made strategic deployment and planning for people-to-people cooperation. During the visit of the president of Tajikistan to China in 2013, China and Tajikistan signed the Joint Declaration of the People’s Republic of China and 51  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Publishing House, 2014: 507.

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the Republic of Tajikistan on the Establishment of Strategic Partnership (hereinafter referred to as the joint declaration). The joint declaration pointed out that people-to-people cooperation is of great significance for strengthening the friendship between China and Tajikistan so the two sides will further strengthen exchanges and cooperation in culture, education, tourism, health and sports; expand exchanges among news media, academic institutions, literary and art groups and youth organizations; and that the two sides will hold such activities as culture day and culture festival for each other. During his subsequent visit to Central Asian countries, Chinese President Xi Jinping signed the Joint Declaration of the People’s Republic of China and Turkmenistan on Establishing Strategic Partnership, the Joint Declaration of the People’s Republic of China and Uzbekistan on Further Developing and Deepening Strategic Partnership, the Joint Declaration of the People’s Republic of China and Kazakhstan on Further Deepening Comprehensive Strategic Partnership, and the Joint Declaration of the People’s Republic of China and Kyrgyzstan on Establishing Strategic Partnership.52 All of these declarations stress the importance of people-to-people cooperation for the development of bilateral relations. They point out that the two sides will continue to expand exchanges and cooperation in the fields of culture, education, science, art, sports, tourism, archives, radio, film and television, press and publication as well as social sciences, and that the two sides will organize cultural events for each other, and continue to promote cooperation in organizing international student programs and language teaching. The mechanisms of regional cooperation continue to be enriched. At present, under the multilateral cooperation platforms such as the SCO, the China-ASEAN Cooperation Framework, the China-Central and Eastern Europe (CEE) Cooperation Framework, the East Asia Summit (EAS), the Asia-Europe Meeting (ASEM), the BRICs Mechanism, the China-Pakistan Economic Corridor (CPEC), the Mumbai-China-­ Myanmar Economic Corridor (MCMEC), and the Greater Mekong Sub-­ regional Cooperation Mechanism (GMSCM), cooperation in such fields as education, culture, science and technology as well as health is constantly enriched, the areas of cooperation are constantly expanding and the cooperation mechanisms are constantly improving. The SCO regards practical people-to-people cooperation as one of the “three pillars” (the other two 52  Sun Li. Wu Hongwei, Yellow Book of Central Asia: the Development Report of Central Asian Countries (2014) [M], Social Sciences Academic Press (China), 2014: 258

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being security-enhancing endeavors, and trade and economic cooperation). It has established a meeting mechanism of ministers of culture, a meeting mechanism of ministers of emergency relief and a meeting mechanism of ministers of education; set up expert groups on environmental protection, health and tourism; and built a meeting mechanism of heads of the department of environmental protection and other departments through consultation. Member states also have signed cooperation documents on disaster relief assistance, education, culture, health and so on.; established the SCO University; and held such activities as joint disaster relief exercises, cultural and art festivals, university student gatherings and radio and television media forums for many times. 3.4.2 Problems Although China and the countries related to the SREB have scored great achievements in people-to-people exchanges, there are still many problems in the exchanges and cooperation as the countries in the region still fail to have a thorough understanding of China and they still harbor doubts about China. First, cultural exchange activities have but a small audience with little brand influence. China’s cultural exchange activities in Central Asia are generally organized by the government. There are but a few performances, which are mainly for the social elites in these countries, while there are very few touring activities, so the ordinary people in these countries, who have a strong interest in Chinese culture and hope to have a deeper understanding of Chinese culture, rarely have any access to these performances. While carrying out teaching activities, the Confucius Institute also holds some small-scale cultural exchange activities, but these activities still could not meet the needs of people in Central Asia to have a deeper understanding of and wider experience in Chinese culture. Most people in Central Asia have a limited understanding of Chinese culture except Chinese Kung Fu and Chinese cuisine.53 In addition, Chinese troupes are not well-known and show no brand influence or appeal in these countries although the programs are very wonderful. Second, Chinese teaching in Central Asia is not supported by universities and the teaching level needs to be improved. At present, many countries, including Russia, the United States and Turkey, are running 53  Sun Li. Wu Hongwei, Yellow Book of Central Asia: the Development Report of Central Asian Countries (2014) [M], Social Sciences Academic Press (China), 2014: 264.

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universities in Central Asia, and Russia and Turkey rank top two in terms of the number of universities in the region. China is a regional big country as far as education is concerned and many Chinese universities have great influence in the world, but China has not yet set up a university in Central Asia. The Confucius Institute focuses on Chinese language teaching, but the language cannot be effectively combined with the major, which hinders further promotion of the Chinese language. Many Confucius Institutes and Confucius Classrooms in Central Asian countries are short of teaching materials due to China’s inadequate preparation. In addition, the teaching materials are not localized and there is no corresponding adjustment according to the culture and history of Central Asia as well as the history of China’s interaction with the region, which reduces the effect of Chinese language teaching. Finally, tourism exchanges and cooperation are developing slowly. Tourism is not only an economic exchange activity but also a cultural one. Tourism cooperation between China and Central Asian countries is still in its infancy. On May 29, 2012, representatives of cities attending the Silk Road City Mayor Forum 2012 signed the Declaration of Silk Road City Mayor Forum 2012 (hereinafter referred to as the “forum declaration”) in Xi’an. According to the forum declaration, cities along the route will strengthen exchanges and cooperation in trade, culture, tourism as well as science and technology and create an international tourism cooperation alliance along the route.54 However, due to the lack of a detailed plan for further work, substantive results have not been achieved in the tourism cooperation of all parties and there are relatively few personnel exchanges among countries for tourism purposes. 3.4.3 Solutions First, in people-to-people exchanges, we should make cultural activities accessible to a larger audience and foster brand awareness. Take the “Happy Spring Festival”, for example, we need to change this cultural activity from a one-time visit to a multi-country tour, building it into a well-known brand. We need to take the tour of the “Happy Spring Festival” in various countries as an opportunity to build a well-known troupe and program brands. Only by building the troupes and programs into famous brands can commercial performances be realized so that 54  2012 “Silk Road” City Representatives Sign Meeting Declaration, International Online, 2012-5-29, http://gb.cri.cn/27824/2012/05/29/59515370433.htm.

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cultural exchange activities will no longer be organized by the government so that they have a larger audience and become more accessible to the ordinary people. Only when China’s cultural exchange activities have a broad mass base in Central Asia can people in Central Asia have a deep and correct understanding of China and the Chinese culture, and only then can friendly feelings of the Central Asian people toward the Chinese people be cultivated. Second, China should strengthen its cooperation with Central Asian countries in the field of education. Cooperation in the field of education is of great significance to cultural exchanges and is also an important way to cultivate the friendly feelings of young people between China and Central Asia. At present, the elites of many countries in Central Asia are sending their children to study in China and there is also a “Chinese craze” in Central Asia. We should seize this opportunity to set up universities in Central Asia so that more people in the region can receive Chinese education. Finally, China should strengthen exchanges and cooperation with Central Asian countries in the field of tourism. Tourism can not only promote economic exchanges and cooperation but also play a crucial role in people-to-people exchanges and cooperation. China and Central Asian countries should vigorously promote connectivity in the field of tourism, simplify procedures and expand the scale of personnel exchanges. China’s provinces along the route should be encouraged to carry out cooperation with the five Central Asian countries on the theme of “SREB” and jointly build tourism routes and products. We should strengthen cooperation in tourism security, formulate relevant rules and regulations and establish mechanisms to deal with emergencies so as to provide institutional guarantee and a good environment for tourism exchanges between China and Central Asian countries and promote the vigorous development of cross-­ border tourism.

4   Research on Personnel Connectivity in the SREB On November 8, 2013, Chinese President Xi Jinping attended the dialogue on Strengthening Connectivity Partnership in Beijing and delivered an important speech entitled “Connectivity Spearheads Development and

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Partnership Enables Cooperation”.55 At the meeting, Xi Jinping made a new interpretation of the connotation of connectivity: “More importantly, it (connectivity) should be a three-way combination of infrastructure, institutions and people-to-people exchanges and a five-way progress in policy communication, infrastructure connectivity, trade link, capital flow, and understanding among peoples”.56 Among the “five links”, understanding among peoples is very important to realize the other “four links”. Based on the broad support of people from all countries along the route, we must enhance mutual understanding among the grassroots through strengthening friendly exchanges among peoples from all countries along the route so as to lay a solid foundation for friendly regional cooperation in all fields. At the meeting, President Xi Jinping stressed that “we should strengthen the social foundation for Asian connectivity by promoting people-­to-people exchanges”. To enhance understanding among peoples is to eliminate the barriers of communication among peoples of all countries along the route, enhance mutual understanding and get along harmoniously by accepting or respecting each other’s customs and beliefs so as to minimize the resistance of cooperation and maximize the success of political and economic cooperation among the countries. The realization of understanding among people depends on various forms of personnel exchanges. We should reduce restrictions on the flow of people, build connectivity in personnel exchanges and carry out extensive personnel exchanges so as to enhance mutual understanding and cement friendship among peoples of all countries. As Gao Zhigang (2014) proposed, only by strengthening the educational cooperation and cultural exchanges between China and Central Asian countries can the two sides be emotionally close to each other and accept each other culturally so that it can enhance the understanding of Central Asian countries about China and further breakdown barriers and remove their misunderstanding about China. In addition, it can also play a role in deepening friendship among countries and lay a solid foundation for regional cooperation among countries in the construction of SREB.57 55  Han Jie, Tan Jingjing, Wu Xia, et al. Five Suggestions Show the New Picture of Asian Connectivity, Xinhua Daily Telegraph, November 10, 2014, 56  Cui Jingming, WangJian, The Belt and Road Initiative: China’s Great Strategy of Diplomacy [J], Current Affairs Report, 2015 (1): 26–29. 57  Gao Zhigang, Problems and Policy Suggestions for Xinjiang’s Participation in the Construction of the New SREB [J], Regional Economic Review, 2014 (2): 92–94.

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Li Qi (2014) held that people-to-people exchanges and cooperation are an important part of the “five links” and that only by taking it as the premise and cornerstone of the “five links” can peoples of all countries along the route truly respect differences, coordinate positions, consolidate and deepen their relations and enhance mutual benefit and trust so as to successfully carry out regional cooperation in all fields.58 After President Xi Jinping proposed the connectivity construction of the three-way combination of infrastructure, institutions and people-to-­ people exchanges, many experts and scholars have divided the connectivity construction into three aspects: “hard connectivity, soft connectivity and personnel connectivity”. Hard connectivity corresponds to the connectivity of infrastructure construction; soft connectivity corresponds to the connectivity of rules and regulations; personnel connectivity corresponds to the connectivity of personnel exchanges, which fully reflects the important role of personnel exchanges in connectivity construction. Therefore, in building the SREB, we need to take a positive attitude and practical measures to reduce the restrictions on the flow of people, improve the facilitation of personnel exchanges and realize personnel connectivity in personnel exchanges so as to continuously enhance the understanding and friendship among the peoples of the countries along the route to consolidate the foundation of Asian connectivity. 4.1  Status Quo of Personnel Connectivity China has established diplomatic relations with Central Asian countries since their independence more than two decades ago. Since then, the relations between China and these countries have developed soundly and a series of important results have been achieved. In recent years, China’s personnel exchanges with Central Asian countries have been expanding in scale, level and field. Bilateral and multilateral personnel exchanges among governments, media and organizations have been increasing in strength and frequency. In terms of specific contents, personnel exchanges between China and Central Asian countries are mainly in the forms of political visits, scientific and technological cooperation, educational cooperation and cultural exchanges. 58  Li Qi, Geo Strategic Implications and Practice of China and Central Asia’s Innovative Cooperation Mode and Joint Construction of the SREB [J], Journal of Shaanxi Normal University (Philosophy and Social Sciences Edition), 2014 (4): 5–15.

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In terms of political visits, China has carried out top-level exchange visits with Central Asian countries, gradually established strategic partnerships with these countries and signed a series of cooperation documents in the fields of politics, economy and trade, finance, culture, education, etc. On June 15, 2001, the heads of state of four Central Asian countries, Russia and China signed the SCO Charter and established the SCO. From August 26 to 27, 2008, then Chinese President Hu Jintao paid a state visit to Tajikistan and signed cooperation documents on politics, economy, trade, finance and culture with the head of state of Tajikistan.59 On May 18, 2014, Chinese President Xi Jinping held talks with the president of Kyrgyzstan in Shanghai. The two sides spoke highly of the achievements of China–Kyrgyzstan cooperation in various fields and vowed to promote friendship and mutual trust, achieve mutual benefit and win-win results, deepen China–Kyrgyzstan strategic partnership and jointly maintain regional peace and stability.60 In terms of scientific and technological cooperation, China has carried out cooperation with Central Asian countries mainly in the fields of agriculture, energy and meteorology. Central Asian countries have relatively backward agricultural science and technology with few facilities for grain and oil processing and storage, relatively backward technology in oil processing equipment, low-level mechanization in grain planting and insufficient construction of water conservancy facilities. However, China has always been a major agricultural country. In recent years, China’s agricultural modernization level has been constantly improved, and the level of science and technology in water-saving irrigation, pest control, water conservancy projects and deep processing of agricultural products has also been constantly improved. China’s cooperation with Central Asian countries in agricultural science and technology can achieve mutual benefit and win-win results. In the field of energy science and technology, China’s energy dependence on foreign countries has become increasingly high in recent years. To carry out cooperation with Central Asia countries in energy science and technology is an important measure for China to implement its strategy of diversified energy. On December 30, 1994, the Chinese Ambassador 59  Hu Jintao starts his state visit to Tajikistan and attends the SCO summit, 2008-8-27, http://world.people.com.cn/gb/1024/773081.html. 60  Du Shangze, Pei Guangjiang. Xi Jinping’s talks with President of Kyrgyzstan, Peoplers Daily, May 19, 2014.

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to Kazakhstan and the Minister of the Ministry of Education and Science (MES) of Kazakhstan signed a document on science and technology cooperation on behalf of their respective governments.61 The oil reservoir of Kenjiyak Oil Field in Kazakhstan is buried more than 4,000 m deep underground with a 3,000-m salt gypsum layer in between, making its development a world-class difficulty. Oil companies from the former Soviet Union, Europe and the United States have abandoned their plans to develop oil there. China National Petroleum Corporation (CNPC) mobilized excellent domestic experts in oil drilling and development to carry out systematic and joint research, and finally successfully overcome the difficulties. In 2008, China Petroleum Technology & Development Corporation (CPTDC) and China National Machinery Industry Corporation (SINOMACH) provided Uzbekistan with more than hundreds of millions of US dollars of oil and gas exploration and drilling equipment.62 In the field of meteorological cooperation, from April 15 to 22, 1996, the director of the China Meteorological Administration led a delegation to visit Kazakhstan. The two sides discussed the implementation of cooperation in the field of meteorology between China and Kazakhstan and decided to carry out cooperation in various fields of meteorology, including weather forecast, regional climate, etc.63 In 2009, China and Kazakhstan cooperated on the short-term weather forecast, satellite data as well as sand and dust storm prevention and control.64 In terms of education cooperation, China’s cooperation with Central Asia is mainly carried out in the forms of Confucius Institutes, international students exchange, educational cooperation agreements and academic seminars. As of August 2015, China has set up ten Confucius Institutes in the five Central Asian countries: four in Kazakhstan, three in Kyrgyzstan, two in Uzbekistan and one in Tajikistan,65 which have played a significant role in helping Central Asia improve the level of Chinese ­language teaching, spreading Chinese culture and enhancing friendship  Chinanews.com, http://www.chinanews.com/gn/news/2010/06/08/2329828.shtml.  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Publishing House, 2014: 504. 63  Chinanews.com, http://www.chinanews.com/gn/news/2010/06-08/2329828.shtml. 64  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Publishing House, 2014: 505. 65   Official website of Hanban, http://www.hanban.org/confuciousinstitutes/ node_10961.htm. 61

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between China and Central Asian countries. From June 10 to 17, 1996, the Minister of Kazakhstan’s Ministry of Education led a delegation to visit China and signed the agreement document on education cooperation between Kazakhstan and China.66 On September 27, 1999, Kazakhstan and the Chinese Embassy in Kazakhstan jointly held an international seminar on the past, now and future of the two countries.67 Judging from the number of international students from Central Asia to China, we can see that the young people in Central Asia show great interest in China. Since 2005, the number of international students from Central Asia to China has been increasing by about 25% every year and many of these students have won various scholarships provided by the Chinese government.68 In terms of cultural exchange, the exchange activities between China and Central Asian countries include holding cultural festivals, cultural weeks and cultural days, establishing cultural centers, carrying out cross-­ border performances by song and dance as well as art troupes, holding large-scale cultural exchange activities such as “International Music Festival” and other cultural and art exchanges and launching cultural cooperation programs. From August 31 to September 9, 1998, the song and dance troupe on the delegation led by President Niyazov of Turkmenistan visited China and put on performances in Beijing, Urumqi and Turpan. From September 22 to 29, 2001, at the invitation of the Ministry of Culture of the People’s Republic of China, a cultural delegation from Kazakhstan visited China and the ministers of the Ministry of Culture of both sides jointly signed documents on the cultural cooperation plan.69 From August 24 to 28, 2007, Zhou Heping, then Vice Minister of the Ministry of Culture of the People’s Republic of China, led a delegation to visit Uzbekistan and attended the celebration of the 2,750th anniversary of Samarkand and the International Music Festival focusing on the theme of “The Oriental Melody”. From September 25 to 30, 2011, the large-scale cultural exchange activity of “Chinese Culture Week” jointly held by the government of Kyrgyzstan, the government of Xinjiang Uygur Autonomous Region of China and the Chinese Embassy in Kyrgyzstan was held in Kyrgyzstan. These cultural exchange activities,  People.com.cn, http://politics.people.com.cn/gb/8198/4013304.html.  Fmprc.gov.cn, http://www.fmprc.gov.cn/ce/ceka/chn/zhgx/zhgxgk. 68  HeiliguliNyazi, Li Dan, Foundation of the Construction of the SREB—People-to-­ People and Cultural Cooperation [J], Journal of Xinjiang University (Philosophy, Humanities and Social Sciences), 2013 (6): 28–30. 69  Mfa.gov.cn, http://www.mfa.gov.cn/ce/ceka/chn/zhgx/zhgxgk/t/1041814.htm. 66 67

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warmly welcomed by the people of these countries, have shortened the distance between Chinese people and the peoples of Central Asian countries, greatly deepened the understanding and enhanced the friendship among the peoples of all countries in the region. 4.2  Problems in Personnel Exchanges Although the personnel exchanges between China and Central Asian countries are increasingly frequent on a larger scale, at a higher level and with expanded areas, there are still deficiencies in various fields of exchanges. In the field of education cooperation, although China and Central Asian countries have carried out education cooperation of various forms, the depth of higher education cooperation between China and these countries is far from desirable, which is manifested in the fact that China has not yet set up universities in Central Asia. By now, Russia, the United States and Turkey have joined hands with Central Asian countries to run universities in the region, and Russia and Turkey rank top two in terms of the number of universities in the region. Although China has become a regional major country of education and many of China’s universities have shown international influence even greater than that of Russian universities, China has not yet set up a university in Central Asia,70 which is very unfavorable to the education cooperation between China and Central Asian countries. First of all, without institutions of higher education in the region, China can only carry out higher education cooperation with Central Asian countries in the form of exchanging students. As a result, China’s education cooperation with Central Asian countries will lag behind that between Central Asian countries and countries like the United States and Russia. Consequently, Central Asian countries will tend to carry out cooperation with the United States, Russia and other countries in some other fields. Second, since China has not set up universities in Central Asia and education cooperation is limited to Chinese language teaching and cultural exchanges, it is not conducive to the future employment of Central Asian students, which in turn will dampen the enthusiasm of students in Central Asia to learn Chinese, and, in the long run, will weaken the function of Confucius Institutes. Finally, the lack of cooperation in the 70  Sun Li, Wu Hongwei, Yellow Book of Central Asia: Development Report of Central Asian Countries (2014) [M], Social Sciences Academic Press (China), 2014:265.

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field of higher education is also not conducive to the connectivity of personnel exchanges between China and Central Asian countries. To promote the connectivity construction of personnel exchanges between China and Central Asian countries is to remove the barriers in communication and facilitate personnel exchanges. However, China has not yet set up a single university in Central Asia, which is not good for carrying out higher-­ level personnel exchanges. In terms of scientific and technological cooperation, China has carried out limited cooperation with Central Asian countries in the field of energy, the scientific and technological cooperation is mainly in the fields of agriculture, oil and gas resources and meteorology and the cooperation is yet to be deepened. Central Asian countries are rich in oil and gas resources, whose distribution is not balanced at all, which leads to the unbalanced supply of energy in the region; the energy production of Central Asian countries is dominated by traditional fossil energy, and the proportion of new energy in their energy production and consumption is very small, so there is a broad space for energy cooperation between China and Central Asian countries in the field of new energy. At the same time, Northwest China and Central Asia are both located in the inland of Eurasia, with scarce rainfall and a fragile regional ecological environment. In terms of environmental governance and ecological construction, China and Central Asian countries share common goals. Scientific and technological cooperation in this area is in the common interests of all countries and has broad prospects, which requires further cooperation and development between China and Central Asian countries. In terms of cultural exchange, the exchange activities between China and Central Asian countries are mostly organized by the governments, including holding cultural festivals, cultural weeks and cultural days, establishing cultural centers, and carrying out cross-border performances by song and dance as well as art troupes. However, there are few exchange activities independently organized by non-governmental organizations, and as a result, there are only a limited number of people involved in the exchanges, which is far from enough to strengthen friendly exchanges between the people of China and Central Asian countries, enhance mutual understanding and friendship and consolidate the mass basis of Asian connectivity. Only by making people the main body of these activities can cultural exchanges be vigorous and sustainable. We need to make people the main body of cultural exchange, remove the obstacles of people’s free exchange and dialogue, build exchange platforms and deepen the level of

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cultural exchanges. Only in this way can we gradually enhance mutual trust and friendship to lay a solid social foundation for connectivity construction. In addition to the deficiencies in the above areas, there are also some obstacles in personnel exchanges between China and Central Asian countries, which are not conducive to the connectivity construction in personnel exchanges between China and Central Asian countries. The obstacles are as follows: First, there are many restrictions on cross-border personnel exchanges. The problem of low efficiency in customs clearance71 exists in Central Asian countries due to too many formalities, complex procedures and low working efficiency in customs clearance, which greatly dampen the enthusiasm of people for personnel exchange activities and also hinder personnel exchanges between China and these countries. At the same time, Central Asian countries also impose many restrictions on the entry of foreign employees, such as restrictions on education background and work experience, and also require local employees to account for a very high proportion in foreign-funded enterprises. Institutional restrictions are the main obstacles to the connectivity construction of personnel exchanges between China and Central Asian countries. Second, security is another important factor that hinders personnel exchanges. Central Asia is the junction of Europe and Asia and there are many different cultures, religions and social systems, which give rise to very complex conflicts in the region. The region is beset by poverty as well as tribal and social conflicts. Moreover, the “three evil forces” of ethnic separatist forces, religious extremist forces and terrorist forces have been ravaging in Central Asia; domestic reactionary forces collude with overseas terrorists to carry out various terrorist activities; cross-border crimes such as drug trafficking have not been rooted out; many contradictions and conflicts exist among Central Asian countries, which can easily lead to confrontation and military conflicts. Many factors of disharmony seriously compromise the security of neighboring countries. China’s oil and gas investment in some Central Asian countries has been attacked by terrorists, even causing casualties. Therefore, the security problem is an important aspect of personnel exchanges, the poor solution of which may make it difficult to carry out connectivity construction. 71  Ling Ji, Status Quo, Problems and Suggestions of Economic and Trade Cooperation between China and Central Asian Countries [J], International Review, 2010 (5): 17–22.

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Third, the peoples of Central Asian countries have no trust in personnel exchanges with China. Due to the great differences between China and Central Asian countries in political and economic systems as well as cultural beliefs, some countries harbor doubts about personnel exchanges with China, believing that China carries out personnel exchanges with Central Asia only in order to eliminate language and cultural barriers for economic benefits. To make matters worse, most of the personnel exchange activities have government characteristics as they are organized through official channels rather than independently held by non-governmental organizations, which has increased the mistrust of Central Asian countries in cooperation on people-to-people exchanges with China. At the same time, the “China threat” also has a market in these countries and has been supported by some officials and common people, which has increased the resistance of personnel exchanges between China and Central Asian countries. 4.3  Measures to Promote Personnel Exchanges In order to build connectivity in personnel exchanges, the most important thing is to reduce restrictions in personnel mobility and meanwhile make up for the shortcomings in personnel exchanges in various fields. In terms of educational exchanges, we should deepen educational cooperation between China and Central Asian countries on the basis of existing cooperation and strengthen the cooperation in higher education. China should start from the current situation and improve the mechanisms of education cooperation with Central Asian countries so as to end the history that China has no universities in Central Asia. Communication at the government level should be carried out to jointly run universities with Central Asian countries and introduce well-known Chinese universities into Central Asia so that students in Central Asian countries can receive a higher-level Chinese education without studying overseas, which can reduce the education costs of students in Central Asia, increase the beneficiaries of education cooperation between China and Central Asian countries and enhance China’s “soft power” to compete with other countries in Central Asia. In terms of scientific and technological exchanges, we should fully tap the needs of scientific and technological cooperation between China and Central Asian countries in various fields; develop such scientific and technological cooperation projects in the field of sustainable development as

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new energy development, environmental governance and ecological construction; broaden the field of scientific and technological exchanges and seek broad common interests and deepen scientific and technological cooperation. We need to give full play to the role of scientific and technological cooperation, carry out in-depth and extensive exchanges and cooperation activities in various fields of scientific and technological innovation, increase the frequency and depth of exchanges among scientific researchers and achieve high-level exchanges among scientific and technological personnel. Tourism, with its dual functions of economic and cultural communication, should play an active role in cultural exchange. Strengthening folk tourism exchanges will help to promote personnel and cultural exchanges, enhance the understanding of peoples of all countries about each other’s traditional culture and customs and deepen mutual understanding among ordinary people of all countries. This will play an irreplaceable role in strengthening people-to-people exchanges by weakening the government’s role in Chinese cultural exchanges to improve Central Asian countries’ trust in personal exchanges with China. To strengthen non-governmental tourism exchanges and develop tourism, we can start by relaxing visa restrictions, simplifying customs clearance procedures, jointly developing tourism resources and improving infrastructure connectivity. By relaxing visa restrictions and simplifying customs clearance procedures, we can reduce the restrictions of cross-border tourism; by jointly developing tourism resources and creating new tourist attractions and tourism brands, we can increase the number of tourists; by improving the connectivity of infrastructure, we can make it more convenient for tourists to travel cross-border. At the institutional level, the Chinese government should sign relevant agreements with the governments of Central Asian countries, carry out active exchanges and make innovations. In terms of the management of cross-border personnel flow, we should establish and improve relevant mechanisms, systems and laws, relax the visa restrictions, simplify customs clearance procedures, reduce or even eliminate restrictions and promote the construction of system connectivity. In terms of regional security, cooperation and joint efforts between China and Central Asian countries are needed. Supported by the SCO, we need to fight against “three evil forces” to maintain regional security and stability so as to create a good environment for regional economic development and personnel exchanges; we should establish a regional dispute

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consultation mechanism to coordinate conflicts and disputes caused by resources, culture, social life and religious beliefs among countries, and mediate the conflicts among Central Asian countries to prevent them from turning into political rivalries and even military confrontations.

Bibliography Aschauer D A, Is Public Expenditure Productive? [J], Journal of Monetary Economics, 1989,23(2): 177–200. Banister D, Berechman J, Transport Investment and the Promotion of Economic Growth [J], Transport Geography, 2001, 9(3): 209–218. Fan Jiuli, Bai Baoli, Research on Infrastructure Investment and Regional Differences in China’s Economic Growth [J], Human Geography, 2004 (2): 35–38. Gao Zhigang, Problems and Policy Suggestions for Xinjiang’s Participation in the Construction of the New SREB [J], Regional Economic Review, 2014(2): 92–94. Guo QingWang, Jia Junxue, Effect of Infrastructure Investment on Economic Growth [J], Economic Theory and Business Management, 2006 (3): 36–41. Holtz-Eakin D, Public-Sector Capital and the Productivity Puzzle [J]. Review of Economics and Statistics, 1994, 76(1): 12–21. Li Qi, Geo Strategic Implications, Practice of China and Central Asia’s Innovative Cooperation Mode and Joint Construction of the SREB [J], Journal of Shaanxi Normal University (Philosophy and Social Sciences Edition), 2014(4): 5–15. Liu Binglian, Wu Peng, Liu Yuhai, Transport Infrastructure and TFP Growth in China: A Spatial Panel Econometric Analysis Based on Provincial Data [J], China Industrial Economics, 2010 (3): 54–64. Liu Shenglong, Hu Angang, Transportation Infrastructure and Economic Growth: Perspective of China’s Regional Differences [J], China Industrial Economics, 2010 (4): 14–23. Wang Renfei, Wang Jinjie, Infrastructure and China’s Economic Growth: A Study Based on VaR Method [J], The Journal of World Economy, 2007 (3): 13–21. Zhang Guangnan, Hong Guozhi, Chen Guanghan, Infrastructure, Spatial Spillover and Manufacturing Costs Effect [J]. China Economic Quarterly, 2013(10): 285–304. Zhang Xueliang, Does China’s Transport Infrastructure Promote Regional Economic Growth? Also on Spatial Spillover Effect of Transport Infrastructure [J], China Social Sciences, 2012 (3): 60–77.

CHAPTER 3

Trade and Investment Facilitation

To facilitate trade and investment is to simplify the relevant procedures of international trade and investment; coordinate the cooperation among relevant departments, countries and regions; and reduce the costs of trade and investment so as to promote trade and investment activities. Trade and investment facilitation is an important part of the construction of the SREB, which is of great significance for the construction of a good business environment for smooth trade in the SREB.

1   Definition and Theoretical Basis of Trade and Investment Facilitation 1.1  Definition of Trade and Investment Facilitation 1.1.1 Literature Review Under the background of economic globalization, trade among countries in the world has been continuously strengthened, and different regions are striving to take trade and investment facilitation as an important measure of regional development. Researches so far have not provided an accurate and complete theoretical definition of trade and investment facilitation. Li Ting and Yang Danping (2014) gave a simple definition to trade

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_3

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and investment facilitation according to its contents.1 Generally speaking, trade and investment facilitation is to make trade and investment in international economic exchanges more convenient, which is conducive to the flow of goods, services, capital and human resources among regions. At present, researchers mostly refer to the relevant documents of the Asia-­ Pacific Economic Cooperation (APEC) when defining trade and investment facilitation. Some define trade and investment facilitation as actions that are beneficial to trade and investment activities among countries and regions other than trade tariff measures. Fang Xiaoli and Zhu Mingxia (2013) defined it from the perspective of the flow of business personnel, holding that trade and investment facilitation refers to all actions that facilitate flow of business personnel and transaction of goods and services.2 It can also be defined from the perspective of trade and investment procedures, that is, trade and investment facilitation means the simplification of procedures and reduction in transaction costs. The actions of strengthening market forces and reducing administrative intervention can be regarded as trade and investment facilitation. Based on the above views, we can arrive at a more essential definition of trade and investment facilitation. Lian Xiaomei (2004) summarized that trade and investment facilitation is to solve, simplify or coordinate through various measures the problems concerning infrastructure, policy measures or procedural laws and regulations that are not conducive to the flow of various factors in international trade.3 Her study divides the contents of trade and investment facilitation into three categories: infrastructure, procedural provisions and policies, specifically including standardization, consistency, customs procedures, intellectual property protection, policies to encourage competition, government procurement behavior, deregulation, rules of origin, dispute mediation, flow of business personnel, and information collection and analysis.

1  Li Ting, Yang Danping, Research on the Impact of Trade Facilitation on China’s Export Trade [J], Science-Technology and Management, 2014(5):111–115. 2  Fang Xiaoli, Zhu Mingxia, An Empirical Study on the Measurement of Trade Facilitation and Its Impact on Exports of China and ASEAN Countries [J], Journal of International Trade, 2013 (9): 68–73. 3  Lian Xiaomei, Research on APEC Regional Cooperation Mode and Development Prospect, Doctoral Dissertation of Jilin University, 2004.

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1.1.2 Trade Facilitation The term trade facilitation frequently appears in various documents and reports. The World Trade Organization (WTO) (1998) defined it as “the simplification and harmonization of international trade procedures, where trade procedures are the activities, practices, and formalities involved in collecting, presenting, communicating, and processing data and other information required for the movement of goods in international trade”. The Organization for Economic Cooperation and Development (OECD) defines it as “the simplification and standardization of procedures and associated information flows required to move goods internationally from seller to buyer and to pass payments in the other direction”. UN defines trade facilitation as “the simplification and standardization of procedures to reduce the complexity and costs of trade, and ensure effective and transparent trade activities on the premise of conforming to the general international rules and regulations”. These definitions, though different, have one common feature, that is, the simplification of trade procedures to promote the cross-border movement of various trade elements. In recent years, people have begun to define it in a broader sense by considering the impact of the whole trade environment on trade facilitation, including the simplification of trade procedures, the restriction of relevant trade laws and regulations, the upgrading and improvement of relevant infrastructure, the support of economic and tax policies, trade systems, and even insurance, transportation, customs, epidemic prevention and means of payment and financial systems. It has almost covered the whole environmental system affecting all aspects of trade. 1.1.3 Investment Facilitation The scope of investment facilitation is also relatively wide, including the measures taken by the host country and the capital export facilitation measures taken by the home country of the investors. Lu Jinyong (2006) proposed seven investment facilitation measures4: (1) improve the openness and transparency in the formulation and implementation of investment-related policies, strengthen the investment confidence of industrial and commercial enterprises, and help them make business decisions; (2) improve the stability of investment environment and provide protection for investment and property so as to reduce the 4  Lu Jinyong, An Analysis of the Causes, Forms and Benefits of the Facilitation of International Direct Investment [J], Zntertrade, 2006 (9): 51–54.

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non-commercial risks of investors, increase the confidence of enterprises in the legal system of a country and provide enterprises with just channels for dispute settlement; (3) strengthen the predictability and consistency of investment-related policies, and simplify the links of transactions so as to diminish corruption; (4) improve the efficiency of handling relevant procedures for investors, or simplify the investment approval procedures and shorten the approval process; (5) establish a constructive stakeholder relationship, strengthen the communication and exchanges between the government and investors, form a cooperative partnership and provide prompt solutions to problems; (6) adopt new technologies to improve the investment environment, the software and hardware services as well as the security of e-commerce; (7) establish mechanisms to test and evaluate the implementation of investment policies. 1.2  Development of Trade and Investment Facilitation With the continuous development of international trade and investment activities, closer cooperation in international economic activities has been carried out more frequently, and major trading countries in the world began to speed up the process of trade and investment facilitation. Specifically, since 2001, the EU has been improving the efficiency of customs management, and unifying customs management procedures and standards among EU member states so as to reduce trade barriers and costs among EU member states; at the same time, the EU has been introducing electronic customs management systems, which will carry out management over the trading countries through computer links, and it has also formulated unified standards for risk assessment and control. In 2006, the United States launched the Customs Trade Partnership Against Terrorism (CTPAT) to reduce the time for customs clearance and the number of inspections so as to improve the security and efficiency of legitimate trade for all enterprises involved in the program. Take another example, the Japanese government has taken trade facilitation measures by improving the pre-trial system, tariff pre-classification system, tariff deferral system, etc., and the Japanese customs has also formed a new 24-hour customs clearance system. Trade and investment facilitation has become the general trend due to the continuous development of international trade. Different regions and countries adopt different policies and measures of trade and investment

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facilitation. The main content and future directions can be summarized as follows: 1.2.1 More Efficient Trade and Investment Approval Procedures The simplification of trade formalities and procedures as well as the upgrading and improvement of relevant infrastructure can make trade more convenient, shorten the time of trade, reduce trade costs and improve the efficiency of international movement of goods and services. It mainly includes shortened inspection time of the customs and ports, simplified formalities, unimpeded transportation facilities and convenient exchange business. Only by reducing the complexity and costs of all trade links can we improve the efficiency and competitive edge of trade and investment. For example, the Ministry of Commerce of the People’s Republic of China has stated clearly that China will simplify the examination and approval procedures for overseas investment, make practical efforts to transform government functions and take market competition as the guide. The core is to promote trade facilitation, reduce the scope of examination and approval as much as possible and implement the filing system in management. These measures will actively help expand overseas investment of enterprises and individuals. 1.2.2 Trade and Investment Informatization Trade and investment informatization is an inseparable part of trade and investment facilitation. The electronization and standardization of documents as well as the automatic and intelligent application of customs declaration process not only reduce the overhead and supervision costs of paper-based and labor-based office but also reduce manual operation errors, shorten customs clearance time, improve efficiency and speed up commodity circulation and the flow of business personnel. At the same time, it can also unify the relevant departments of trade. Unified standards are conducive to improving the efficiency and transparency of all management departments as well as the level of internationalization. The informatization of trade and investment is conducive for enterprises to make their own sales plans by analyzing corresponding information to screen the types of saleable overseas trade products, to match with the corresponding trade partners and competitors and to improve the transparency, timeliness and competitiveness of trade and investment.

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 oexistence of Trade and Investment Facilitation C and Trade Barriers The frequent international trade and investment as well as the constant promotion of trade and investment facilitation have greatly enriched the varieties of goods and services for people in various countries and improved the quality of their life. This is also conducive for the international community to give full play to its comparative advantages and to promote the export of advantageous products and the import of scarce products. However, trade and investment facilitation is just like a coin that has two sides. With the influx of cheap and high-quality goods and services from abroad, the domestic traditional disadvantaged industries are further impacted and are even faced with survival challenges. At the same time, unemployment in related industries begins to emerge, trade protectionism is resurfacing and trade barriers in the United States and developed countries in Europe have repeatedly become a means of restricting the import of cheap and non-scarce goods into these countries. According to the statistics of the WTO, the technical trade measures of the WTO are increasing and some developed countries in Europe and America are also introducing new trade protection measures which, to a certain extent, are both rational and operational. The technical standards as well as inspection and quarantine standards of commodities are increasingly strict and a large number of anti-dumping taxation and trade quota systems came into being, which hinders the progress of international trade facilitation. Taking ASEAN as an example, from 2004 to 2014, the trade volume between China and ASEAN countries has increased five times and mutual investment has increased three times. Since 2013, the State Administration for Industry and Commerce (SAIC) has taken relevant measures to reform the enterprise registration system, which aims to create a more convenient business environment that conforms to legal norms for all kinds of market participants with the enterprises as the main body. Many ASEAN countries have also carried out market-oriented reform to relax the regulation on foreign trade and investment. Win Myint, an official of Myanmar government, said that Myanmar has now begun to carry out vigorous reform in many fields, implement more relaxed and free trade management regulations and supervision procedures, attach greater importance to balanced development in the process of trade and investment facilitation and liberalization, and strengthen the promotion of trade process and trade education measures. At the same time, China and ASEAN countries are striving

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to improve transport and logistics as well as infrastructure construction so as to promote more cross-border trade cooperation. However, there are still many trade barriers. In the process of going global, enterprises are still being hindered by trade and investment barriers such as investment access restrictions, tax discrimination and foreign equity restrictions which lead to the abortion of many cooperation agreements in the process of implementation.5 It is also not unusual for China’s enterprises to suffer from trade barriers. As early as 2010, General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ) conducted a questionnaire survey on foreign technical trade measures against Chinese export enterprises. The survey is based on a sample of the trade data of 2598 export enterprises in China. Through the survey, it was found that the following countries and regions could greatly affect the operation of China’s export enterprises: the European Union, the United States, Japan and Australia in the order of importance. The direct losses of China’s export enterprises caused by trade restrictions in these countries and regions were 37%, 27%, 6% and 5.7%, respectively. China’s foreign trade industries seriously affected by regional trade technical barriers were electromechanical instrument industry, metal mining industry, furniture and toys industry, textile industry and rubber and leather industry. The direct losses caused by trade restrictions in these industries accounted for 30%, 19%, 18%, 12% and 8%, respectively. At the same time, restrictions of technical trade measures have caused greatest losses to Guangdong Province, followed by Jiangsu Province, Shandong Province, Shanghai and Zhejiang Province.6 1.2.4

I mplementation of Trade and Investment Facilitation Action Plan Organizations such as the World Bank, the United Nations Conference on Trade and Development (UNCTAD) and the Asia-Pacific Economic Cooperation (APEC) have started to implement relevant action plans, as shown in Table 3.1: 5  http://news.xinhuanet.com/fortune/2014-09/19/c_127004353.html. http://world. people.com.cn/n/2014/0919/c157278-25693042.html. 6  According to the survey on the influence of foreign technical trade measures on Chinese export enterprises published by AQSIQ in 2010, more than 30% of export enterprises are affected by foreign technical trade measures, Netease News,2011-9-6, http://news.163. com/11/0906/10/7d8sb9sl00014jb5.html.

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Table 3.1  Action plan for trade facilitation Organizations Content of trade and investment facilitation The World Bank UNCTAD

APEC

Focus on providing information services and technical support needed by governments and intermediary organizations to improve their investment promotion capabilities Focus on the trend of FDI and its impact on development, help developing countries improve policies and regulations related to FDI, assist them to participate in international investment negotiations and offer counseling services related to international investment Develop a set of investment policy instruments to provide framework reference for countries in formulating investment facilitation policies

Source: Shen Minghui, APEC Investment Facilitation Process-A Research Based on Investment Facilitation Action Plan, Journal of International Economic Cooperation, 2009 (4)

1.3  Theoretical Basis of Trade and Investment Facilitation Since the 1950s, western economic circles have begun to pay more attention to regional economic cooperation and have gradually developed relevant theories. An important practical carrier of these studies is the practical experience of EU integration. In this process, the theory of regional economic cooperation, which can be said to be a theoretical basis for regional trade and investment facilitation, has been gradually formed after constant improvement. At the same time, the theory of trade costs, a theory explaining an important phenomenon of national trade-transaction costs, is another theoretical basis of trade and investment facilitation. 1.3.1 Theory of Regional Economic Cooperation7 The theory of regional economic cooperation is closely related to trade and investment facilitation and is an important theoretical basis for trade and investment facilitation practice. Regional economic cooperation refers to the optimized flow of products and factors and the effective allocation of the two elements in different regions due to the characteristic of aggregation and complementarity in economy of several regions or countries. Regional economic cooperation includes not only the economic cooperation among countries but also the economic cooperation among regions,

7  Wei Houkai, Modern Regional Economics, Economy and  Management Publishing House, 2011.

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and regional economic integration is the advanced form of regional economic cooperation. The theory of regional economic cooperation takes roots in two theoretical schools: one is the market institutional school, represented by Balassa, which advocates the combination of market economy at the micro level with the support of state and supranational institutions. It not only emphasizes the process of market forces-based regional integration but also attaches importance to the coordination and intervention of state and supranational institutions. According to the theory, institutionalized economic cooperation is divided into five stages of free trade area, customs union, common market, economic union and complete economic integration. The other is the school of state regulation, represented by Jan Tinbergen, which emphasizes the conscious coordination and unity of necessary elements so as to achieve complete integration. Douglass C. North, Ronald H. Coase, Raymond Vernon and other scholars have developed the institutional theory of regional economic cooperation, advocating the role of system and economic order. 1.3.2 Theory of Customs Union8 The theories of regional economic cooperation at the early stage are mostly related to the theory of customs union, the source of which is the trade protection theory of German economist Liszt, whose purpose is to protect trade at that time. After the Second World War, American economist Jacob Viner further developed this theory, believing that the purpose of the customs union was, in essence, to carry out free trade within the union while providing protection against the countries outside the union. The characteristics of free trade and trade protection will produce two results: trade transfer and trade creation. After the implementation of the customs union, the economic benefits were the final net effect of the gains from trade creation minus the losses caused by trade transfer. The customs union produces the following effects. (1) Trade Creation and Trade Transfer The elimination of tariff and non-tariff barriers among the countries within the customs union can lead to larger scale of trade. Trade 8  Huang Weiping, A Coursebook on  International Economics, China Renmin University Press, 2012.

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facilitation will also be strengthened with the expansion of trade scale, and the removal of trade barriers will lead to price reduction of export trade products, thereby increasing the interests of member states. Trade transfer means that part of the trade between the member states and the states outside the union was replaced by that among the member states of the customs union due to the enhancement of trade within the union, which means the trade direction has been shifted. (2) Dynamic Effects of Customs Union Customs union can bring static and dynamic effects to participating countries, and the dynamic effects often exert more important influence on economic growth. First, effect of market expansion. The establishment of a customs union has an exclusive effect on the products of countries outside the union, which naturally creates favorable conditions for the trade products between member countries. The markets of the member countries of the customs union have been connected to become a unified regional market. This expansion of market is conducive to the development of enterprises, prompting producers to constantly expand the production capacity and reducing the production costs of enterprises while achieving economies of scale. At the same time, it enhances the competitive edge of the enterprises’ products within the union against those outside the union. In one word, the customs union results in the expansion of the market, which in turn leads to the economies of scale of the enterprises within the union. Second, effect of competition. The customs union promotes the competition among the enterprises of the countries within the union. Before the formation of customs union, many enterprises had formed monopoly in the domestic economic sector. Several powerful enterprises had monopolized the market for a long time and made supernormal profits, which was not conducive to the allocation of national resources and technological progress. After the establishment of the customs union, the markets of all countries are open to each other, and the enterprises within the union can compete with each other, which will improve the operation efficiency of the enterprises, increase investment in research and development (R&D), strengthen the awareness of introducing new technology and reducing the costs, thereby improving the efficiency and promoting technological progress within the union.

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Finally, effect of external investment. The establishment of customs union can enhance the ability of the countries within the union to attract external investment. One of the impacts of the establishment of the customs union is that, in order to eliminate the adverse effects of the sales of goods to the union, the enterprises of countries outside the union will move their production organizations to the countries within the customs union so as to realize production and sales within the union, which will bypass the restrictions of tariff and non-tariff barriers imposed by the union. Objectively speaking, this is essentially the flow of capital, that is, a large amount of foreign investment is introduced into the union. (3) Negative Effects The formation of customs union will promote the formation of regional monopoly enterprises. The strong exclusiveness of the customs union will give rise to a new monopoly within the union and provide protection for the monopolies, which will become an obstacle to technological progress. It may have an incentive effect when there are new member countries joining the union; otherwise, it will delay technological progress. In addition, the establishment of customs union may aggravate regional imbalance because it leads to the reduction of barriers for factor flow within the union and the flow of capital elements to regions with superior investment environment thanks to the agreements within the union. It will be detrimental to the stable development of the union unless the union itself has corresponding policies to prevent the expansion of the regional imbalance. 1.3.3 Theories of Free Trade Area On the basis of Jacob Viner’s theory of customs union, J. E. Mead put forward the theory of free trade area in his book The Theory of Customs Unions published in 1955. The theory of free trade area also realizes the integration of product market within a union, but it still discriminates against countries outside the union by imposing tariff and other trade restrictions. Mead’s theory holds that the free trade area should adopt the rules of origin because of the trade deflection, and his theory provides a theoretical basis for the rules of origin adopted by free trade areas nowadays. Without the rules of origin, a free trade area is no different from a customs union. The advantage of establishing a free trade area is that it can reduce the original trade barriers within a union.

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1.3.4 Theories of Interregional Division of Labor The theories of division of labor were first put forward for international division of labor and trade, which were later used by regional economists as tools to study regional division of labor and regional trade. The theories of regional division of labor include Adam Smith’s theory of absolute advantage, David Ricardo’s theory of comparative advantage, and Heckscher and Ohlin’s theory of factor endowments. The theory of absolute advantage put forward by the British economist Adam Smith in his Wealth of Nations in 1776 promoted the formation of the theory of regional division of labor at an earlier time. Adam Smith believes that the emergence of international trade is the result of the absolute difference of product technology level among countries and that through international trade, countries can produce products with their own absolute advantages in terms of technology and realize benefits through international exchange. Adam Smith’s theory was further developed into the theory of comparative advantage by David Ricardo, who believes that even if there are absolute advantages and disadvantages between two countries, as long as different goods in one of the countries have comparative advantages, there will still be international division of labor and benefits from the goods produced with their own advantages through trade. After that, Swedish economists Heckscher and Ohlin put forward the theory of factor endowments, believing that the difference of the proportion of factor resources owned by different regions or countries will result in the difference of comparative costs of products. Different regions can concentrate on the production of products with rich local factors and achieve benefits from international trade. M. Posner put forward the theory of technological gap in 1961. He believes that technology is actually a factor of production and the level of science and technology is dynamic and progressive. Different countries and regions have different comparative advantages because they develop at different speeds and different technological levels. When an imported product is successfully imitated, the technological comparative advantage disappears and the trade of the product stops. This theory is an extension of the theory of factor endowments. 1.4  Significance of Trade and Investment Facilitation The importance of trade and investment facilitation has been widely recognized by all countries in the world. Trade and investment facilitation

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include faster customs clearance, simplified customs procedures, paperless trade, easier access to government procurement market, expanded service and trade market, easier business communication and unified standards (food, electronic products, machinery and rubber raw materials), lower trade costs and reduced investment risks in infrastructure. Its significance lies in the following aspects. First, trade and investment facilitation can directly promote the integration of supply chain and reduce non-tariff barriers in international trade, which is conducive to reducing trade costs and promoting trade growth. This will lead to the development of trade and investment, which can deepen the international division of labor and the adjustment of industrial structure so as to enhance the economic strength and international competitiveness of a country or a region. Furthermore, trade facilitation can save the value of goods, which will in turn save the costs of trade, equivalent to the increase of world welfare income if translated into the increase of world trade. Second, it may be of greater significance to developing countries. Because the transaction costs are generally higher in these countries, there is a larger space for trade facilitation, which will yield greater benefits. Therefore, trade and investment facilitation is more conducive to the economic growth of developing countries. Finally, it is more beneficial to a certain kind of industry or enterprise. For example, agricultural products industries as well as small- and medium-­ sized enterprises will gain greater benefits. Because these industries and enterprises have to go through relatively special customs procedures in international trade, the costs of customs clearance is also high, but they will gain greater profits with the improvement of trade facilitation. Smalland medium-sized enterprises are faced with the problems of lower efficiency in trade and more barriers in the process of trade due to their small scale, weak strength and lack of professional talents, so they will be able to gain greater profits after the improvement of trade facilitation. In short, the significance and value of trade and investment facilitation lie in its ability to promote trade liberalization and economic and technological cooperation. Trade and investment facilitation and liberalization are mutually reinforcing: trade and investment liberalization is the prerequisite for trade and investment facilitation, while trade and investment facilitation can only be considered after the realization of trade and investment liberalization; and trade and investment facilitation can greatly promote trade and investment liberalization because the fundamental purpose

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of trade and investment facilitation is to remove various barriers in trade and investment. In terms of economic and technological cooperation, trade and investment facilitation can well promote economic and technological exchanges and cooperation among regions and countries.

2   Status Quo of Trade and Trade Facilitation of the SREB In order to better analyze the characteristics of trade in the SREB, we select representative countries, including the five Central Asian countries and Russia in the core area,9 as well as China, India, Iran, Saudi Arabia and Turkey,10 as the subject of study, and evaluate trade facilitation according to the data on trade volume and competitiveness of each country issued by the World Economic Forum so as to compare trade facilitation of various countries. 2.1  Status Quo of Trade 2.1.1 Status Quo of Trade of Countries Using the above data, we can get the trade trend chart, as shown in Fig. 3.1. China was way ahead of the other countries in terms of trade in 2008–2013, while the trade volumes of other countries were almost the same, concentrated in the lower half of the figure. It generally showed an upward trend in trade volume, but there was a downward process in 2009, and the upward trend leveled off in 2012, which was the result of global economic downturn caused by the economic crisis in 2008. From the perspective of trade trends of various countries, they showed similar patterns, with a decline from 2011 to 2013, but China was an exception and continued to grow in 2013. From these trends, we can see that countries along the route have similar trade characteristics, with closer trade ties and more direct mutual influence (Table 3.2).

9  Bai Yongxiu, Wang Songji, Background and Geopolitical Strategy of the SREB [J], Reform, 2014(3): 64–73. 10  Bai Yongxiu, Wang Songji, SREB: China’s Strategic Corridor to the World [J], Journal of Northwest University (Philosophy and Social Sciences Edition), 2014(4):32–38.

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Fig. 3.1  Trend of trade volume of representative countries Table 3.2  Changes in trade volume of representative countries in 2008–2013 (100 million US dollars) Country

Russia China Kazakhstan Kyrgyzstan India Iran Saudi Arabia Turkey

Year 2008

2009

2010

2011

2012

2013

7349 25,616 1091 57 4709 1711 4286 3340

4690 22,072 716 47 4131 1296 2878 2431

6484 29,727 890 53 5519 1667 3580 2994

8213 36,420 1262 65 7722 1923 4963 3757

8373 38,662 1368 73 7805 1520 5440 3891

8442 41,600 1314 81 7800 1310 5398 4035

Source: Trade data from the United Nations website, http://comtrade.un.org/data/

2.1.2 Major Trading Partners Table 3.3 lists the top four major trading partners of some countries along the route in 2013. As is shown in Table 3.3, the trade among countries along the route is rather close, and these countries ranked top in terms of trade, which revealed two characteristics: first, closer trade activities were carried out among the major countries in the region, and the three regional major

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Table 3.3  Major trade partners of each country in 2013

Country

Trading partners

China

EU, United States, ASEAN, Hong Kong, China China, Netherlands, Germany, Italy Russia, China, Uzbekistan, Turkey Russia, Kazakhstan, Uzbekistan, UAE UAE, China, United States, Saudi Arabia China, Japan, Iraq, Turkey United States, China, Germany, Japan Germany, Russia, China, United Kingdom

Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia Turkey

Source: Trade data are taken from the website of the Ministry of Commerce of China, http://www.mofcom.gov.cn/article

countries of China, Russia and India ranked top in terms of trade in the region; second, relatively close trade activities were carried out among the five Central Asian countries which got higher trade rankings. 2.1.3 Favorable Conditions Brought by Geographical Proximity The most favorable condition for economic cooperation among countries along the route lies in their geographical proximity, which provides a favorable natural condition for promoting the facilitation of mutual trade and investment. First of all, from a historical point of view, some countries along the route became independent after the collapse of the Soviet Union. These countries, with seriously unbalanced economic structure under the Soviet system, are now seeking to further develop a healthy economic structure and improve their comprehensive economic strength. Therefore, these countries are actively seeking economic cooperation as well as economic and trade exchanges with non-CIS countries. There is a vast space for economic cooperation between China and these countries thanks to China’s good infrastructure, which enables these countries to easily carry out trade cooperation with most countries in Asia through China. They can not only find markets for their own energy resources and agricultural products but also make use of the funds and technologies of China and other countries. Therefore, the objective conditions of the countries along the route can form a driving force to promote trade and investment facilitation.

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2.1.4 Economic Complementarity The advantages of China and the countries along the route are highly complementary and the interdependence of national economy has been strengthened with the process of economic globalization. Due to its large population and great potential of human resources, China shows more advantages in the development of labor-intensive industries, which is also the driving force of supporting China’s rapid growth in the past few decades and the main reason for China’s amazing performance in foreign trade. However, with the sluggish growth of the global economy in recent years, coupled with China’s labor and cost advantages gradually giving way to less developed countries such as Vietnam, the international competitiveness of China’s labor-intensive products has declined. Therefore, in order to take precautions against foreign trade risks, China can adjust its market orientation appropriately and strengthen the trade and investment cooperation with relevant countries by taking advantage of the geographical proximity and trade complementarity between China and countries along the route in Central Asia. The resource-intensive products of countries along the route are also needed for China’s economic development. Central Asian countries are vast in area and rich in resources, especially in energy and mineral resources. Due to its small population, the supply of resources in Central Asian countries far exceeds their demand, which creates conditions for strengthening cooperation between China and these countries. In particular, the economic cooperation with Russia from energy trade to aerospace and other high-tech industries is of greater strategic significance to China. For China, the construction of the SREB can promote the development of the western region and the rise of the central region, further expand opening up and add new impetus to economic growth. Central Asian countries are located in the inland and the lack of access to the sea restricts the development of international trade to a certain extent. The SREB connects Europe in the West and Asia-Pacific Economic Circle in the East, which provides good traffic conditions for Central Asian countries to develop international trade. All in all, the most prominent feature of trade complementarity of the SREB lies in that some countries along the route can strengthen cooperation with China in energy and raw materials, while China can provide light industrial products and electronic products for these countries.

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2.1.5 Problems Restricting Trade Development Countries along the route have many advantages in trade among themselves, but improvement should be made to remove the barriers in the following four areas: customs ports, international transportation, inspection and quarantine standards and financial cooperation. (1) Customs Ports At present, all countries are constantly strengthening the construction of customs cooperation systems and mechanisms to prevent problems such as poor coordination, arbitrary law enforcement and cargo detention caused by policy changes. However, this improvement still cannot satisfy the demand for border trade cooperation. Most Central Asian countries in the core area of the SREB are faced with the problem of backward international port infrastructure construction, and thus have difficulty in dealing with the current trade volume; cooperation and communication between the customs of various countries are not smooth and the policy enforcement lacks due transparency; technical barriers such as arbitrary detection of traded goods exist in the import and export and the flow of factors is restricted by some policies, such as the foreign labor permit and quota system once introduced in Russia; most countries lag behind in the construction of customs informatization, which affects the efficiency of customs clearance. All of these need further improvement and communication among countries. (2) International Transportation The international transportation and logistics in countries along the route, especially in Central Asian countries, are far from being desirable. According to the research of Asian Development Bank (ADB) and other international institutions, the transportation costs in Central Asia is still much higher compared with the average transportation costs in Asia, so this issue deserves attention. In terms of road transportation, the main problem at present is that the roads between China and other countries fail to match due to different grades, which restricts the trade between them. In terms of railway transportation, the lack of transportation capacity restricts the export of commodities, and in terms of railway technology, the railway track systems are of different standards making the cargo turnover more time-consuming.

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(3) Inspection and Quarantine Standards The main problems of cooperation in entry-exit inspection and quarantine are as follows: first, there are no good inspection and quarantine information notification mechanisms among countries; second, information asymmetry between countries exists resulting in a lack of in-depth cooperation and mutual trust; finally, there is a large gap in science and technology among countries, and the bottleneck is lack of talent, which objectively causes difficulties in the inspection and quarantine work. (4) Obstacles to Financial Cooperation There are still obstacles in the settlement of local currency with low recognition of local currency and a high recognition of the US dollar in the process of trade settlement among countries. The countries are aware of this problem and have begun to take measures to remove obstacles to financial cooperation. For example, in September 2013, the Bank of China officially introduced the cash exchange services of renminbi against Kazakhstani Tenge (KZT) in Xinjiang, taking the lead in handling the KZT cash exchange business under the direct exchange rate, and renminbi exchange services are available at some exchange places in the big cities of Kazakhstan. 2.2  A Comparison of Trade Facilitation In this section, trade facilitation is analyzed on the basis of the scores of each country’s trade facilitation we got from the reports on trade facilitation issued by the World Economic Forum. Several representative countries are selected for analysis. According to the level of national economic development and data availability, such major countries as China and Russia are selected as representative countries in this region, Kazakhstan and Kyrgyzstan are selected as representative countries of the five Central Asian countries, and Iran, India, Saudi Arabia and Turkey are also selected as the subjects of the study. First, Saudi Arabia, Turkey, Kazakhstan and China rank top four in terms of the overall situation of infrastructure construction, while Kyrgyzstan ranks last. Specifically, Saudi Arabia ranks first in road infrastructure construction, followed by Turkey and China; India, China and Russia rank top three in railway infrastructure construction; Saudi Arabia

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and China are better in terms of port construction; Turkey, Saudi Arabia and India are better in terms of aviation infrastructure construction; Saudi Arabia is far better in terms of power infrastructure construction; Saudi Arabia, Russia and Kazakhstan are better in mobile communication. In general, Saudi Arabia is the best in terms of infrastructure construction and China is in the upper-middle level, while Kyrgyzstan ranks last. See Table 3.4 for details. Second, from the perspective of customs environment, Saudi Arabia, Kazakhstan and India have done a better job in controlling trade barriers; Saudi Arabia and Turkey rank top in terms of trade tariffs; Saudi Arabia and Turkey are also ahead of other countries in terms of handling the barriers to customs clearance; China occupies a middle position, and Central Asian countries, Russia and India lag behind in terms of customs environment; therefore, improvement should be made in customs environment of these countries. See Table 3.5 for details. Third, from the perspective of regulatory environment, Saudi Arabia and China rank top in intellectual property protection; Saudi Arabia, Turkey and Kazakhstan are the best in corruption governance; Saudi Arabia, China and Kazakhstan are better in terms of the effectiveness of Table 3.4  Ranking of representative countries in terms of infrastructure Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Total 74 infrastructure Highway 54 quality Quality of 20 railway facilities Port facilities 59 quality Aviation 65 facilities quality Power facility 67 quality Mobile phone 116 penetration rate

Turkey

93

64

108

85

76 22

41

136

117

133

84

66 17

44

31

27

76

19

46 47

52

88

135

148

70

79 36

63

102

89

128

61

122 38

33

83

78

122

111

51 24

77

6

10

46

123

117

5

Data source: The Global Enabling Trade Report 2013–2014. World Economic Forum

105

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Table 3.5  Ranking of customs environment of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Control of trade barriers incidence Trade tariff facilitation Handling of obstacles to customs

Turkey

76

124

48

87

61

113 34

97

123

103

104

122

128

147 62

69

60

124

75

131

88

103 48

87

Data source: The Global Enabling Trade Report 2013–2014. World Economic Forum

the judicial system; Kazakhstan, Saudi Arabia and Turkey perform well in terms of policy transparency; China, India and Saudi Arabia are better in market forces control; Saudi Arabia, Turkey and India do a better job in monopoly control; Saudi Arabia and Turkey are far better than other countries in terms of financial soundness; Saudi Arabia ranks first and is far ahead of other countries in reducing crime and business costs. Generally speaking, China’s performance ranks top in terms of regulatory environment, while some Central Asian countries lag behind, so improvement should be made in regulatory environment. See Table 3.6 for details. Fourth, from the perspective of e-commerce, the application of new technology plays the most important role. Saudi Arabia, Turkey and India rank top in terms of the application of the latest technology to e-­commerce; Saudi Arabia, Kazakhstan and Russia are in the leading position, while India, Kyrgyzstan and Iran are relatively backward in terms of the use of Internet; countries other than Kyrgyzstan, India and Iran are above average in terms of the use of broadband network. Russia, Saudi Arabia and Kazakhstan perform better in the use of mobile broadband, of which Russia has the most obvious advantage. In terms of the number of local suppliers, India, Saudi Arabia, Turkey and China perform better, among which India ranks first in the world; Saudi Arabia, Turkey and India perform better in terms of marketing scope. In general, Kyrgyzstan in Central Asia ranks last, India needs to strengthen and optimize its e-commerce and China should continue to speed up improvement in some aspects of its e-commerce (Table 3.7).

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Table 3.6  Ranking of regulatory environment of representative countries Item

Intellectual property protection Corruption control Effectiveness of the judicial system Transparency of government policy Market control Antitrust effectiveness Soundness of banks Reducing crime and business costs

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

53

113

73

140

71

122 27

74

68

109

65

134

110

73 20

53

43

118

53

132

62

91 36

59

46

101

29

97

61

131 36

37

23 55

93 116

78 91

124 140

26 29

67 24 73 21

35 30

72

124

100

135

49

121 15

20

62

80

44

97

71

94 15

72

Data source: The Global Enabling Trade Report 2013–2014. World Economic Forum

In general, great differences exist in trade facilitation among countries. Among them, Kyrgyzstan has the greatest need to improve its infrastructure construction, customs and regulatory environment as well as its e-commerce. Saudi Arabia and Turkey have done a good job in trade facilitation. Saudi Arabia is a rich country with greater demand and investment capacity in trade facilitation; Turkey, as a candidate member of the EU, has many advantages. China, Russia, Kazakhstan and India are of upper-­ middle level, with some indicators ranking very high and several indicators still ranking relatively low, such as China’s application of new technologies and mobile communications and Russia’s legal system and corruption governance, which indicates that relevant countries need to strengthen and improve the status quo in these aspects. Iran is of lower-middle level, with relatively more deficiencies in trade facilitation. Therefore, countries along the route still have a long way to go in terms of trade facilitation

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Table 3.7  Ranking of e-commerce of representative countries Item

Application of latest technology Internet use Network broadband Mobile broadband Number of local suppliers Marketing scope

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

105

124

88

138

58

121 32

44

78 49

62 46

61 63

101 94

120 106

98 60 85 72

73 60

71

25

37

136

99

136 36

73

31

109

105

121

2

57 15

18

50

90

71

102

52

120 32

37

Source: The Global Enabling Trade Report 2013–2014. World Economic Forum

such as infrastructure construction and investment promotion, which are also the future development directions for the region. We use the relevant indicators in the Global Enabling Trade Report 2014 of the World Economic Forum in order to measure the level of trade facilitation in countries along the route from the four aspects of market access, customs management, transportation and information communication infrastructure as well as business environment. Facilitation of market access includes indicators of trade barriers, barriers to customs clearance and investor protection. Facilitation of customs management includes indicators of corruption, legal settlement of disputes and policy transparency. Facilitation of transportation and information communication infrastructure includes indicators of road, railway, port, aviation and electric power. Facilitation of business environment includes indicators of market control, anti-monopoly policy, labor-management cooperation, financial services, banking soundness, new technology application, investment and technology transfer, marketization degree and innovation ability. See Table 3.8 for details.

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Table 3.8  Trade facilitation level of representative countries Item

Barriers to trade Barrier to customs clearance Investor protection Corruption Legal settlement of disputes Policy transparency Road Railway Port Aviation Electric power Market control Antitrust policy Labor-­ management cooperation Financial services Banking soundness New technology application Investment and technology transfer Marketization degree Innovation ability

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

4.3 4.2

3.8 3.3

4.5 4.0

4.2 3.2

4.4 3.8

3.9 3.5

4.7 4.5

4.1 3.8

5.0

4.7

8.0

7.7

6.0

3.7

7.0

5.7

4.0 4.2

3.2 3.0

4.1 3.9

2.6 2.6

3.2 3.8

3.8 3.4

5.5 4.5

4.5 3.9

4.4

3.8

4.7

3.8

4.2

3.5

4.6

4.6

4.5 4.7 4.5 4.5 5.1 4.6 4.3 4.4

2.5 4.2 3.9 3.9 4.5 3.5 3.5 3.9

2.8 4.4 2.7 4.1 4.8 3.7 3.8 4.7

2.5 2.5 1.3 3.1 2.7 3.1 3.1 4.1

3.6 4.8 4.2 4.8 3.2 4.4 4.7 4.4

4.1 3.5 4.1 3.3 5.3 3.8 4.1 3.7

5.8 3.4 5.1 5.4 6.4 4.6 4.8 4.5

4.9 3.1 4.3 5.5 4.8 4.3 4.6 4.2

4.5

4.1

4.6

3.5

5.0

3.1

5.0

5.4

5.0

4.0

4.4

3.6

5.5

4.1

6.1

6.0

4.4

4.0

4.6

3.6

5.2

4.0

5.8

5.4

4.5

3.7

4.4

3.6

5.0

3.8

5.5

4.9

4.4

3.9

4.1

3.7

4.4

3.4

4.9

4.7

4.2

3.5

3.5

2.6

4.0

3.4

3.9

3.8

Source: The Global Enabling Trade Report 2013–2014. World Economic Forum

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In order to facilitate the comparison and indexation of trade facilitation, first, the data of various indicators such as market access, customs management, transportation and information communication infrastructure and business environment of each country are simply added up, then the simple average value is calculated and, finally, the score of each country divided by the arithmetic average value is indexed to obtain the indexes of each country. Table 3.9 is the result of the indexation of all the above four comprehensive indicators of each country. The above calculation shows the level of trade facilitation of various countries in terms of market access, customs management, transportation and information communication infrastructure business environment. Next, Wilson’s weight proportion method of port efficiency, customs environment, regulatory environment and e-commerce is adopted for reclassification, with the weights of 60% for transportation and information communication infrastructure, 10% for customs management, 20% for business environment and 10% for market access. Finally, the weighted index of trade and investment facilitation of each country is obtained. At the same time, the trade facilitation index is standardized in order to combine with the investment facilitation index, and the standardization result is obtained (see Table 3.10). If the standardization result of a country’s trade facilitation index is equal to 1, it indicates that it reaches the average level of the representative countries; if it is bigger than 1, it indicates that it is higher than the average level; and if it is less than 1, it indicates that it is lower than the average level.

Table 3.9  Trade facilitation level index of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Turkey Arabia

Market access Customs administration Transportation and information Business environment

4.50 4.20

3.93 3.33

5.50 4.23

5.03 3.00

4.73 3.73

3.70 5.40 3.57 4.87

4.53 4.33

4.66

3.80

3.76

2.42

4.12

4.06 5.22

4.52

4.48

3.79

4.20

3.43

4.73

3.71 5.01

4.81

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Table 3.10  Weighted Trade Facilitation Index and standardization results of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Weighted index Standardized results

Turkey

4.56 3.76

4.07

2.94

4.26

3.91 5.16

4.56

1.10 0.91

0.98

0.71

1.03

0.94 1.24

1.10

Table 3.11  Foreign direct investment of representative countries (US $100 million) Country

Year

China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia Turkey

2008

2009

2010

2011

2012

2013

1868.0 747.8 168.2 3.8 434.1 19.8 394.6 198.5

1670.7 365.8 142.8 1.9 355.8 29.8 364.6 85.9

2729.9 431.7 74.6 4.4 274.0 36.5 292.3 91.1

3315.9 550.8 137.6 6.9 365.0 42.8 163.1 161.5

2956.3 505.9 137.8 2.9 240.0 46.6 154 132.9

3478.5 706.5 97.4 7.6 281.5 30.5 93.0 128.2

Data source: World Bank Database, http: //data.worldbank.org

3   Status Quo of Investment and Investment Facilitation of the SREB 3.1  Status Quo of Investment From the perspective of investment, Table  3.11 shows foreign direct investment (FDI) from 2008 to 2013 of the representative countries of the SREB. The trend chart of FDI in various countries in 2008–2013 is drawn on the basis of the data in Table 3.11, see Fig. 3.2. It can be seen from the trend chart that foreign direct investment received by all countries is generally flat. China sees slight fluctuation and overall growth in foreign direct investment; Russia shows a U-shaped

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Fig. 3.2  The trend of FDI in representative countries

development trend; India and Saudi Arabia witness a slow decline in foreign direct investment, while Kazakhstan, Iran and Turkey have received basically stable foreign direct investment in recent years. It is obvious that all the countries need to further improve their investment facilitation so as to create a better environment for investment in the region. 3.2   Comparison of Investment Facilitation Regional investment facilitation contributes to the improvement in the investment environment of each country. The investment environment of a country includes administrative environment, production environment, market environment, financial environment, foreign exchange transaction environment and credit environment. We use the data of the World Economic Forum in 2013 and select the indicators related to investment or the most concerned aspects when there is a correlation between the indicators to describe the investment environment of each country.

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3.2.1 Market Environment and Efficiency Market environment shows the growth of the size of domestic and foreign markets as well as the competitive and monopolistic characteristics of local markets. In terms of domestic market size, China, India and Russia have obvious advantages, ranking top in the world, and the other countries are also above average in the world, indicating that the SREB has a large market size, which is conducive to attracting investment around the world. In terms of the intensity of local competition, Turkey, Saudi Arabia and India perform well, while other countries excluding China rank relatively low. In terms of market control, China, India and Saudi Arabia are better, while Russia has a relatively poor performance. Saudi Arabia and India have done better in anti-monopoly, and they also rank top in the world, while Central Asian countries are far from being satisfactory in this regard. In terms of foreign ownership, countries in the SREB are mediocre compared with other regions in the world, and improvement in market environment should be promoted to facilitate investment. (see Table 3.12). 3.2.2 Legal and Administrative Environment Legal and administrative environment mainly refers to property protection, intellectual property protection, government services, investor Table 3.12  Market environment and efficiency ranking of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Domestic market size Local competition intensity Market control Antitrust policy Tax impact Foreign ownership Infrastructure

Turkey

2

8

55

117

3

18

23

16

46

113

120

124

24

121

18

15

23 55 41 91

93 116 125 132

78 91 54 114

124 140 101 117

26 29 44 94

67 24 73 21 95 10 148 100

35 30 94 108

74

93

64

108

85

Source: The Global Competitiveness Report 2013. World Economic Forum

76

22

41

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131

protection, etc. The specific ranking is as follows: in terms of property rights protection, Saudi Arabia ranks first, Russia and Kyrgyzstan are mediocre and other countries are at the upper-middle level; in terms of intellectual property rights protection, Saudi Arabia also leads the countries, while Russia, Kyrgyzstan and Iran need to make improvement, and China and other countries are at the upper-middle level (see Table 3.13). 3.2.3 Innovation Environment The innovation environment mainly refers to the national innovation capability, the quality of scientific research institutions, the R&D investment of enterprises, the availability of scientists and engineers, patent management, etc. In terms of innovation capability, China ranks first; India, Saudi Arabia, Russia and Kazakhstan are in the middle, while Kyrgyzstan ranks last. In terms of the quality of scientific research institutions, India, Saudi Arabia, China, and Iran rank top; Russia and Turkey are Table 3.13  Environmental ranking of representative national legal and administrative institutions Item

Property Intellectual property protection Corruption control Judicial system Transparency in policymaking Government services Auditing and standards Minority interest Investor protection

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

50 53

133 113

68 73

136 140

58 71

65 27 122 27

48 74

68

109

65

134

110

73 26

53

43 46

119 101

88 29

140 97

40 61

73 28 131 36

85 37

29

111

77

129

94

52 18

53

80

107

76

125

52

105 22

50

75

132

74

121

52

104 14

57

84

100

10

13

41

123 19

57

Data source: The Global Competitiveness Report 2013. World Economic Forum

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in the middle, while Kazakhstan and Kyrgyzstan lag behind; in terms of R&D investment, China and Saudi Arabia rank top two. In terms of patents and applications, China, Russia and Turkey lead the other countries. In general, the indicators of innovation environment in the SREB countries are relatively mediocre in the world, and further improvement should be made in this respect (see Table 3.14). 3.2.4 Environment of Financial Market Different countries have quite different financial market environments. Kazakhstan in Central Asia performs better in this respect while Kyrgyzstan performs relatively poorly. Russia is relatively low in most indicators concerning financial market environment, which shows that Russia needs to strengthen its financial market services and financial supervision (see Table 3.15).

Table 3.14  Ranking of representative national innovation environment Item

Innovation ability Quality of scientific research institutions R&D investment of enterprises School enterprise cooperation Official procurement Availability of scientists and engineers Patents and applications

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

30

64

74

138

41

85 43

45

41

65

102

139

37

43 39

63

22

69

77

144

39

110 27

68

33

64

79

142

47

90 31

52

13

108

58

144

92

73

6

23

44

90

98

146

15

37 31

53

36

43

67

94

64

107 48

41

Source: The Global Competitiveness Report 2013. World Economic Forum

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Table 3.15  Ranking of financial market environment of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Financial availability Financial provision Local market financing Easy access to loans Venture capital Soundness of banks Securities exchange supervision Legal rights index

Turkey

70

91

60

131

45

137 43

28

51

95

58

130

38

135 26

28

38

90

100

133

18

86 19

36

32

68

61

129

38

148 24

52

16 72

70 124

72 100

133 135

27 49

139 25 121 15

83 20

63

102

90

130

27

82 26

34

65

118

101

52

28

101 89

101

Source: The Global Competitiveness Report 2013. World Economic Forum

3.2.5 Labor Market Environment The labor market environment mainly shows labor-management cooperation, salary, productivity and professional management in the production environment of each country. In recent years, the labor market environment of Central Asian countries has improved to a certain extent. Kazakhstan has a better overall labor market environment, while China is better in terms of professional management, salary and productivity (see Table 3.16). 3.2.6 Macroeconomic Environment The macroeconomic environment is mainly reflected by the state government budget, government debt, national savings and state credit rating. Saudi Arabia and Kazakhstan perform better in terms of government budget balance; China, Saudi Arabia and Iran perform better in terms of national savings. Saudi Arabia, Iran, and Russia perform better in term of

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Table 3.16  Labor market environment ranking of representative countries Item

Labor-­ management cooperation Wage flexibility Employment and dismissal Compensation and productivity Professional management

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

60

112

40

89

61

128 52

82

94 28

41 77

24 21

26 33

50 52

138 9 109 36

32 59

17

46

9

35

58

130 25

61

44

105

70

133

46

127 40

66

Source: The Global Competitiveness Report 2013. World Economic Forum

Table 3.17  Macroeconomic environment ranking of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Government budget balance National savings Inflation Government debt National credit rating

Turkey

61

23

13

127

141

62

6

49

6

32

36

104

28

15

5

99

62 28

91 10

93 14

117 88

130 116

148 58 9 4

125 57

23

39

53

113

47

118 27

62

Source: The Global Competitiveness Report 2013. World Economic Forum

government debt, and they also rank top in the world in this respect. China and Saudi Arabia perform better in terms of national credit rating. Generally speaking, Saudi Arabia, China and Russia have a better overall macroeconomic environment, while further improvement should be made by other countries in this respect. (see Table 3.17).

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According to the data of the Global Competitiveness Report 2013 of the World Economic Forum, we measure investment facilitation from the aspects of administrative environment, market environment, macroeconomic environment, labor market environment, financial market environment and innovation environment. We first sum up the data of each country, then calculate the simple average and finally divide the data of each country by the arithmetic average to get the score of investment facilitation level of each country. See Table 3.18 for details. By summing up the data of each country and then calculating the simple average, we can get the score of investment facilitation level of each country. Then the score of investment facilitation is standardized. If the standardization result of a country’s investment facilitation index is equal to 1, it indicates that the country reaches the average level of the representative countries; if it is bigger than 1, it indicates that the country is higher than the average level; if it is less than 1, it indicates that the country is lower than the average level (see Table 3.19). According to the trade and investment facilitation weighted index of the above countries, trade and investment facilitation index can be obtained by simply averaging trade facilitation and investment facilitation (see Table 3.20). According to the final trade and investment facilitation index of each country, the ranking of the representative countries is as follows: Saudi Arabia, China, Turkey, India, Kazakhstan, Russia, Iran and Kyrgyzstan, among which India and Turkey get the same scores. Table 3.18  Scores of investment facilitation level of representative countries Item

Basic conditions Strengthening efficiency Innovation

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

5.0

4.5

4.3

3.5

4.2

4.6

5.2

4.3

4.4

4.3

4.1

3.3

4.5

3.8

4.3

4.1

4.2

3.6

3.5

2.9

4.3

3.3

4.1

3.7

Source: The Global Competitiveness Report 2013. World Economic Forum

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Table 3.19  Total scores and standardization results of investment facilitation of representative countries Item

Country China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Investment facilitation Standardization result

Turkey

4.53 4.13

3.97

3.23

4.33

3.90 4.53

4.03

1.11 1.01

0.97

0.79

1.06

0.96 1.11

0.99

Table 3.20  Trade and investment facilitation index of representative countries Item

Country

Trade facilitation Investment facilitation Trade and investment facilitation index

China Russia Kazakhstan Kyrgyzstan India Iran Saudi Arabia

Turkey

1.10

0.91

0.98

0.71

1.03

0.94 1.24

1.10

1.11

1.01

0.97

0.79

1.06

0.96 1.11

0.99

1.11

0.96

0.98

0.75

1.05

0.95 1.18

1.05

4   Development Goals and Measures of Trade and Investment Facilitation in the SREB 4.1  Development Objectives First, we will strive to liberalize trade and investment in the SREB. The ultimate goal is to achieve the liberalization of trade and investment among countries along the route. It is an inevitable requirement for the construction of the SREB, although it will take a long time and a large amount of investment to achieve this goal. Second, we will strive to strengthen regional economic integration. We will strive to effectively reduce the transaction costs among countries along the route and improve the degree of freedom of trade so as to achieve

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optimal allocation of resources and free flow of various factors and commodities in international trade. We should eliminate all kinds of human factors that hinder economic and trade development for mutual cooperation and unified action among countries in various regions. We should not only remove the barriers to the flow of goods, funds and personnel among the countries but also correct the wrong market signals and strengthen the right market signals through the establishment of new rules and regulations for a unified force of the free market. Third, we will strive to promote the prosperity of countries along the route. We promote trade and investment facilitation to realize both economic and social development of all countries. While achieving economic growth, countries along the route should strive to create good conditions for increasing people’s income and improving the public service. Finally, we strive to enable the countries to achieve sustainable economic growth. We will strengthen international trade through the promotion of trade and investment facilitation so as to promote regional economic cooperation and improve the international competitive edge of products in the process. We should strive not only for the quantity of trade but also for the quality of trade to increase the welfare for all countries through trade and investment facilitation, and achieve regional sustainable development. 4.2  Measures of Trade and Investment Facilitation in the SREB 4.2.1

Measures of Trade Facilitation

(1) Build and Improve Modern Logistics System There are many definitions of modern logistics. Systematically, modern logistics refer to the whole process starting from packaging, transportation and storage to the trading of goods and effective flow of information. The purpose of establishing modern logistics system is to facilitate the smooth movement of goods, reduce transaction costs and improve transaction efficiency. The SREB includes many countries, and the development of transport logistics is of great significance to the trade development and facilitation of the whole economic belt. Specifically, it is necessary to build

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transnational modern logistics systems and platforms, and step up the construction of logistics infrastructure in the SREB. We need to establish a perfect management system of transnational supply chain. The purchase and sales of multinational enterprises account for an increasing proportion in international trade. In order to reduce the costs of production, we, faced with the increasingly fierce transnational competition, must make full use of the resource advantages of different countries and regions, carry out reasonable allocation of production and sales and establish a highly efficient international supply system of resources and commodities that connects suppliers, retailers, traders and agents. We should timely understand all kinds of market information and demand, optimize production, improve the international competitiveness of multinational enterprises and maximize the interests of these enterprises. Countries and regions of the SREB have their own advantages in terms of resources. To be specific, for example, the labor force in Southeast Asia is relatively cheap, Central Asian countries are relatively rich in oil and gas resources, European countries are relatively advanced in technology and China has a huge market. We should build a supply chain management system suitable for enterprises in the resources integration of the SREB, and provide a broader vision and more channels for the development of enterprises. In addition, we need to speed up the construction of logistics infrastructure. Logistics infrastructure is an important carrier of goods movement. The density and quality of logistics infrastructure also determine the efficiency and quality of logistics. In particular, regional logistics and distribution centers can contribute to the rapid transfer and distribution of goods. We need to speed up the construction of logistics infrastructure, establish a three-dimensional transportation network with a wide range of radiation and build a large regional logistics center at the intersection of many countries. Central Asia railway transportation corridor includes Central Line Railway Corridor, the shortest route from Asia to central Europe starting from Lianyungang in China, running westward through such cities as Almaty via the Alataw Pass and ending in Volgograd in Europe; Southern Line Railway Corridor, a route from Lianyungang in China to cities such as Istanbul in the Middle East via Almaty; and the Europe–Caucasus–Central Asia Railway Corridor. In terms of road construction, International Road Federation (IRF) has put forward a new initiative for Eurasian land transport with three road channels: the north line connecting Kazakhstan to Horgos on the Chinese border; the middle

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line connecting Kashgar and Irkshtan of China to Tashkent and Bukhara of Uzbekistan; the southern line connects Almaty of Kazakhstan or Osh of Kyrgyzstan to such cities as Tashkent, Ankara and Istanbul. (2) Promote the Development of Cross-border E-commerce E-commerce refers to the kind of business activities carried out by means of electronic technology, which combines offline goods with online sales, thereby greatly expanding consumer groups, reducing costs and improving efficiency. The traditional international trade model has been greatly impacted and challenged due to the aggravation of trade wars and trade barriers in various countries, as well as the shrinking demand of the international market as a result of the international financial crisis in recent years. The establishment of e-commerce website platforms to directly connect with international consumers can not only reduce the links of middlemen but also reduce costs and increase the profits of enterprises. The development of cross-border e-commerce makes it possible for enterprises to bypass the barriers to direct trade and change from the original wholesale mode to the retail mode, thereby reducing the sales risks of enterprises. Promoting cross-border e-commerce in the SREB is conducive to reducing trade disputes among countries, facilitating the direct connection of international consumer demand, promoting the rapid movement of goods in the region and improving the efficiency and facilitation of international trade. We need to encourage the active cooperation of multinational enterprises in the SREB to establish regional cross-border e-commerce platforms, implement one-stop online direct sales services and gather the information of physical merchants and products in different places. In this way, consumers can freely choose the special products of all countries and regions, the international market will be expanded and the middlemen link and costs will be reduced to bring benefits to both traders and consumers. Take Alibaba in China as an example. Trading platforms integrating merchants, special goods and tourism services for countries of the SREB can be built on Alibaba’s trading platform, which improves trade facilitation. In addition, we need to establish professional enterprises serving cross-­ border e-commerce, including enterprises of international logistics, warehousing, foreign exchange, customs declaration, etc., and form the mode of “platform service + customs clearance mechanism + overseas logistics

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distribution”, so as to improve the operation efficiency and customer experience of cross-border e-commerce, form a new industrial chain of SREB and promote the improvement of trade facilitation within the region. (3) Step up Reform of Customs Management First, we should strengthen the informatization construction of the customs system, establish a regional customs networking system and strengthen multinational customs cooperation in the region. Information technology can improve the operation efficiency of customs services, and the use of electronic bills can save costs, facilitate the networking of departments concerning foreign exchange, tariff and quality inspection, strengthen joint supervision of foreign trade and improve the speed and efficiency of customs clearance. The establishment of multinational customs networking system in the region is conducive to coordinating the actions of multinational customs, easing trade frictions and getting the data of economic and trade exchanges in the region, thus becoming an important basis for local manufacturers to adjust the export structure and direction, and for the countries to implement relevant economic policies. Second, we should establish a risk management security system for regional enterprises and build a risk assessment system for enterprises in the SREB based on the information of enterprises in trade, customs, tariff and so on. We need to simplify the customs clearance procedures and reduce the number of inspections for high-quality security enterprises with low risks in comprehensive assessment, strengthen enterprise inspection in key industries under risk monitoring and highlight the key areas of customs management so as to shorten the overall time for customs clearance, reduce the management costs of government departments and improve the efficiency of customs services. Finally, we should strengthen inspection and quarantine cooperation in the region. We need to strengthen cooperation in trade and entry-exit quarantine inspection among countries related to the SREB and establish cooperative meeting mechanisms on entry-exit inspection and quarantine so as to narrow differences in quarantine standards through continuous consultation and cooperation. We should carry out the mechanism of mutual recognition of inspection and quarantine certificates among countries related to the SREB, which will help promote trade facilitation.

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Measures to Promote Investment Facilitation

(1) Formulate Rules to Promote Investment Facilitation Through Consultation Among Relevant Countries in the Region We need to establish cooperation organizations in the region to formulate rules involving foreign investment, foreign contracted projects and foreign labor cooperation as well as specific regulations on direct cross-­ border investment and cooperation in such industries as energy, agriculture, manufacturing and finance, and provide multilateral investment risk guarantee mechanism of Convention on the Multilateral Investment Guarantee Agency (MIGA) to reduce barriers to cross-border investment by way of laws and regulations and promote investment facilitation in cross-border non-financial as well as financial fields. We need to strengthen the exploration of mineral, biological, forest and marine resources in the region, and carry out the cooperation in the overall planning in related resource fields. We need to formulate cross-border security management regulations and carry out regional cooperation in information collection, monitoring and early warning as well as supervision and emergency response so as to provide more efficient services for cross-border investment facilitation. (2) Optimize Domestic Tax System and Enhancement of International Tax Cooperation We should continue to optimize the domestic tax system, increase tax (including value-added tax and income tax) incentives for cross-border foreign investment in key industries and high-tech industries so that foreign investment will be attracted to key industries of the central and western regions as well as those of the country so as to optimize the structure of foreign investment and promote sound economic development. Local preferential tax zones and financial open zones such as free trade areas and bonded areas can be connected with the SREB to better facilitate the trade and investment in the region. In addition, we should strengthen the international tax treaty network in the region. Tax treaties are not only the basis for the division of tax rights of countries in transnational economic activities but also an

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important legal guarantee for safeguarding the tax rights and interests of the state, as well as the interests of enterprises in foreign investment. We need to strengthen the negotiation and signing of international tax treaties with the Middle East, ASEAN and Russia, covering all the Silk Road member states, and strengthen bilateral and multilateral consultation mechanisms to solve tax disputes on cross-border trade and investment. We need to simplify tax procedures and reduce tax costs to ensure the interests of transnational enterprises and individuals, and promote investment facilitation in the region. (3) Promote Industrial Cooperation and Development We should lower the threshold for market access and accelerate the establishment of an open, transparent, standardized and orderly market access system. Foreign capital should be allowed to directly or indirectly hold relevant industrial companies so as to introduce foreign advanced technology and capital management mode, and promote international cooperation in relevant industries. Some industries in China, such as chemical industry, metallurgy, building materials, etc., have mature technology and large demand in the international market, so they can be transferred to foreign countries or regions with mature conditions in the form of industrial parks. For some powerful enterprises, they can meet their needs of overseas resources through the development cooperation of oil and gas, iron, copper and aluminum minerals, and establish a stable, diversified and safe supply system. At the same time, domestic capital should be guided to flow internationally for better investment through acquisition, equity participation, cooperative R&D or joint venture. (4) Establish Regional Financial Support Institutions To build the SREB, we must first develop transportation and strengthen investment in transportation infrastructure. There are many countries along the route with different economic conditions. It is especially true for some countries and regions in Central Asia and Southeast Asia, where the development of local trade, foreign investment and economy are seriously restricted due to their relatively backward economy, the local governments’ neglect of infrastructure construction, and serious shortage of funds. In order to promote the construction of the SREB and solve the shortage of infrastructure investment in the countries and regions along

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the route, China has initiated the establishment of the Silk Road Fund (SRF) and the Asian Infrastructure Investment Bank (AIIB) to help finance the infrastructure construction, resource development, industrial cooperation and other related projects in this region, with the focus on infrastructure construction. SRF and AIIB mainly provide funds for infrastructure construction in countries along the route, a public product with low economic efficiency and long payback period. Therefore, we can consider encouraging the investment of private and cross-border capital in Public-Private Partnership (PPP) mode with the help of national credit to promote the participation of multinational social funds and better facilitate the development of trade and investment in the SREB. SRF and AIIB will focus on the investment in the construction of infrastructure in the region. Therefore, there will be a huge space for the development of transportation, building materials, steel and chemical industries in China, which will help China solve the problems of excess production and low profit in these industries, broaden the scope of and inject vitality into them, promote foreign demand and trade exports, and speed up the pace of capital going global. (5) Promote Renminbi Cross-border Settlement Business Renminbi settlement not only helps enterprises to simplify settlement procedures, reduce financial expenses and management costs but also helps to save verification procedures and speed up the process of tax rebate. Therefore, promoting the in-depth development of renminbi cross-­border settlement is conducive to realizing the direct benefits of trade and investment facilitation of the SREB. To promote cross-border settlement of renminbi, we should focus on the following aspects: First, we should allow financial institutions to open offshore financial businesses, encourage renminbi to flow out of the country and reduce the impact of exchange rate fluctuations through currency swaps among many countries. Second, in addition to cooperation with the central banks of relevant countries and regions, we should encourage China’s commercial banks to implement overseas development strategies based on their own conditions. China’s commercial banks’ establishment of branches and a good credit management system in countries and regions related to the SREB is conducive to providing financial support for the enterprises to develop overseas business.

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Finally, we should develop renminbi as the settlement currency of foreign trade. At the same time, we should continue to expand the proportion of renminbi in the settlement currency of foreign trade and explore possibilities of expanding renminbi settlement to non-trade areas.

Bibliography Fang Xiaoli, Zhu Mingxia, An Empirical Study on the Measurement of Trade Facilitation and Its Impact on Exports of China and ASEAN Countries [J], Journal of International Trade, 2013(9): 68–73. Li Ting, Yang Danping, Research on the Impact of Trade Facilitation on China’s Export Trade [J], Science- Technology and Management, 2014 (5): 111–115. Lian Xiaomei, Research on APEC Regional Cooperation Mode and Development Prospects, doctoral dissertation, Jilin University, 2004. Lu Jinyong, An Analysis of Causes, Forms and Benefits of Facilitation of International Direct Investment [J], Intertrade, 2006(9): 51–54.

CHAPTER 4

Industrial Cooperation and Upgrading

1   Introduction The transformation of China’s economy from high-speed growth to medium-high-speed growth means the transformation of growth from low-cost factor-driven mode to innovation-driven mode. In essence, it is to change the comparative advantages, that is, to change the position in the system of international division of labor and realize the industrial upgrading.1 At present, China’s industrial upgrading has entered a critical period when we should not only achieve the overall goal of industrial upgrading but also avoid the risk of economic downturn caused by discontinuity in the process of industrial upgrading. In fact, some scholars have pointed out that the eastern part of China is faced with the pressure of discontinuity of comparative advantages, that is, labor-intensive industries with traditional comparative advantages are impacted by the low-income countries in Southeast Asia, while the new industries with comparative advantages have not yet been formed (Zhang Qizai 2008). In addition, China has to face the problem of serious overcapacity in some industries in the process of industrial upgrading (Han Guogao and Gao Tiemei 2011).2 1  Zhang Qizai, Evolution of Comparative Advantage and Choice of Path of Industrial Upgrading in China [J], ChinaIndustrialEconomics, 2008 (9): 58–68. 2  Han Guogao and Gao Tiemei point out seven industries with possible serious overcapacity in China’s manufacturing industry: ferrous metal smelting and rolling processing industry, non-ferrous metal smelting and rolling processing industry, non-metallic mineral

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_4

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In September 2013, Chinese President Xi Jinping proposed the SREB Initiative to be jointly built by Asian and European countries. It was clearly stated in the Vision and Proposed Actions Outlined on Jointly Building SREB and Twenty-First-Century Maritime Silk Road issued by China in March, 2015, that “It(the SREB) is aimed at promoting the orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets; encouraging the countries along the route to achieve economic policy coordination and carry out broader and more in-­ depth regional cooperation of higher standards; and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all”, and elaborations are made on the main contents of the SREB cooperation.3 Such an open and mutually beneficial regional economic cooperation framework can provide a platform and space for China to achieve industrial upgrading. After the SREB Initiative was put forward, researchers in China scrambled to carry out relevant studies, which can be divided into two stages: studies in the first stage focus on interpreting and discussing the background, connotation, positioning, significance and implementation path of the SREB (e.g., Hu Angang et al. 2014; Bai Yongxiu and Wang Songji 2014; Wang Baozhong et al. 2013; Wei Ling and Dai Jiangwei 2014; Guo Aijun et al. 2014; Bai Yongxiu et al. 2014; Zhao Huasheng 2014; Wang Haiyun 2014; Cao Yun 2014). The focus of studies in the second stage was shifted to discussions on the implementation and promotion of the SREB Initiative, as well as analysis of the status quo, constraints and solutions for a specific content, such as energy cooperation, infrastructure construction, industrial cooperation, investment and trade, and financial support (e.g., Pang Changwei 2014; Wang Zhe et al. 2015; Guo Aijun and Mao Jinhuang 2014; Suhua et  al. 2015; Wang Cong 2015; Gao Xincai and Zhu Zegang 2014; Wang Xiaofang and Yu Jiangbo 2014). It is noteworthy that scholars have tried to make systematic theoretical analysis on the industrial cooperation and transformation of the SREB.  Su Hua and Kang Lan et al. (2015) tried to build the industrial cooperation mode of the SREB based on the Flying Geese Model. Wang Cong (2015) products industry, chemical fiber manufacturing industry, chemical raw materials and products manufacturing industry, petrochemical industry, coking and nuclear fuel processing industry, and paper and paper products industry. 3  Vision and Proposed Actions Outlined on Jointly Building SREB and twenty-first-Century Maritime Silk Road, People’s Publishing House, 2015: 3.

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proposed the industrial cooperation transformation mechanism of the core areas of SREB using the analytical framework of new structural economics. Their research enriches our perspective on this issue. However, in general, the existing research lacks depth, and the industry-related literature focuses on the analysis of the cooperation among specific industries in the SREB, while the research on the industrial cooperation of the SREB from the perspective of collaborative upgrading is far from sufficient. Industrial cooperation is one of the key contents of the construction of the SREB. In practice, we should consider the key issue of which industries should be selected as the breakthrough in cooperation with relevant countries; in theory, we should think about what kind of mechanism we should employ when making use of the new pattern of opening up and the new framework of regional economic cooperation brought by the SREB so as to achieve the goal of industrial upgrading and long-term sustainable development in China. There is rich literature on the theoretical research of industrial upgrading. There are two types of industrial upgrading: one is the inter-industrial upgrading, and the other is the industrial upgrading based on intra-product specification. The characteristics of China’s big country economy determine that there are obvious regional differences in industrial development, which leads to the differences in industrial upgrading paths. No single type of upgrading path can solve all the problems of China’s industrial upgrading. Therefore, this chapter will study how to realize the collaborative industrial upgrading in the regional economic structure of the SREB by reviewing the theories on industrial upgrading and analyzing the status quo of industrial development of countries in the SREB.

2   Literature Review 2.1  Theories on Industrial Upgrading 2.1.1 Industrial Upgrading and Industrial Structure Upgrading “Once you start thinking about economic growth, it’s difficult for you not to focus on the continuous upgrading of industries and technologies characteristic of sustained economic growth”.4As a major practical problem 4  Lin Yifu, New Structural Economics: A Framework for Rethinking Development and Policy (Updated Edition) [M], Beijing University Press, 2014: 155.

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faced by developing countries, industrial upgrading has naturally become the focus of theoretical research. However, from the existing research on the theories of industrial upgrading in China’s academic circles, we can see that different scholars have different understandings of the connotation of industrial upgrading because many researches fail to clarify the distinctions between industrial upgrading and industrial structure upgrading, which can lead to the confusion of research subjects and scope. Chen Yu and Kuang Guoliang (2009) pointed out that domestic scholars mainly understood the connotation of industrial upgrading from two perspectives. One is the perspective of “structure” and the other is the perspective of “value chain”. The latter is based on the theory of GVC and is generally adopted by foreign scholars in their research on industrial upgrading, while the former is commonly used in studies, especially pilot studies, carried out by Chinese scholars, who hold that industrial upgrading is the adjustment of industrial structure. It is noteworthy that, in recent years, studies on industrial upgrading by Chinese scholars from the perspective of “value chain” are constantly increasing, which helps clarify the distinctions between industrial upgrading and industrial structure upgrading. Judging from the existing research results (Jiang Zehua and Bai Yan 2006; Chen Yu and Kuang Guoliang 2009; Jiang Dong 2010), we believe that the differences between the concepts of industrial upgrading and industrial structure upgrading are as follows: they are different in subject: the former is a single industry while the latter is industrial structure. In addition, they have different connotations. The former refers to the continuous upgrading of the industry from the low-end production link of low added value and low technology to the production link of high added value and high technology, while the latter refers to the transformation of various industries in the industrial structure to a higher status and better coordinated relationship. On the basis of the research results of Zhou Zhenhua (1995), Jiang Zehua and Bai Yan (2006) summed up the contents of industrial structure upgrading as the change to a larger scale, a higher level and a stronger connection. On the whole, studies on industrial structure upgrading focus on the macro aspects, while studies on industrial upgrading focus on the micro aspects. The relationship between industrial upgrading and industrial structure upgrading is that the former is the basis of the latter, and the latter is the result of the former.

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149

Global Value Chain (GVC) Theory

(1) Formation and Development of GVC The theory of GVC is based on the new international division of labor and the global production network. It originated from Porter and Kogut’s analysis of the theory of value chain (VC) in the 1980s. Porter pointed out that “it (comparative advantage) stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. These different but interrelated production and operation activities constitute a dynamic process of creating value, thus forming the value chain”.5 Porter (1985) also distinguished the internal value chain from the interactive value chain, and constructed the theory of competitive advantage. At the same time, Kogut (1985) put forward the concept of “value-added chain”. That is, various input links formed by the fusion of technology, raw materials and labor, and then these links are combined to form final goods through assembly, and finally complete the value cycle process through market transactions and consumption. In fact, Kogut’s view more clearly reflects the relationship between the vertical separation of value chains and the reallocation of global space, extending value chains from Porter’s analysis focused on firms to more macro themes, regions and countries (Jiang Jing 2014). Since then, scholars such as Krugman, Arndt, Kierzkowski and Feenstra have studied the problem of fragmentation and spatial reorganization of value chains. Among them, Krugman (1995) discussed the ability of firms to allocate internal value chains in different geographic spaces, and this issue became the focus of later research (Zhang Hui 2004). Gereffi put forward the theory of “global commodity chain” to explore the internal structure of the global commodity chain consisting of different value-added parts, and divide the global commodity chain into producer-driven commodity chain and buyer-driven commodity chain. The concept of commodity chain has its limitations. Gereffi (2000) further proposed the concept and theoretical framework of GVC to replace global commodity chain, which provided a network-based method for analyzing the international industrial division of labor. It analyzed the geographical and organizational characteristics of international production, revealed the dynamic characteristics of the industries across the globe and investigated the creation and distribution 5

 Michael E. Porter, Competitive Advantage [M], Huaxia Publishing House, 2002.

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of value in the international industrial division of labor (Tu Yingqing 2010). Kaplinsky R. and Morris M. made a systematic review of the value chain, GVC and related theories in their works A Handbook for Value Chain Research. (2) Content of the Theory of GVC GVC refers to the chain that links all the value nodes constituting the final value of a specific product according to the production process and runs through many countries in the world. In this chain, the final value of a product is divided into multiple value nodes, which are created by multiple enterprises scattered in multiple countries around the world. These value nodes are scattered in all the production stages of a product from concept design to its final use, including conception, design, manufacturing, brand promotion, marketing, delivery and after-sales services.6 Pioneers in the theory of GVC include Gereffi, Gibbon, Humphrey, Kaplinsky, Porter and other scholars, whose outstanding research works have laid the basic framework for GVC theory, and made this theory the focus of later scholars and international organizations. Jiang Jing (2014) distinguished two types of GVC analysis carried out by foreign scholars, as shown in Table 4.1. Scholars such as Zhang Hui (2004, 2005, 2006) as well as Wen Hu and Zeng Gang (2004, 2005) introduced the GVC theory earlier in China and tried to apply it to solve the problems in China’s industrial development. The research during that period focused on the introduction of the theory of GVC. Generally speaking, the scholars mentioned above reviewed the basic contents of the theory of GVC mainly from the following three aspects: the dynamic mechanism of GVC, the governance theory of GVC and the upgrading theory of GVC. (3) Dynamic Mechanism of GVC Gereffi and M. Korzeniewicz divided the driving mode of global commodity chain into producer-driven and buyer-driven commodity chain. 6  This definition is based on the summary of foreign scholars’ definitions of GVC by such Chinese scholars as Liu Shiguo and Wu Haiying. For details, see Liu Shiguo, Wu Haiying, Ma Tao, et al.: Promote Industrial Upgrading using through GVC, International Economic Review, 2005 (1): 64–84.

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Table 4.1  Types of GVC analysis Internationalization analysis

Industry analysis

Representatives Research focus

Gereffi, Kaplinsky, Gibbon Governance of GVC and upgrading of underdeveloped countries

Methodology

Macro analysis method, mainly using industry and trade data of various countries FDI international labor division, bilateral or multilateral trade policies, FDI Relevant theories of international economics, political economics, transnational corporations

Humphrey, Smith Governance of GVC and upgrading of underdeveloped countries Micro analysis method, mainly case analysis and qualitative data Competitiveness of industrial clusters, and policies of regions and industrial Industrial economics, regional development and industrial clusters

Policy implications Theoretical background

Source: Jiang Jing, China’s Industrial Development from the Perspective of GVC, Nanjing University Press, 2014: 5

Later scholars generally adopted this classification method in their studies on the driving mechanism of GVC.  Zhang Jun (2004) systematically reviewed the theories on the dynamic mechanism of GVC by such scholars as Gereffi. According to his definition, producer-driven value chain refers to the vertical system of division of labor of global production supply chain formed because of market demand driven by producer investment. Investors can be multinational companies enjoying technological advantages and seeking market expansion, or national governments trying to promote local economic development and establish independent industrial system. Buyer-driven value chain refers to the economy with strong brand advantages and domestic sales channels, which forms strong market demand through the transnational commodity circulation network organized by global procurement and OEM production, and promotes the industrialization of developing regions that adopt export-oriented strategies. See Table 4.2 for details. From Table 4.2, it can be seen that there are great differences between the two types of value chains in terms of dynamic source, core competence and entry barriers, and more importantly, we should figure out the different development strategies as a result of these differences. Zhang Jun (2004) believed that in the process of participating in global competition, an industry should choose the development and upgrading strategies that

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Table 4.2  Comparison of producer-driven and buyer-driven GVCs Item

Producer-driven value chain

Buyer-driven value chain

Dynamic source Core competence

Industrial capital Research and development, production capacity Scale economy Durable consumer goods, intermediate goods, capital goods Automobile, computer, aircraft

Commercial capital Design, marketing Scope economy Non-durable consumer goods Clothing, shoes, toys

Multinational enterprises, mainly located in developed countries Investment as the main line Vertical integration

Local enterprises, mainly located in developing Trade as the main line Horizontal integration

Hard environment over-weighs soft environment Intel, Boeing, Toyota, Haier, etc.

Soft environment over-­ weighs hard environment Wal Mart, Nike, Dell, etc.

Barriers to entry Industrial classification Typical industrial sectors Manufacturing enterprises Main industrial links Leading industrial structure Auxiliary support system Typical cases

Source: Zhang Jun, Research on GVC Theory and China’s Industrial Development, China Industrial Economics, 2004(5): 38–46

conform to the type of value chain. If the industry belongs to the producer-driven GVC, its development strategy should be centered on enhancing the core technological capabilities. Correspondingly, for the industries that belong to buyer-driven value chain, the expansion of sales channels should be emphasized to obtain the competitive advantage of scope economy. (4) Theory of GVC Governance As the core of GVC theory, the governance of GVC focuses on the governance research centered on leading enterprises in the context of globalization. It mainly focuses on the coordination and interaction between leading enterprises and their suppliers; the barriers and rent distribution of all parties in the value chain; the opportunities, challenges and risks brought by the value chain to different countries; and, especially, the governance subject, mode and logic of GVC in the process of fragmented production and specialized division of labor (Qin Sheng 2014). Chinese scholars such as Chi Renyong et al. (2006) and Qin Sheng (2014) have reviewed the development of the governance theory on GVC in detail, so here is just a brief summary as follows.

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According to the control degree of leading companies to the value chain, Humphrey and Smith (2001, 2002) classified the governance of GVC into four types: market type, network type, quasi hierarchy type and hierarchy type.7 On the basis of Humphrey and Smith’s four types, Gereffi et al. (2003) divided the GVC governance into five types: market type, modular type, relational type, captive type and hierarchy type. The distinction standards of these five types are the degrees and levels of (1) the complexity of information and knowledge transfer required, (2) the extent to which this information and knowledge can be codified and transmitted efficiently and (3) the capabilities of actual and potential suppliers in relation to the requirements of the transaction between the nodes of the value chain. Specifically, under the market governance structure, it is easier to complete transactions because product specifications are relatively simple, the suppliers usually have the capabilities to complete contracts without the support of the buyers, and price is the main coordination mechanism. Under the modular governance structure, complex information, after being encoded and digitized, is transmitted to the suppliers who have the capabilities to provide a complete set of modules without the buyers’ supervision and control of the production process, and the product, industry and quality standards are the main coordination mechanisms. Under the relational governance structure, the buyers provide implicit information, and the suppliers have unique or non-replicable capabilities to obtain the buyers’ information, and trust and reputation are the main coordination mechanisms. Under the captive governance structure, the suppliers have weak capabilities and completely rely on the buyers’ supervision, guidance and intervention to complete production and transactions, and the buyers’ overall control over the suppliers is the coordination mechanism. Under the hierarchy governance structure, it is impossible to encode product specifications since the production process cannot be outsourced, there are no capable suppliers, all links are carried out within the firms and top-down management is the main coordination mechanism (Gereffi et al. 2003; Qin Sheng 2014).

 Humphrey J. Schmitz H, Governance in GVCs [J], IDS Bulletin, 2001, 32 (3): 19–29. Humphrey J, Schmitz H, Developing Country Firms in the World Economy: Governance and Upgrading in GVCs [R]. INEF Report, University of Duisburg, 2002: 25–27. 7

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The theory of GVC governance mentioned above takes the analysis of coordination mechanism and power structure among companies as the core to classify governance structure into different types. Porter and Gibbon (2005) provided another analysis framework for this problem by introducing the convention theory to analyze the leading enterprises and their governance logic in the GVC. In the governance theory of Gereffi and other scholars, the power of the leading enterprises is declining with the governance structure advancing from hierarchical governance to market-­oriented governance. Porter and Gibbon believe that loose governance structure does not necessarily mean the weakening of the control power of the leading enterprises because the leading enterprises obtain power through various ways, especially the influence of the conventional system, rather than simply depending on the coordination mechanism established on the basis of inter-enterprise relations (Qin Sheng 2014). The latest studies on governance of GVC attempt to integrate and develop the existing value chain governance theories through the micro-­ meso-­macro analysis method (Qin Sheng 2014). On the basis of existing theories, Porter and Sturgeon established a micro-meso-macro system framework to analyze GVC governance. The micro level describes the factors that determine the nodes of the value chain and the exchange mechanism. The meso level describes how the nodes are connected and extend to the upstream or downstream of the value chain. The macro level describes the overall operation mode of the GVC and its results. (5) Upgrading Theory of GVC The theory of industrial upgrading under the GVC mainly studies how the enterprises within or without the GVC obtain technological progress and market connection through the entry into the value chain so as to improve their competitiveness and enter into higher value-added activities.8 Gereffi (1999) divided industrial upgrading into four levels: the upgrading and innovation at the product level; the upgrading and innovation at the economic activity level; the upgrading and innovation at the inter-­ industrial level; and the upgrading and innovation at the intra-industrial level. Humphrey and Smith (2002) innovated the theory of industrial upgrading on the basis of Gereffi’s studies and proposed four ways of 8  Sun Wenyuan, Industrial Upgrading from the Perspective of Value Chain Division in Products [J], Management World, 2006 (10): 156–157.

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industrial upgrading in the GVC: process upgrading, product upgrading, function upgrading and chain upgrading.9 Sheng Bin and Chen Shuai (2015) expounded on the concepts of these four industrial upgrading paths as follows. First, technological process upgrading. It means that in the production process, enterprises can improve the production process, and produce products in a more efficient way or with a lower defective rate due to the advancement of technology and improvement of production efficiency, or enterprises can handle more complex orders because of the progress of production technology. It often involves the specific measures concerning the purchase of new machines, the implementation of quality control plans, the reduction of delivery time and the reduction of waste.10 Second, product upgrading. It means that, due to the improvement of technology and strength, the enterprises redesign higher-quality products that require more complex technology, which also involves the capabilities of enterprises to update products. Third, function upgrading. It means that the enterprises upgrade to a stage with higher added value in a “smiling curve” value chain. The function upgrading of an enterprise in the production stage is to transfer it either to its upstream (R&D, design, brand) or to its downstream (logistics, distribution, after-sales services).11 Finally, chain upgrading. It refers to the ability of enterprises to participate in or transfer to a “smiling curve” value chain that produces higher value-added products.12 The essence of chain upgrading is to shift from the current value chain to the value chain with higher technology level and governance structure. Technological process upgrading and product upgrading are relatively easy, which often occur in the early stage of economic development of a country or an enterprise. Function upgrading and chain upgrading are relatively advanced forms, with the former as the basis of the latter.13 9  Humphrey J, Schmitz H, Governance and Upgrading: linking industrial cluster and GVC research, IDS Working Paper 120. Brighton: Institute of Development Studies. 10  Humphrey J, Schmitz H, How Does Insertion in GVCs Affect Upgrading in Industrial Clusters? [J], Regional Studies, 2002, 36(9): 1017–1027. 11  Gereffi G, Memedovic O, The GVC: What Prospects for Updating by Developing Countries? Vienna: UNIDO, 2003. 12  Gereffi G, Memedovic O.  The GVC: What Prospects for Updating by Developing Countries? Vienna: UNIDO, 2003. 13  WTO, World Trade Report 2014.

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Generally speaking, industrial upgrading follows the process from technological process upgrading to product upgrading, then to function upgrading, and finally to chain upgrading. However, in the real process of industrial upgrading, many enterprises in an industry interact with each other, so the track is not completely linear. 2.2  Industrial Upgrading in the SREB After the SREB Initiative was put forward, scholars in domestic academic circles have carried out relevant researches, publishing a large number of research results and triggering off many debates. The relevant research in China can be divided into two stages: the first stage focuses on interpreting and discussing the background of the SREB (Zhao Huasheng 2014; Zhang Ning 2014; Cao Yun 2014; Bai Yongxiu and Wang Songji 2014), the connotation and positioning of the SREB (Hu Angang et al. 2014; Bai Yongxiu and Wang Songji 2014; Wei Ling and Dai Jiangwei 2014; Guo Aijun et al. 2014; Wang Haiyun 2014; Feng Yujun 2014; Li Qi 2014), the significance of the SREB (Hu Angang et al. 2014; Bai Yongxiu and Wang Songji 2014; Wei Ling and Dai Jiangwei 2014), and the implementation paths of the SREB (Hu Angang et al. 2014; Wang Baozhong et al. 2013; Bai Yongxiu et al. 2014; Wang Haiyun 2014; Zhao Huasheng 2014); the second stage saw research on a certain key task of the SREB by analyzing its current situation, constraints and solutions, as well as the deeper problems such as the cooperation mode of the SREB. Generally speaking, the research in the first stage has answered the questions of “why and what” about the SREB, but in the implementation stage of the SREB Initiative, the key problem has become “what are the key and difficult problems and how to solve them”. Since the release of Vision and Proposed Actions Outlined on Jointly Building SREB and Twenty-First-Century Maritime Silk Road, Chinese scholars have carried out studies on the following six key issues concerning the implementation of the SREB: energy cooperation (Pang Changwei 2014; Yuan Pei 2014; Guo Shu’e and Wang Shubin 2015), transportation and logistics construction (Luo Gang 2014; Wang Jie et al. 2015), industrial cooperation (Guo Aijun and Mao Jinhuang 2014; Su Hua et  al. 2015; Wang Cong 2015), investment and trade cooperation (Gao Xincai and Zhu Zegang 2014; Cheng Yunjie 2014; Liu Huaqin 2014), financial cooperation (Yao Dequan 2014; Wang Xiaofang and Yu Jiangbo 2014; Ni Mingming and

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Wang Mancang 2015), and urban construction (Yang Shu and Wang Shusen 2015; Gao Xincai and Yang Fang 2015; Xu Jianying 2015). Industrial cooperation is not only the premise and foundation for the industrial upgrading of the SREB but also an important way to achieve complementary advantages, mutual benefit and win-win results among countries along the route. As a result, it has become the focus of existing studies, which can be divided into three categories. First, analysis of the status quo of industrial development of countries along the route and then the prospects of industrial division of labor and cooperation (Xu Jianwei and Zhao Yunyun 2014; Guo Aijun and Mao Jinhuang 2014; Dong Suocheng et al. 2014; Liu Zhizhong 2014; Gui Hao and Zhang Jianlun 2014). Second, exploration of modes and paths of industrial division of labor and cooperation between China and other countries in the SREB. For example, Su Hua et al. (2015) attempted to build a Flying Geese Paradigm of industrial cooperation between China and Central Asian countries based on the development level in descending order of different regions from Eastern China to Central China, and western China and Central Asian countries. Wang Cong (2015) explored the feasible path of connectivity construction, industrial transformation and cooperation between China and Central Asia under the theoretical framework of new structural economics, believing that the driving force of industrial transformation and cooperation is the upgrading of factor endowments and the cultivation of comparative advantages, the breakthrough is the improvement of the hard and soft infrastructure, and the key is science and technology cooperation as well as industrial cooperation. As far as the direction of industrial transformation and cooperation is concerned, we need to focus on the role of the government in information provision and external compensation, and combine financial development, technological innovation and industrial structure adjustment by improving the viability of enterprises. Guo Aijun and Mao Jinhuang (2014) constructed the industrial spatial layout of the SREB from the three levels of the economic belt, the state and the nodes. Finally, discussion about the division of labor and cooperation between China and countries along the route in a specific industry, with energy, finance, logistics and tourism as its focus (Pang Changwei 2014; Yuan Pei 2014; Guo Ju’e et al. 2015; Yao Dequan 2014; Wang Xiaofang and Yu Jiangbo 2014; Ni Mingming and Wang Mancang 2015; Li Ning 2014; Guo Peng et al. 2014).

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3   Investigations into Industrial Cooperation in the SREB 3.1  Industrial Development of Key Countries Along the Route The five Central Asian countries are important partners of China in the joint building of the SREB. China has reached an agreement on industrial capacity cooperation with Kazakhstan with a total contract value of tens of billions of US dollars, which provides a model for China to promote industrial cooperation in the SREB. We take the core areas of the SREB defined by Bai Yongxiu and Wang Songji (2014) as the subject of analysis to investigate the industrial development of the five Central Asian countries and Russia. 3.1.1 Industrial Development of Five Central Asian Countries Central Asia, located in the hinterland of Eurasia and adjacent to Northwest China, includes Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan. Since their independence in 1992, the five Central Asian countries have recovered and developed their industrial economy thanks to rich energy and mineral resources in the region (see Tables 4.3 and 4.4). Let’s take a look at these countries one by one. Kazakhstan’s main industries are oil and gas as well as coal industries. The agriculture of this country is dominated by planting and animal husbandry, but it has witnessed a slow development of agricultural modernization. The internal structure of its industry is not reasonable, with the important role of the mining industry, especially the oil and natural gas mining industry, in the industrial output value and the relatively slow development of other industrial sectors. From 2003 to 2012, the proportion of mining industry in the total industrial output value has always been rising, reaching 60.8% in 2012. In contrast, the development of its manufacturing industry is restricted due to its weak foundation, aging equipment, insufficient investment and declining competitiveness.14 In addition, as is pointed out by Bi Yanru (2010), there is a serious deviation between the employment structure and the output value structure in Kazakhstan: one-third of the labor force is concentrated in agriculture; the mining industry has a strong lead among industries, while the processing and manufacturing industries are 14  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Press, 2014: 127.

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Table 4.3  Dominant natural resources and major industrial industries of the five Central Asian countries Country

Advantageous natural resources

Major industrial industries

Kazakhstan

Oil and gas: the proven reserves of onshore oil are 4.8–5.9 billion tons, and natural gas is 3.5 trillion cubic meters; the proven reserves of oil in the Caspian Sea area are 8 billion tons, and the recoverable reserves of natural gas are more than 1 trillion cubic meters Coal reserves: 176.7 billion tons, accounting for 4% of the world’s total reserves, ranking eighth in the world Uranium: 25% of the world’s reserves, ranking second in the world Gold: 3%–4% of the world’s gold reserves, ranking eighth in the world Zinc: 9.5% of the world’s total reserves, ranking fourth in the world Chromium: 1/3% of the world’s reserves, ranking second in the world

Oil and gas industry coal industry

Turkmenistan Natural gas: the prospective reserves are 22.8 trillion cubic meters, ranking third in the world Iodine and bromine: 70% of the reserves in the Soviet Union Kyrgyzstan Antimony: the output ranks first in CIS and third in the world Tin: the output ranks second in CIS Mercury: the output ranks second in CIS Uzbekistan Oil and gas: the reserve ranks second in Central Asia Uranium: proven reserves of 55,000 tons, ranking seventh in the world Gold: the proven reserves are 2100 tons ranking fourth in the world. Molybdenum: the reserve ranks eighth in the world Cadmium: the third largest mining volume in the world Tajikistan Silver: the reserves rank first in Central Asia Antimony: the reserves rank second in Central Asia Lead-zinc: the reserves rank first in Central Asia

Energy, machinery manufacturing, food processing, non-ferrous metals Oil and gas industry, cotton and wool textile industry Mining industry, metal and non-metal products processing industry

Mining, light industry, building materials industry

Source: Chen Zheng and Jiang Zheng, Distribution and Development Status of Dominant Mineral Resources in the Five Central Asian Countries, The Chinese Newspaper of Land and Resources, July 14, 2012

2016.8 483 336.8 64.2 75.9

Kazakhstan Uzbekistan Turkmenistan Kyrgyzstan Tajikistan

Source: World Bank Database

GDP/US $100 million

Country

1,1772.9 1737.5 5998.7 1148 953.3

Per-capita GDP/US $ 5.2:37.9:56.9 18.9:32.4:48.7 7.5:24.4:68.1 21.3:32.6:46.1 25.6:25.0:49.3

Proportion of the three industries 1368 262.9 199.1 72.7 51.5

Total foreign trade/US $100 million

Table 4.4  Economic development of five Central Asian countries (2012)

923 142.6 103.4 18.9 13.6

Export/US $100 million

445 12.3 95.7 53.7 37.8

Import/US $100 million

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backward. Although the service industry accounts for a large proportion, it is mainly supported by traditional industries, and the development of modern service industry is slow. Judging from per-capita GDP, Kazakhstan has joined the ranks of high-income countries, but as far as the internal economic structure is concerned, Kazakhstan is still developing in a resource-driven mode, and it is still in the transition stage from an agricultural country to an industrial one.15 Uzbekistan’s industries are mainly those of energy, machinery manufacturing, food processing and non-ferrous metals. Uzbekistan is the most populous country in Central Asia, accounting for 50% of the total population (2010) in the region. At the same time, Uzbekistan is rich in natural resources. The pillar industries of the national economy are those in gold, cotton, oil and natural gas. Uzbekistan is known as the country of cotton because its cotton production leads the world, but the country reduced the area of cotton planting after its independence. However, agriculture still plays an important role in its GDP growth. In industry, light industry and food processing industry are the traditional economic sectors of Uzbekistan. After its independence, Uzbekistan implemented the gradual reform strategy, and encountered difficulties in industrial development in the early years of the reform. However, after entering the twenty-first century, its industrial development accelerated, and the contribution of industry to GDP gradually increased.16 Oil, natural gas and non-ferrous metal production are pillar industries of national economy. Generally speaking, Uzbekistan is still a country that mainly produces raw materials and is still in the process of transforming from a traditional agricultural country to an industrial one. The main industries in Kyrgyzstan are mining industry, and metal and non-metal products processing industry. Kyrgyzstan has large reserves of non-ferrous metals such as gold, mercury, tin and antimony, as well as world-class large-scale deposits such as Kumtor gold mine and Khaidarkan mercury mine. Gold plays an important role in Kyrgyzstan’s economy. In 2011, Kumtor gold mine mined 18.1 tons of gold, with an output value of about 1.9  billion US dollars, accounting for 11.7% of Kyrgyzstan’s 15  Bi Yanru, Research on Industrial Cooperation between China and Central Asian Countries from the Perspective of Industrial Structure Internationalization, Doctoral Dissertation of Xinjiang University, 2010: 34–35. 16  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Press, 2014: 176.

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GDP, 26.1% of Kyrgyzstan’s total industrial output value and 51.1% of Kyrgyzstan’s total export value. However, in 2012, due to the decline of the output of gold, the GDP growth in that year declined to some extent.17 Unlike Kazakhstan, Uzbekistan and Turkmenistan, where there are rich oil and gas resources, Kyrgyzstan lacks oil and gas resources, making it relatively difficult to develop its economy. In agriculture, Kyrgyzstan is changing from animal husbandry to planting, among which fruit and vegetable industry has witnessed the greatest development, followed by tobacco industry, but its agriculture still fails to achieve food self-­sufficiency. In industry, manufacturing is the main industry, followed by the construction industry and the industry of electricity, gas and water supply, which together account for a relatively high and basically stable proportion in national economy. The main industries in Tajikistan are mining industry, light industry and building materials industry. It is a small country in Central Asia, with a land area of only about 143,000 square kilometers. However, it is relatively rich in water resources, with amount per-capita ranking top in the world, and most of the water resources still remain undeveloped. The country has a weak economic foundation and a single economic structure. Its economy had been in recession since its independence in the 1990s. In the twenty-first century, the total economic volume has been growing, but it has made relatively little progress in industrialization. Although the government has been promoting reform and industrialization, agriculture still accounts for a large proportion in its national economy, while the proportion of secondary industry output is declining, which is even lower than the level before its independence. In terms of per-capita GDP, Tajikistan is currently the poorest country in Central Asia. In addition, the country has a long-term trade deficit, which has been widening in recent years, and, as a result, the national industry has been greatly impacted by foreign industries. The main industries in Turkmenistan are oil and gas industry as well as cotton and wool textile industry. The country is rich in natural gas and oil, and it ranks third in the world in terms of natural gas reserves. The economy of Turkmenistan has maintained a high-speed growth since its independence because it has been taking advantage of its rich resources to implement the policy of building a strong economy through production 17  Sun Li, Wu Hongwei, Yellow Book of Central Asia: Development Report of Central Asian Countries (2013) [M], Social Sciences Academic Press (China), 2013: 42.

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and export of energy. The proportion of the primary industry has declined slowly, the secondary industry has been maintaining a leading position, and the proportion of the tertiary industry has been on the rise. In the secondary industry, the fuel-energy complex composed of natural gas, oil exploitation, petroleum products and electric power is the main industrial sector of Turkmenistan, with an output value accounting for more than half of the total industrial output value.18 Generally speaking, the rich oil and gas and other mineral resources have played a significant role in driving the economic and social development of Central Asia, but the region is still in the primary stage of industrialization, and the level of industrial economic development is still relatively low. 3.1.2 Overview of Russian Industrial Development Since the disintegration of the Soviet Union, Russia has witnessed a process of development from a sharp recession to a recovering growth. As a country with the most abundant mineral and energy resources in the world, Russia has naturally become the world’s largest oil and gas exporter. Therefore, the prominent feature of its industrial structure is the large proportion of energy and raw material sectors in national economy. In terms of the overall industrial structure, the output value of Russia’s primary industry accounts for a small proportion of the country’s GDP and has been declining constantly from 16.6% in 1990 to 3.9% in 2012. The proportion of the secondary industry was the highest in 1990, reaching 48.4%, and has been basically maintained at 30%–40% after the disintegration of the Soviet Union. The proportion of the tertiary industry has been increasing from 35% in 1990 to 60% in 2012.19 In terms of industrial internal structure, the main industrial sectors of the country are oil, natural gas, machinery, metallurgy, coal and chemical industry and so on. The light textile, food and wood processing industries are relatively backward, while it is advanced in aerospace and nuclear industries. The characteristics of Russia’s industrial structure are: it relies heavily on the production and export of crude oil, natural gas and other resource products; and the 18  Bi Yanru, Research on Industrial Cooperation between China and Central Asian Countries: A Study from the Perspective of Industrial Structure Internationalization. Doctoral dissertation of Xinjiang University, 2010: 52. 19  Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Publishing House, 2014: 112.

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Table 4.5  Changes in Russian industrial structure during 2000–2011(%) Year

2000 2001 2002 2003 2004 2006 2007 2008 2009 2010 2011

Energy and raw materials sector manufacturing industry

58.4 56.3 57.2 57.6 60.6 67.8 66.1 65.4 66.0 66.2 66.4 41.6 43.7 42.8 42.4 39.4 32.2 33.9 34.6 34.0 33.8 34.6

Source: Ma Lili, Ren Baoping, SREB Development Report 2014 [M], China Economic Publishing House, 2014: 114 Note: Before 2005, the energy and raw materials sectors included the fuel, electricity, ferrous metallurgy, non-ferrous metallurgy, wood processing and building materials industries; heavy manufacturing industries included machine manufacturing, metal processing industry and chemical and petrochemical industries; light manufacturing industries included light industry and food processing industry. After 2005, the energy and raw materials sectors include the industries of mining wood processing and wood products production, paper and printing, coke and petroleum products production, other non-metallic mineral processing, metallurgy and metal products production; heavy manufacturing industries include chemical industry, and industries of rubber and plastic products production, machinery and equipment production, electronic equipment and photoelectric instruments production, transportation and equipment production; light manufacturing industries include food production, textile industry and leather and leather products production

proportion of the output value of the manufacturing sector in the total industrial output value has been declining. See Table 4.5 for the changes in Russian industrial structure from 2000 to 2011 (excluding 2005). 3.2  Characteristics of Industrial Cooperation Between China and Key Countries Along the Route First, industries are highly complementary. China and Central Asian countries are at different stages of development, and there are great differences in industrial and product structure between them. At present, China has formed a relatively complete industrial system. Thanks to the advantage of labor force, China’s labor-intensive industries have witnessed rapid development, and capital-intensive industries have also been developing in recent years. Export products are mainly manufactured products. However, the industrial development of Central Asian countries is mainly based on raw material industry and agriculture, and the industrial sectors are not complete, so they need to import a large number of living materials. Especially after their independence, Central Asian countries are eager to improve their people’s living standards, enhance national strength and their international status. Against this backdrop, all countries have adopted

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the economic development strategy of rejuvenating a country through industry. However, in the development for more than 20 years after their independence, the original industrial structure of Central Asian countries has not changed substantially. After participating in international trade and division of labor, the resource-based industrial structure has been further strengthened.20 Such development reality provides space for industrial cooperation between China and Central Asian countries. Although the market competition in Central Asia is fierce, and, objectively, the quality of Chinese products is far behind that of such developed countries and regions as America, Japan, South Korea, Europe, etc., but Chinese products are more competitive because they are cost-effective with comparatively good quality and lower price; therefore, they are more popular with consumers in Central Asian countries. As a result, industries in China and Central Asian countries are highly complementary, and there is a material foundation for industrial cooperation on the basis of international division of labor. Second, cooperation in energy and resource industry occupies a leading position. The resource endowment and industrial structure of Central Asian countries and Russia match the huge energy demand of China’s economic development, making the cooperation in energy and resource industry dominant. Chinese energy enterprises (China National Petroleum Corporation, Sinopec Group, etc.) have investment projects in almost all five Central Asian countries and Russia. Chinese enterprises also have many important investment projects in non-ferrous metals mining and dressing industry in Kyrgyzstan, Tajikistan and Uzbekistan. With the development of these investment projects, Chinese enterprises have carried out a lot of cooperation with Central Asian countries in the fields of geological exploration, mining equipment and technical consulting services. In terms of oil and gas resources exploitation, China has initially formed the development trend of focusing on Kazakhstan and expanding cooperation to Turkmenistan and other surrounding Central Asian countries. Some energy enterprises have deepened the cooperation between China and Central Asian countries in oil and gas industry by acquiring oil and gas exploration rights, building cross-border oil and gas pipelines,

20  Bi Yanru, Research on Industrial Cooperation between China and Central Asian Countries —A Study from the Perspective of Industrial Structure Internationalization, Doctoral Dissertation of Xinjiang University, 2010: 9.

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acquiring oil and gas companies in Central Asia and providing oil and gas production technology services. Third, some industries have a certain basis for cooperation. This is shown in the fact that the leading enterprises in some industries in China have carried out business in Central Asia and got good market feedback. For example, some communication equipment manufacturing and service providers like Huawei and ZTE have secured a place in Central Asian market and have exerted a great influence on the industry. After establishing the first tractor assembly plant in Central Asia in Kyrgyzstan in 2008, China’s YTO Group Co., Ltd. officially put the second assembly plant in Central Asia into production in Kazakhstan in June 2009. In addition, many food processing and cotton textile enterprises have become well-­ known brands with a relatively stable market share in Central Asian countries. Finally, there is great potential for industrial cooperation. China’s construction machinery, transportation equipment and electric power equipment have strong competitiveness in Central Asian market and have been the main commodities imported from China by Central Asian countries for many years due to their reliable quality, reasonable price, easy operation and maintenance. However, the industrial cooperation in related fields is still in its infancy and needs to be further expanded in depth and breadth. At the same time, with the continuous economic and social development of Central Asian countries, the consumption demand of building materials, automobiles and textiles caused by their urbanization and infrastructure construction has been greatly increased, while China’s corresponding industries have a high level of development, with rich categories of products and high cost performance; therefore, there is great potential for industrial cooperation. 3.2.1

 olumn 1: Complementarity of Industrial Development C Between China and the Five Central Asian Countries China and the five Central Asian countries are at different stages of industrialization. China has generally entered the middle and late stages of industrialization, while the Central Asian countries generally lag behind China in terms of industrialization. Therefore, China and the five Central Asian countries are highly complementary in product and industrial structure. In the Soviet era, the five Central Asian countries acted as suppliers of raw materials, but after their independence, these countries had the

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urgent need to develop modern manufacturing industry. However, due to historical and geopolitical factors, the original industrial pattern of the five Central Asian countries has not changed substantially after 20  years of development since their independence. With the deepening of participation in international trade and division of labor, the resource-based industrial structure has been further strengthened. Table 4.6 describes the distribution of the top ten commodities exported by the five Central Asian countries, showing the resource-driven characteristic of the industrial structure of the five Central Asian countries. It is easy to notice that the export commodity structure of the five Central Asian countries is highly concentrated on mineral resources and agricultural raw materials products occupying an absolute share, and the vast majority of the top ten commodities are primary products, which vividly shows that Central Asian countries lack processing and manufacturing capacity. Although resource-based primary products are where the comparative advantages of Central Asian countries lie at this stage, if they rely solely on the export of resource-based primary products and do not pay attention to the improvement of their manufacturing capacity, they are likely to be pinned forever to the periphery of the global industrial division. Therefore, Central Asian countries urgently need to improve their level of industrial development. Only by vigorously developing modern manufacturing industry can they change the current situation of relying solely on the export of resource-based primary products and realize the diversification of export products (Table 4.6). Therefore, the complementarity of industrial development between China and Central Asian countries is reflected not only in product trade based on resource and market complementarity but also in industrial capital cooperation and development strategy: on the one hand, compared with product trade, Central Asian countries are more willing and motivated to get foreign direct investment to improve the level of industrial development; on the other hand, China has the strength, conditions and motivation to promote the “going global” of advantageous industrial capacity and expand the international development space of China’s industry. Selected from: Bai Yongxiu, Wang Zerun, Wang Songji, Research on Industrial Capacity Cooperation of SREB, Economic Review Journal, 2015(11): 28–34.

2.6

1.6

1.4

1.2

8. Coal

9. Liquefied propane

10. Wheat

85.2

10. Iron-free waste of alkali metals

8. High-­quality metal, concentrate 9. Cotton

53.6

2.3

2.4

2.8

3.4

5.7

6.0

9. I ron-free waste of alkali metals 10. Copper ore and concentrate

6. E  lectric power 7. Men’s garments 8. Textile yarn

3. C  otton goods 4. Base metal ore and concentrate 5. Nuts

7.3 6.0

2. Cotton

8.7

Aluminum

1.

Name

9.0

%

Tajikistan

80.3

0.9

1.0

1.2

1.4

1.6

2.2

3.6

3.8

16.4

48.2

%

13.5

52.4

%

10. Garments

9. Vegetable

8. Textile yarn

92.3

0.8

1.3

2.1

3. H  eavy oil and 10.8 asphalt 4. Inorganic 3.3 chemical oxidation salt 5. Crude oil 3.2 and asphalt 6. Special yarn and 2.5 textile fabrics 7. Plastic products 2.4

2. Cotton

1. Natural gas

Name

Turkmenistan

10. Vegetables and products

9. C  hemical fertilizer

5. R  adioactive materials 6. Bus, racing car 7. Textile yarn 8. Heavy oil and asphalt

4. Nuts

3. Natural gas

2. Copper

1. Cotton

Name

Uzbekistan

76.4

3.0

4.0

5.8

6.2

6.4

6.5

7.8

9.3

12.6

14.9

%

Source: Zhang Wenzhong, Trade Characteristics of the Five Central Asian Countries and Obstacles to Their Eastward Development, Finance & Economics of Xinjiang, 2015(1): 53–61

Total

2.9

5.  Iron ore, concentrate 6. Radioactive materials 7. Natural gas

2.7

4. V  egetables and products

3.1

4. H  eavy oil and asphalt

5. W  omen’s garments, etc. 6. Electric power 7. Nuts

1. N  onmonetary gold 2. Heavy oil and asphalt 3. Vehicles

1. C  rude oil 61.9 and asphalt 2.  Sponge iron, 4.0 ferroalloy 3. Copper 3.8

Name

Name

%

Kyrgyzstan

Kazakhstan

Table 4.6  Top ten commodities exported by the five Central Asian countries in 2012

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3.3  Problems in Industrial Development of Key Countries Along the Route From the above analysis of the status quo of the industrial development of the key countries along the route, it can be seen that industry as a whole occupies a dominant position and develops relatively rapidly, which plays a significant role in driving economic growth. From the coastal areas in eastern China to the central and western regions of China and the five Central Asian countries, the level of industrial economic development is obviously stepped, so there is great potential for cooperation. But at the same time, the industrial development of this region is also faced with problems that cannot be ignored, such as low-level division of labor, serious product homogeneity and problems concerning resources and environment. There is a low level of division of labor and serious product homogeneity in relevant countries. With the support of the western development strategy, the industry in northwestern China has witnessed rapid development, but the industrial development level in the northwest is still far behind that in the east. The northwest region of China is dominated by heavy industry. Within the heavy industry, the mining and raw material industries account for a large proportion. This heavy industrial structure determines that most of the main industrial products are basic upstream products in the northwest region with short industrial chain, low processing degree and poor industrial radiation effect. Most of the industrial industries are at the low end of the value chain. The levels of industrial development of the five Central Asian countries are different. Kazakhstan has a relatively higher level of industrial development, while the industrial development level of the other four countries is relatively low. The five Central Asian countries, without advantages and characteristics, but with serious product homogeneity, are similar in their industrial structures. Russia has a solid foundation for the development of heavy industry, but it has not established an effective industrial division of labor with neighboring countries. Generally speaking, an effective industrial value chain has not been formed in the core area of the SREB with low level of industrial division of labor, and the serious problem of product homogeneity, which needs to be solved in the process of building the SREB. In addition, the countries in the region are faced with serious problems concerning resources and environment, as well as huge pressures of economic transformation and development. The core area of the SREB has a complex terrain, frequent natural disasters and extremely fragile ecological environment. In recent years, great damage has been done to the

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ecological environment in the core area in the process of industrial development, resulting in increasing pressure on the ecological environment. Take northwestern China as an example. This region relies heavily on heavy industry for its economic development. The industries with high energy consumption, high pollution and high emission occupy a high proportion in its economic structure, which results in increasingly prominent problems concerning resources and environment in the process of industrial development. In 2013, the total GDP of western China accounted for 20% of the total national GDP, but the exhaust gas emissions accounted for 33.27% of the national total, 13.27% higher than the GDP; the industrial solid waste emissions accounted for 32.91% of the national total, 12.91% higher than the GDP (see Table 4.7). In addition, the core area of the SREB is rich in mineral resources, but in the process of resource development, frequent destructive and predatory development of mineral resources deteriorated the relatively fragile ecological environment of the region. In this context, it is necessary for the core area of the SREB to actively promote the coordinated development of industrial industry in the future, reduce the consumption of resources, mitigate the damage to the ecological environment and realize sustainable development of industrial economy on the basis of giving full play to the comparative advantages of all regions. Table 4.7  Proportion of main pollutants in three regions of China in 2013 (%) Regions

Eastern region Central region Western region

Proportion of GDP

Main pollutant discharge Proportion of waste gas

Proportion of waste water

Proportion of industrial solid waste

59.79

42.71

56.56

40.77

20.21

24.02

23.37

26.31

20.00

33.27

20.07

32.91

Source: according to the relevant data of China Statistical Yearbook 2014 Note: There are 13 provinces and municipalities directly under the central government in the eastern region, including Beijing, Tianjin, Hebei, Liaoning, Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan; there are six provinces in the middle, including Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan; there are 12 provinces and municipalities directly under the central government in the western region, including Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi and Gansu, Qinghai, Ningxia and Xinjiang

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4   Path of Coordinated Industrial Upgrading of the SREB In the context of intra-product specialization, the influence of geographical factors on international industrial division of labor is constantly increasing.21 The industrial division of labor within the region is deepening toward the division of value chain,22 and the construction of regional industrial value chain has become the only way for the coordinated development of regional industry. The land area of China, Russia and the five Central Asian countries accounts for three-fifths of the total area of the Eurasian continent, while the population in the region accounts for nearly one-fourth of the world’s total population, so this region plays an important role in the development of the world economy. In the process of building the SREB, the active building of the industrial value chain by relevant countries will not only contribute to the coordinated transformation and upgrading of regional industries but also contribute to the sustainable development of the Eurasian continent and even the world economy. 4.1  Conditions for Construction of Industrial Value Chain in the Core Area of the SREB There is a good foundation for cooperation, a broad market space and a complementary industrial system in the core area of the SREB, which creates the basic conditions to build an industrial value chain in the core area of the SREB. First, there is a good foundation for cooperation in the core area of the SREB.  On June 15, 2001, China, Russia, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan jointly created the SCO preceded by the Shanghai Five mechanism. The SCO is committed to strengthening allaround cooperation among its member states and promoting the establishment of a new international political and economic order. In recent years, China has been carrying out increasingly close all-around cooperation with Russia and the five Central Asian countries through bilateral 21   Xu Kangning, Wang Jian, Factor Endowments, Geographical Factors and New International Division of Labor [J]. Social Sciences in China Press, 2006 (6): 65–77. 22  Liu Youjin, Hu Liming, Intra-product Specialization, Reorganization of Value Chain and Industrial Transfer—Also on Big-country Strategy in the Process of Industrial Transfer [J], China Soft Science,2011 (3): 149–159.

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Fig. 4.1  China’s investment in Russia and five Central Asian countries in 2005–2013. (Source: China’s foreign direct investment statistical bulletin in 2013, China Statistics Press, 2014: 46–50)

frameworks and the SCO. China has established comprehensive strategic partnership of cooperation with Russia and Kazakhstan, and strategic partnership of cooperation with Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan, which has laid a political foundation for China’s cooperation with relevant countries. In terms of economic cooperation, China, Russia and the Central Asian countries are highly complementary in economy with a strong demand for energy cooperation, and trade and investment have been on the increase in recent years (see Fig. 4.1). China has become the most important trade partner or investment source country of Russia and Central Asian countries.23 In terms of transportation links, the Second Eurasian Continental Bridge is in normal operation, the second China– Kazakhstan transit railway has been put into use, and the construction of Silk Road revival project has been accelerated.24 The transportation links between China, Central Asia and Russia is increasingly close. The good

23  Bai Yongxiu, Wang Songji, SREB: Strategic Corridor for China to Go Global, Journal of Northwest University (Philosophy and Social Sciences Edition), 2014 (4): 32–38. 24  Wang Songji, Bai Yongxiu, Construction of the SREB and Development and Upgrading of Urbanization in Western China, Ningxia Social Sciences, 2015(1): 51–59.

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foundation of cooperation in the core area of the SREB provides conditions for relevant countries to strengthen the industrial division of labor. Second, there is a broad market space in the core area of the SREB.  Market scale is closely related to the degree of specialization of division of labor, and the expansion of market scale helps improve the level of specialization of division of labor. It can be seen from Table 4.8 that the core area of the SREB, including China, the five Central Asian countries and Russia, covers an area of 30.6992 million square kilometers, accounting for 20.61% of the world’s total land area; in 2013, the population in the region was 1.576 billion, accounting for 22% of the world’s total population; the total GDP was 12.56  trillion US dollars, accounting for 16.13% of the world’s total economy. The huge market scale in the core area of the SREB can provide benefits of scale economy for the industrial enterprises of relevant countries: it can help the industrial enterprises with competitive advantages to become bigger and stronger in the region and improve their ability to cope with international competition; in addition, it can help to make full use of the vast market space to optimize the allocation of factors and accelerate the formation of the industrial value chain in the core area of the SREB. Finally, there is a complementary industrial system in the core area of the SREB. Generally speaking, only when different countries or regions have comparative advantages in different processes of specific industrial products can they carry out division of labor by building an industrial value chain. The core area of the SREB includes seven countries in different stages of economic development. The coordinated development and upgrading of the industrial industry in the region can be promoted Table 4.8  Market space in the core area of the SREB (2013) Country or Region China Five Central Asian Countries Russia Total

Area/10,000 km2

Population/100 million

GDP/trillion US dollars

959.81 400.29

13.64 0.68

10.36 0.34

1709.82 3069.92

1.44 15.76

1.86 12.56

Source: Population and GDP data are taken from the World Bank Database; land area data are taken from the attached tables of the World Banks’ World Development Report 2009: Reshaping Economic Geography, Tsinghua University Press, 2009: 332–334

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through cross-region reconstruction of the industrial value chain. Specifically, the coastal areas of eastern China have the conditions to upgrade to technology-intensive and knowledge-intensive industries, while the labor-intensive industries in this region need to be transferred to other regions; the central and western areas of China have the conditions to undertake the labor-intensive and technology-intensive industries internationally, while the excess capacity in energy chemical industry as well as steel and textile industries need to be exported. The Central Asian countries, with a relatively weak industrial base and rich oil, natural gas and metal minerals resources, are facing the opportunity to develop energy chemical industry and mineral processing industry, and can undertake some labor-intensive industries; Russia has a good foundation for the development of heavy industry, and some of its industries are at the high end of the value chain, which can provide technical support for the construction of industrial value chain in the core area of the SREB. It can be seen that there is a complementary industrial system in the region, which lays the foundation for building the industrial value chain. 4.2  On the Construction of Industrial Value Chain in the Core Area of the SREB Based on the good cooperation foundation, broad market space and complementary industrial system of different levels in the core area of the SREB, all relevant economies should take advantage of the good foundation for cooperation, broad market space and complementary industrial system in the region to give full play to their comparative advantages, and actively build up industrial value chain of the core area of the SREB with the coastal areas of eastern China as the “leading area”, the central and western regions of China as the “pivot” and Central Asia and Russia as the important area (see Fig. 4.2). In this industrial value chain, the positioning of each relevant economy in the industrial value-added link is based on its comparative advantage, which provides practical basis for the sustainable development of the industries in the core area of the SREB. Through dislocation development and complementary development, we can gradually realize the coordinated development and upgrading of industrial economy. The specific ideas are as follows: the coastal areas of eastern China should transfer labor-intensive production processes to other regions, actively develop technology-intensive and knowledge-intensive production processes, strive to be the “leader” of the industrial value chain of the

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Fig. 4.2  Schematic diagram of industrial value chain in the core area of the SREB

SREB, and play the leading role as a leading area; the central and western areas of China should transfer the excess capacity of energy, chemical industry, steel, textile, and so on to the outside world, actively undertake the labor-intensive production processes transferred from the coastal areas of eastern China, as well as the technology-intensive, knowledge-intensive and capital-intensive production processes transferred from other regions in the world, and strive to be the “pivot” of the industrial value chain of the SREB; Central Asian countries have a relatively weak industrial base, so they should actively undertake some labor-intensive production processes transferred from China, cooperate with China to develop the resources exploitation and deep processing industry, energy chemical industry, as well as cotton and wool textile industry, etc., and make full use of the comparative advantage in natural resources, especially rich oil and gas resources, to improve the level of industrial economic development. Russia should provide technological support for the construction of the

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industrial value chain in the core area of the SREB, vigorously develop technology-intensive production processes and export part of heavy chemical industry and technology-intensive production processes that have lost their comparative advantage, and integrate into the industrial value chain of the SREB as an important component along with China and Central Asian countries. With the formation of the industrial value chain in the core area of the SREB, the industrial division of labor and economic ties of the relevant economies will be closer, and a community of common interests and a community with shared future will be gradually established.

5   Support Measures for Coordinated Upgrading of Industries in the SREB The support measures for the coordinated industrial upgrading of the SREB include formulating the industrial cooperation plans for the SREB, strengthening the macro guidance at the national level; improving the supporting policies for international industrial cooperation, improving the services of “going global”; actively carrying out economic diplomacy and placing emphasis on political and economic interactions; promoting multilateral financial cooperation and strengthening financial support; improving policies for economic development and international trade and investment. First, we need to formulate industrial cooperation plans for the SREB and strengthen macro guidance at the national level. The central government should formulate strategic, systematic and mutually beneficial industrial cooperation plans for the SREB as a whole, and clarify the objectives, implementation paths, cooperation framework and support measures of the industrial cooperation of the SREB. We need to strengthen the macro guidance of “going global” for Chinese enterprises, improve the guidance policies on industries and countries for enterprises to invest and contract projects overseas, and improve the pertinence and effectiveness of guiding enterprises “going global”. We need to improve our ability to monitor and respond to public opinion in foreign investment and contracted projects, and create an environment for favorable public opinion. We need to improve the risk prevention and control and supervision mechanisms for foreign investment and contracted projects, and strengthen the management of overseas Chinese-funded enterprises and overseas state-owned assets. We need to improve the foreign investment management system,

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promote the facilitation of foreign investment, reduce the scope and links of government approval and strengthen dynamic monitoring and ex-post supervision.25 Second, we need to improve the supporting policies for international industrial cooperation and improve the services for “going global”. We need to establish a special financial subsidy policy system for enterprises exploring the market of the SREB, and provide effective and preferential support policies for enterprises in investment, financing and comprehensive credit management. At the same time, we need to simplify and reduce the examination and approval items that restrict domestic enterprises from going global. We will guide enterprises to strengthen coordination and cooperation in foreign investment and contracting projects, and give full play to the role of industry associations and chambers of commerce of overseas Chinese-funded enterprises so as to avoid disorderly and malicious competition. We need to guide enterprises to operate in accordance with laws and regulations overseas, pay attention to environmental protection, accelerate the integration with the economic and social development of the host country, and actively perform social responsibilities. We will strengthen the construction of such platforms as relevant information-­ sharing systems and multilateral or bilateral investment cooperation promotion mechanisms, support the development of local investment banks as well as legal, accounting and evaluation agencies, and give full play to the role of professional consultation and rights protection of these agencies.26 Third, we need to actively carry out economic diplomacy and place emphasis on political and economic interactions. The SREB covers a wide range and involves complex geopolitical relations. We should strengthen close political and economic interactions, and further strengthen coordination between political diplomacy and economic diplomacy. We need to promote bilateral or multilateral cooperation between governments, and expand the depth and breadth of coordination of macroeconomic policies among governments. We need to improve institutional cooperation 25  Notice of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission and Other Departments on Accelerating the Cultivation of New Advantages in International Cooperation and Competition. 2012-6-1, http://www.gov.cn/zwgk/2012-06/01/content_2151106.htm. 26  Notice of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission and Other Departments on Accelerating the Cultivation of New Advantages in International Cooperation and Competition. 2012-6-1,http://www.gov.cn/zwgk/2012-06/01/content_2151106.htm.

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platforms such as the strategic dialogues, the joint economic and trade commissions as well as the mixed commissions, and deepen bilateral or multilateral economic and trade cooperation. We need to give full play to the front-line role of embassies and consulates abroad to provide strong support for Chinese enterprises to explore the international market.27 Fourth, we need to promote multilateral financial cooperation and strengthen financial support. To begin with, we need to expand the cross-­ border use of renminbi; facilitate the settlement, clearing and return of overseas renminbi; and promote the going global of renminbi. In addition, we need to promote the “going global” of Chinese financial institutions, encouraging Chinese banks and foreign banks to carry out financial cooperation in supporting the construction of the SREB, and encourage domestic-related industries to go global. We also need to improve the investment and financing mechanisms, adhere to the combination of government promotion and commercial operation and the combination of investment promotion and financial support, and give full play to the role of existing investment and financing platforms such as the Asian Infrastructure Investment Bank and the Silk Road Fund to better support the industrial cooperation of the SREB. Finally, we need to improve policies for economic development and international trade and investment.28 Economic development policies should focus on specific production links more suitable for a specific enterprise rather than the whole industry, and vigorously strengthen investment in infrastructure and human resources. We need to actively develop the service industry, giving priority to the development of commercial service industry. We need to promote the liberalization of domestic service market and encourage the development of small- and medium-sized enterprises. The government needs to create opportunities to strengthen the connection between local small- and medium-sized enterprises and foreign-funded enterprises. With regard to international trade policies, we should try our best to eliminate trade barriers at the multilateral level and promote trade liberalization. Regional trade agreements should be 27  Notice of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission and Other Departments on Accelerating the Cultivation of New Advantages in International Cooperation and Competition.2012-6-1,http://www.gov.cn/zwgk/2012-06/01/content_2151106.htm. 28  Liu Shiguo, Wu Haiying, GVC and Trade Value Added: Economic Impact, Policy Implications and Statistical Challenges [J], International Economic Review, 2013 (4): 87–96.

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compatible with the production networks in the region. We need to optimize border management, and especially we should promote the facilitation of customs clearance process. With regard to international investment policies, we should try our best to reduce investment barriers, improve the convenience of two-way investment and encourage foreign investment, especially the investment of multinational companies. We need to strengthen the services for international investors after the initial investment to attract more follow-up investment. We need to accelerate the coordination of existing bilateral and regional investment agreements, and enhance the coordination between the two sides.

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Guo Peng, Dong Suocheng, Li Zehong, et al. A Study on Tourism Pattern and International Tourism Cooperation Mode of SREB [J], Resources Science, 2014(12): 2459–2467. Han Guogao, Gao Tiemei, Wang Liguo, et  al. Research on Measurement, Fluctuation and Causes of Overcapacity in China’s Manufacturing Industry [J], Economic Research Journal, 2011 (12): 18–31. Hu Angang, Ma Wei, Yan Yilong, SREB: Connotation, Positioning and Realization Path [J], Journal of Xinjiang Normal University (Philosophy and Social Sciences Edition), 2014(2): 1–11. Humphrey J, Schmitz H, Governance in GVCs [J]. IDS Bulletin, 2001, 32 (3). Humphrey J, Schmitz H, How does Insertion in GVCs Affect Upgrading in Industrial Clusters [J], Regional Studies, 2002,9(36): 1017–1027. Jiang Jing, China’s Industrial Development from the Perspective of GVCs [M]. Nanjing University Press, 2014. Jiang Zehua, Bai Yan, An Analysis of the Connotation and Influencing Factors of Industrial Structure Upgrading [J], Contemporary Economic Research, 2006 (10): 53–56. Kogut B, Designing Global Strategies: Comparative and Competitive Valueadded Chains [J], Sloan Management Review, 1985, 26(4). Krugman P, Growing World Trade [C]. Brookings Papers on Economic Activity 1, 1995. Li Qi, Geo Strategic Implications, Practice of China and Central Asia’s Innovative Cooperation Mode and Joint Construction of the SREB [J], Journal of Shaanxi Normal University (Philosophy and Social Sciences Edition), 2014(4): 5–15. Liu Huaqin, Building a New Pattern of Regional Economic Integration in the SREB, Chinese Social Sciences Today, May 16, 2014. Luogang, Discussion on Coordination and Promotion of Transportation and Logistics System in Construction of the SREB [J], Research on Development, 2014(2): 45–49. Ni Mingming, Wang Mancang, Dilemma and Realization Path of Regional Currency Cooperation and Renminbi Regionalization in the SREB [J], The Journal of Humanities, 2015 (2): 31–38. Pang Changwei, Energy Cooperation: Breakthrough of the SREB Strategy [J], Journal of Xinjiang Normal University (Philosophy and Social Sciences Edition), 2014(2): 11–18. Qin Sheng, GVC Governance Theory: Review and Prospects [J], ForeignTheoretical Trends, 2014(12): 14–21. Sheng Bin, Chen Shuai, How GVCs Change Trade Policies: Impact and Implication on Industrial Upgrading [J], International Economic Review, 2015 (1): 85–97. Su Hua, Kang Lan, Wang Lei, Construction of Flying Geese Mode for Industrial Cooperation of SREB [J], The Journal of Humanities, 2015 (3): 43–49.

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CHAPTER 5

Construction and Upgrading of Urbanization in Western China

Urbanization has both agglomeration and diffusion effects. It can promote economic and social development by facilitating the accumulation of human capital, accelerating the development of modern agriculture, stimulating consumption and narrowing the gap between urban and rural areas. Since the implementation of the western development strategy, the urbanization rate in the western region has increased from 24.1% in 2000 to 44.26% in 2012. The development of regional central cities and city clusters has become increasingly mature, but there is still a big gap compared with the urbanization rate of 64.41% in the eastern region,1 which shows that there is still a great space for the development of urbanization in the western region. In September 2013, President Xi Jinping proposed that Eurasian countries jointly construct the SREB. This proposal has received positive responses from countries along the route and has become an important part of China’s economic development and opening up. The building of the SREB provides a major strategic opportunity for promoting the development and upgrading of urbanization in the western region, which is conducive to solving the problems existing in the urbanization construction in that region. It also helps the western region to consolidate the foundation for industrial development, promote the coordination of spatial structure, strengthen the supply of public 1  According to relevant data in page 99 of China Statistical Yearbook 2013, edited by National Bureau of Statistics, PRC and published by China Statistical Publishing House.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_5

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services and maintain a beautiful ecological environment. Besides, the SREB enhances the viability and radiation role of large and medium-sized cities, promoting the upgrading of “passive urbanization” characterized by extensive industrialization in the western region to “active urbanization”2 featured by viable and coordinated development of towns and cities, making “active urbanization” a powerful engine for the development of the western region.

1   Significance of SREB in Western Region Urbanization Since the implementation of the western development strategy, the western region’s economic growth rate has been higher than the national average. And the western region is expected to become a new economic growth pole, pushing the focus of China’s economic growth to shift westward. In recent years, driven by the development of industrialization, the urbanization of the western region has been continuously upgraded. As can be seen from Fig. 5.1 and Table 5.1, the urbanization rate in the western region has increased from 38.53% in 2008 to 44.26% in 2012, which is higher than the average level in the eastern region and the whole country. However, in 2012, the urbanization rate in the eastern region reached 64.41%, 1.5 times the urbanization level in the western region, which indicates that there is still a lot of room for improvement in the urbanization of the western region. Therefore, upgrading the urbanization is an important policy in accelerating economic development and opening up in the western region. Influenced by history, geography, economic policy and other factors, the western region and the eastern developed region are quite different in economic development. In 2012, the total GDP of 12 provinces and cities in the western region accounted for 19.76% of the country’s total, whereas that of the 13 provinces and cities in the eastern region accounted for 60.08%. Moreover, the degree of export-oriented economy in the western region has been relatively low for a long time due to the fact that it is located in the remote inland. In terms of foreign trade, in 2012, the export volume of the western region only accounted for 7.3% of the total volume 2  Bai Yongxiu, Wang Songji, From “Passive Urbanization” to “Active Urbanization”— Also on the Evolution of Urban and Rural Economic and Social Integration [J]. Jiangxi Social Sciences, 2011(2): 81–86.

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Fig. 5.1  Change of urbanization rate in China’s three major regions from 2008 to 2012. (Note: The eastern region includes 13 provinces and cities: Beijing, Tianjin, Hebei, Liaoning, Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan; the central region includes six provinces: Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan; the western region includes 12 provinces and cities: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang. The methods of division of regions mentioned in the sourcebook are the same as here. Data source: relevant data in China Statistical Yearbook 2013) Table 5.1  Change of urbanization rate in China’s three major regions from 2008 to 2012 (%) Region

Eastern region Central region Western region Whole country

Year 2008

2009

2010

2011

2012

60.0 41.73 38.53 46.99

61.07 43.03 39.61 48.34

62.72 44.44 41.45 49.95

63.52 46.28 42.81 51.27

64.41 47.98 44.26 52.57

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Table 5.2  Proportion of foreign investment in China’s three major regions in 2011–2012 (%) Region

Eastern region Central region Western region

Foreign-invested enterprises

Total investment

Registered capital

2011

2012

2011

2012

2011

2012

82.50 8.81 8.68

82.93 8.74 8.33

83.76 8.45 7.79

83.26 8.56 8.17

84.15 8.12 7.73

83.60 8.34 8.06

Data source: relevant data in China Statistical Yearbook 2013

of the country,3 and the technical content of export commodities was relatively low. In terms of foreign investment, the number of foreign-­invested enterprises, total investment and registered capital in the western region accounted for only about 8% of the total amount of the country in 2012, which was generally at a low level (see Table 5.2). The low level of economic development and opening up in the western region leads to its insufficient development of urbanization. Moreover, there is a great gap in the level of population agglomeration in the eastern and western regions. In the eastern region, the Pearl River Delta city cluster, the Yangtze River Delta city cluster and the Beijing– Tianjin–Hebei city cluster occupy only 2.8% of the total land area, but 18% of the national population gather here, producing 36% of the national GDP,4 whereas the western region occupies 71.5% of the total land area, with only 27% of the national population.5 Given this, we must speed up the economic development and opening of the western region by upgrading the urbanization. The western region is the key domestic construction area of the SREB. Through the construction of the SREB, we can build an important platform for the region to speed up economic development and enhance 3  Date source: Department of General Affairs, Ministry of Commerce. Foreign Trade Operations in the First Three Quarters of 2013, China’s Ministry of Commerce [EB/OL]. http://zhs.mofcom.gov.cn/article/Nocategory/201310/20131000371565.shtml. 4  Huang Wei, Zeng Ni, He Youhua, How Far is the Pearl River Delta City Cluster from the World Level? Nanfang Daily, October 31, 2013. 5  Jiang Qiuli, Wang Fazeng, Urban Network: The New Way of the Urbanization of China in Western Region [J]. Journal of Henan University (Natural Science), 2014(1): 67–73.

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the degree of opening up. Thereby, it can enhance the viability and radiation role of large and medium-sized cities in the western region, improve the quality and level of urbanization and promote the upgrading of the “passive urbanization” featured by extensive industrialization to the “active urbanization” of the viable cities in the western region. Specifically, the construction of the SREB provides an important opportunity to deepen the western development strategy. The western region can not only undertake industrial transfer from the east but also expand its opening up to the west. It can vigorously develop an export-oriented economy facing Central Asia and its surrounding countries so as to optimize the allocation of production factors in a larger spatial scope and comprehensively improve the level of opening up and economic development.6 In this process, the western region will accelerate the formation of the Guanzhong City Cluster with Xi’an as its center, the Chengdu–Chongqing City Cluster with Chengdu and Chongqing as its center, the Lanzhou–Xining City Cluster with Lanzhou and Xining as its center, the City Cluster to the Northern Slope of the Tianshan Mountain with Urumqi as its center and the Yinchuan Plain City Cluster with Yinchuan as its center. The rational division of labor within or among city clusters has gradually been realized, and the viability and radiation role of large and medium-sized cities are emerging, which can not only provide strategic support for the construction of the SREB but also promote the coordinated development of urbanization in China’s eastern, central and western regions.

2   Problems of Western Region Urbanization After the reform and opening up, especially since the implementation of the western development strategy, the urbanization in the western region has been developing rapidly and the level of urbanization has been continuously improved. However, during this period, the urbanization in the western region was to a large extent the “passive urbanization” featured by extensive industrialization, which has led to a series of problems in urban-rural industrial development, spatial connection, public service supply and environmental protection.

6  Bai Yongxiu, Wang Songji, Silk Road Economic Belt: China’s Strategic Corridor to the World [J], Journal of Northwest University (Philosophy and Social Sciences Edition), 2014(4): 32–38.

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2.1  Weak Modern Industry Development The current industrial development situation in the western region shows that both the primary and secondary industries occupy a higher proportion while the development of the tertiary industry is too insufficient to support the healthy development of urbanization. Specifically, in 2012, the proportion of the added value of the primary industry in the western region was 12.2%, which was 2.1% higher than the national average, and that of Guangxi, Yunnan and Xinjiang was more than 16% (see Table 5.3). This indicates that the development of modern agriculture in the western region is lagging behind, and the coordinated development of agricultural modernization and urbanization cannot be realized. In 2012, the proportion of the added value of the secondary industry in the western region was 48.3%, which was 3% higher than the national average, and that of the Inner Mongolia, Shaanxi and Qinghai was more than 55%. Table 5.3  Proportion of added value of three industries in Western Cities and Provinces in 2012 (%) Cities and provinces Inner Mongolia Guangxi Chongqing Sichuan Guizhou Yunnan Tibet Shaanxi Gansu Qinghai Ningxia Xinjiang Western average National average

Proportion of added value of primary industry

Proportion of added value of secondary industry

Proportion of added value of tertiary industry

9.1

55.4

35.5

16.7 8.2 13.8 13.0 16.0 11.5 9.5 13.8 9.3 8.5 17.6 12.2

47.9 52.4 51.7 39.1 42.9 34.6 55.9 46.0 57.7 49.5 46.4 48.3

35.4 39.4 34.5 47.9 41.1 53.9 34.7 40.2 33.0 42.0 36.0 39.5

10.1

45.3

44.6

Data source: relevant data in China City Statistical Yearbook 2013

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This shows that the proportion of industrial added value in the western region is too high and too dependent on heavy industry. The urbanization driven by this is a typical “passive urbanization”, which has caused a series of problems. In 2012, the proportion of the added value of the tertiary industry in the western region was 39.5%, which was 5.1% lower than the national average, and that of Sichuan, Shaanxi and Qinghai was less than 35%. It shows that the development of modern service industry in the western region is too insufficient to provide strong support for the development of urbanization. Generally speaking, the current industrial structure in the western region is not reasonable because the proportion of low-end heavy industry output is too high while the modern service industry and modern agriculture are developing very slowly, which is not conducive to the healthy development of urbanization in the western region. 2.2  Insufficient Coordination of Space Structure In recent years, the level of urbanization in the western region has been continuously improving, but the spatial structure is not sufficiently coordinated, which is mainly manifested in the following three aspects. First, the development of urbanization in the cities and provinces in the western region is unbalanced. In 2012, the urbanization rate of Inner Mongolia, Chongqing, Shaanxi and Ningxia was higher than 50%, but the urbanization rate of Guizhou, Yunnan, Tibet and Gansu was still lower than 40%. The difference in urbanization level in Tibet (22.75%, the lowest in the western region) and Inner Mongolia (57.74%, the highest in the western region) was nearly 35%. This shows that the urbanization development among western regions is extremely uncoordinated. Second, the regional central cities have an insufficient driving capacity to nurture the surrounding towns. In recent years, large cities such as Chongqing, Xi’an and Chengdu in the western region have been developing rapidly, and western city clusters such as the Guanzhong City Cluster and the Chengdu–Chongqing City Cluster have begun to take shape. However, due to the lack of rational division of labor within and among city clusters, regional central cities are developing on their own,

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Table 5.4  Administrative divisions and distribution of cities in three major regions of China Regions

Number of provinces and municipalities

Number Group by administrative level of cities Number of Number of Number in total Number of municipalities subprovincial prefecture-­ of cities level cities county-­ level cities

Eastern region Central region Western region National total

13

317

3

12

107

195

6

169

0

1

79

89

12

171

1

2

84

84

31

657

4

15

270

368

Data source: relevant data in China City Statistical Yearbook 2013

without support from secondary cities,7 and it is difficult for the functions of large cities to radiate to the surrounding small- and medium-sized cities, which is not conducive to the healthy development of urbanization in the western region. Third, cities fail to play a strong leading role in promoting the development of rural areas and the space between urban and rural areas is severely divided. The western region accounts for 71.5% of the country’s total land area, but the number of administrative cities only accounts for 26% of the country (see Table 5.4). In addition, due to such factors as geographical environment, economic development level and policies, the mechanisms of supporting rural development through urban initiatives and industry nurturing agriculture are not perfect, and cities have not been playing a strong role in supporting rural areas, which results in a severe division of urban and rural areas in the western region. Therefore, we need to promote urbanization vigorously to solve the problem of the uncoordinated spatial structure of the western region between municipalities and provinces, between towns and cities, and between urban and rural areas.

7  Bai Yan, Reflections on Urbanization of the Western Region in the First New Round of Development [J]. Macroeconomic Management, 2011(8): 35–37.

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Table 5.5  Development level of urban facilities in western municipalities and provinces in 2012 Provinces

Urban water penetration rate/%

Urban gas penetration rate/%

Inner Mongolia Guangxi Chongqing Sichuan Guizhou Yunnan Tibet Shaanxi Gansu Qinghai Ningxia Xinjiang National average

94.43

84.39

95.30 93.84 92.04 92.07 94.32 75.39 96.15 92.77 99.90 92.30 99.13 97.16

93.26 93.32 87.96 71.35 66.46 29.79 94.11 77.81 92.65 79.67 96.60 93.15

Public transport vehicles/number per 10,000 people

Per-capita urban road area/ m2

Per-capita park and green space area/m2

7.05

17.67

15.52

9.18 9.00 13.34 8.80 10.25 8.59 15.58 10.04 16.60 12.46 13.91 12.15

14.74 10.67 12.72 6.80 11.92 14.22 14.71 12.56 11.17 17.56 14.16 14.39

11.42 18.13 10.79 9.38 10.43 9.40 11.58 9.52 9.81 15.71 10.00 12.26

Data source: relevant data in China Statistical Yearbook 2013

2.3  Insufficient Supply of Public Services Since the implementation of the western development strategy, the economy of the western region has been developing rapidly, but the social construction is relatively backward and public service supply is relatively insufficient, which can be reflected both within the cities and between urban and rural areas. Within the cities, restricted by factors such as insufficient local fiscal revenue, urban water penetration rate, urban gas penetration rate, the number of public transport vehicles per 10,000 people, per-capita urban road area and per-capita park and green space area in some western provinces have not yet reached the national average (see Table  5.5), which affects the improvement of urban living conditions. Due to the restrictions of the household registration system, most of rural migrant workers have difficulty in accessing the relevant public services for those who have urban household registration, resulting in problems like “semi-urban migrant workers” and “half-done urbanization”. Due to the government’s long-term implementation of two different sets of public

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service supply systems in urban and rural areas, the level of public services that rural residents can enjoy is significantly lower than that of urban residents. Moreover, the equalization of basic public services in urban and rural areas in the western region still has a long way to go. To solve the problem of insufficient public service supply, the western region must coordinate economic and social development in the process of urbanization, turning more rural migrant workers into permanent urban citizens and equalizing basic public services in urban and rural areas. 2.4   Increased Pressure on Ecological Environment The western region has a complex terrain, frequent natural disasters and an extremely fragile ecological environment. In recent years, the ecological environment has been greatly damaged in the process of urbanization construction in the region, resulting in increased pressure on the ecological environment and huge hidden dangers to the sustainable development of towns and cities. Specifically, the urban development in the western region is excessively dependent on heavy industry and the “three high” industries with high energy consumption, high pollution and high emission occupy a large proportion of the economic structure, which have seriously damaged the ecological environment in the western region. Recent years have also witnessed a sharp increase in the population of large cities in the western region, and the speed of land urbanization is faster than that of population urbanization. The extensive urbanization mode has led to increasingly prominent contradictions among population, resources and environment in the western region. And problems such as pollutant emission, garbage siege, traffic congestion and excessive consumption of resources have become very serious.8 In 2012, the total GDP of the western region accounted for 19.76% of the whole country, but exhaust gas emissions accounted for 32.73%. The industrial solid waste emissions accounted for 33.36% of the whole country, which was 13.60% higher than the GDP (see Table 5.6). The excessive discharge of pollutants indicates that heavy industry occupies a large proportion of the economic structure of the western region, which has caused great pressure on its urban environment.

8  Li Xiaoman, Research on Some Problems Concerning the Driving Force of New Urbanization in Western China [J], Reformation & Strategy, 2014(3): 97–100.

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Table 5.6  Proportion of major pollutant emissions in three major regions of China in 2012 (%) Regions

Eastern region Central region Western region

Proportion of GDP

Emission of major pollutants Proportion of exhaust gas

Proportion of waste water

Proportion of industrial solid waste

60.08

43.15

56.94

41.37

20.17

24.12

23.19

25.27

19.76

32.73

19.87

33.36

Data source: relevant data in China Statistical Yearbook 2013

In addition, the western region is rich in mineral resources such as coal, oil and natural gas, but in the process of resource development, some people lack basic reverence for nature.9 Frequent destructive and predatory development of mineral resources has led to more serious problems such as soil erosion, land subsidence, debris flow and land desertification in the western region, which makes the ecological environment more fragile,10 thus undermining the sustainable and healthy development of urbanization.

3   Paths of Urbanization Upgrading in the Western Region In the process of urbanization in the western region, problems such as weak development of modern industry, uncoordinated spatial structure, an insufficient supply of public services and increased pressure on the ecological environment are closely related to the “passive urbanization” featured by extensive industrialization. Under the background of the construction of the SREB, the viability and radiation role of large and medium-sized cities in the western region will be gradually enhanced 9  Cao Zongping, Problems and Mode of Urbanization in Western China [J], Reform, 2009(1): 62–67. 10  Deng Xiangzheng, Zhong Haiyue, Bai Xuemei, et al. On Sustainable Development Path of Urbanization in Western China [J], China Population Resources and Environment, 2013(10): 24–30.

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Fig. 5.2  Paths of urbanization development and upgrading in the western region

helping the western region to consolidate the industrial development foundation promote the coordination of spatial structure, strengthen the supply of public services and maintain a harmonious ecological environment (see Fig. 5.2). As a result, “passive urbanization” can be upgraded to viable “active urbanization”. 3.1  Consolidate the Foundation of Industrial Development The construction of the SREB provides an important opportunity for the western region to develop modern industries. In this process, the western region should consolidate the industrial foundation to promote the healthy development of urbanization. In the future, the western region can undertake industrial transfer from the east and make use of its comparative advantages to vigorously develop modern agriculture, industries and modern service industries. In addition, the western region can also vigorously develop an export-oriented economy facing countries along the route by using its advantage of geographical proximity to Central Asia and South Asia, attracting domestic and foreign enterprises to invest in the western region and enhancing its industrial development and opening up. In the process of building the SREB, the western region should strengthen the agricultural technical cooperation with countries related to the SREB by making full use of its technical advantages of dry farming. At the same time, it should vigorously develop facility agriculture and ecological sightseeing agriculture around the cities by encouraging migrant farmers to transform the contracted land orderly so as to speed up

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the transformation of traditional agriculture and continuously improve agricultural industrialization. In addition, by taking new urbanization as the carrier, the western region should strengthen industrial cooperation with countries related to the SREB to accelerate the development of new industry and modern service industry, with a view to promoting the integration of modern industry and urbanization in the western region. 3.2  Promote Coordination of Space Structures City clusters and central big cities are the strategic fulcra of the SREB. In the process of building the SREB, the western region should build Chongqing, Xi’an, Chengdu, Urumqi and Lanzhou into international metropolises facing the countries along the route. It should accelerate the formation of the Guanzhong City Cluster with Xi’an as its center, the Chengdu–Chongqing City Cluster with Chengdu and Chongqing as its center, the Lanzhou-Xining City Cluster with Lanzhou and Xining as its center, the City Cluster to the Northern Slope of the Tianshan Mountain with Urumqi as its center and the Yinchuan Plain City Cluster with Yinchuan as its center. At the same time, it should actively develop medium-sized and small towns and cities. With the improvement of the viability of big cities, their radiation role on the surrounding medium-­ sized and small towns and cities will be continuously enhanced and the reasonable division of labor within and among city clusters will not only provide strong support for the construction of the SREB but also form an urban “multi-center spatial network”11 with city clusters as the main form, striving for the coordinated development of large, medium-sized and small cities and towns so as to comprehensively improve the development of urbanization in the western region. While speeding up the development of city clusters and central big cities, the western region should accelerate the construction of a new type of urban-rural relationship in which industry promotes agriculture, urban areas support rural development, agriculture and industry benefit each other, and urban and rural areas integrate with each other for common prosperity so as to promote the coordinated development of urban and rural space. Due to the influence of the development strategy and institutional arrangements, the problem of urban-rural division exists in 11  Wei Houkai, The Tendency of Polarization in the Process of Urbanization in China and the Reconstruction of Framework [J], China Industry Economics, 2014(3): 18–30.

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the western region in the economic, social, political and cultural aspects, which has a serious negative impact on the development of agriculture, rural areas and rural people in the region. In the process of the construction of the SREB, the continuous enhancement of the viability and radiation role of large cities is conducive to the integration of urban and rural construction planning, market development and other aspects. In terms of urban and rural construction planning, it is necessary to coordinate the planning and designing of urban and rural roads, public infrastructure and information networks to improve the environment of agricultural and rural development. In terms of urban and rural market systems, it is necessary to accelerate the development of a modern market system, a warehousing and logistics system and a new type of circulation format that interact between urban and rural areas to promote the coordinated development of urban and rural space. 3.3  Strengthen Supply of Public Services The uncoordinated economic and social development is a major problem affecting the healthy development of urbanization in the western region. While paying attention to economic development, the western region must strengthen social construction and promote the equalization of public services. Relying on the economic achievements and policy advantages of the construction of the SREB, western cities should gradually improve the development of science, education, culture and health and promote the continuous improvement of urban functions. At the same time, western cities should conform to the requirements of economic and social development by promoting the urbanization of the rural migrant population in an orderly manner. For the rural migrant population that has entered the city, we must eliminate all kinds of discrimination against them so that they can equally enjoy basic public services such as basic education, medical care, elderly care, employment, housing security and so on. In the meantime, we with a view to improving the quality of western urbanization development should encourage the migrant rural workers who have stable work in the city to orderly transform the contracted land so that they can become urban citizens in a real sense, living in the same way and having the same concept of life as urban people do. For a long time, due to the government’s implementation of two different public service supply systems between urban and rural areas, there is a big gap between rural and urban residents’ public services, which is one of

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the most important reasons for the difficulty in solving the problems of agriculture, rural areas and rural people in western China. In the process of building the SREB, the western region should improve the scope and level of public finance covering rural areas, strengthen the supply of rural public services with new communities as the carrier and promote the equalization of basic public services between urban and rural areas. In terms of rural basic education, we should make full use of the Chinese preferential policies for the development of education in the western region, improve the human capital level of a vast number of young people and train qualified laborers for the construction of urbanization in the western region. When it comes to rural health care, we should strengthen the support for the construction of a rural three-level health service network, raise the reimbursement ratio of farmers’ medical expenses and promote the integration of urban and rural health care systems. In terms of rural infrastructure construction, we should develop a diversified fundraising mechanism to improve the conditions of rural roads and farmland water conservancy facilities to build “beautiful countryside” around “beautiful cities”. 3.4  Maintain a Beautiful Ecological Environment The ecological environment in the western region is fragile. Therefore, it is necessary to strengthen the protection of the ecological environment to maintain the sustainable development of urbanization. Western cities should adopt the concept of “green city” and make good interactions with the ecological environment in industrial development and urban construction. In terms of industrial development, western cities should speed up the adjustment of industrial structure and the optimization and upgrading of industries and gradually become less dependent on heavy industry by eliminating the “three high” industries with high energy consumption, high pollution and high emission. Besides, we need to reduce the emission of pollutants by vigorously developing modern service industry so as to make service industry the main force supporting urban economic development. For urban construction, western cities should improve urban living environment by moderately increasing the area of urban green space. Meanwhile, the publicity of environmental protection should be strengthened to enhance the public’s awareness of environmental protection, with a view to forming a new pattern of building ecological livable green cities.

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The western region should promote the development of urbanization by making full use of its rich resources. In the process of resource development, we should abandon extensive, predatory and destructive mode while paying more attention to the protection of the fragile ecological environment and lengthening the chain of resource industry so as to achieve a harmonious interaction among resource development, industrial development and urban construction. The western region boasts a rich natural landscape and national cultural scenery which are good for developing pollution-free tourism industry. In addition, in the process of constructing the SREB, the western region should jointly promote ecological environmental protection by strengthening cooperation with Central Asia and other regions in the field of environmental protection and ecological restoration, with a view to building a good ecological environment for the sustainable development of urbanization.

CHAPTER 6

Regionalization and Internationalization of Currency

1   Literature Review and Theoretical Basis 1.1  Regionalization and Internationalization of Currency There are mainly two ways for currency circulation beyond national borders: regionalization and internationalization. Scholars’ research perspectives include currency regionalization, currency internationalization, or a combination of the two. Most domestic research on this issue has been combined with China’s reality into the discussion on renminbi regionalization and internationalization. Li Chao’s (2010)1 research on China’s trade foundation supporting renminbi regionalization, Yao Xiaodong and Sun Yu’s (2010)2 research on renminbi cross-border circulation and regionalization, and Zhu Mengnan and Ye Fang’s (2012)3 research on influencing factors of renminbi regionalization and so on all explored the development process of renminbi regionalization. Some scholars have

1  Li Chao, Does China’s Trade Base Support Renminbi Regionalization? [J], Journal of Financial Research, 2010(7): 1–17. 2  Yao Xiaodong, Sun Yu, Impact of Cross-border Renminbi Circulation and Process of Renminbi Regionalization [J], Comparative Economic & Social Systems, 2010(3): 23–30. 3  Zhu Mengnan, Ye Fang, Research on Influencing Factors of Renminbi Regionalization: An Empirical Analysis Based on Gravity Model [J], Journal of Xiamen University (Philosophy and Social Sciences Edition), 2012(6): 102–109.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_6

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studied the process of renminbi internationalization from the perspective of capital opening (Li Xiangyang and Ding Jianping 2014).4 In addition, Han Jun and Zhu Shuzhen (2014)5 studied the reform of China’s exchange rate system from the perspective of renminbi internationalization. Some studies also combined renminbi regionalization and internationalization: Xu Mingqi (2005)6 analyzed the process of renminbi regionalization and internationalization from the case of Japanese Yen internationalization; Zhu Mengnan and Zhang Qiao (2010)7 discussed renminbi regionalization and internationalization from the perspective of financial crisis. Obviously, renminbi regionalization and internationalization are two different ways of monetary expansion with different connotations. Currency regionalization is the process of a new currency emerging in a certain region and the formation of such a new currency region. It is also a necessary stage for this currency to be gradually accepted and recognized by a certain region before finally becoming an international currency.8 As for the definition of currency internationalization, some scholars thought that currency internationalization is a process in which the function of currency extends from domestic country to abroad, and it is used by the private sector and the official sector (Cohen 1971)9; Mundell (2003b)10 believed that a currency is called an international currency when it crosses the boundary of a political union or is imitated by other currencies. The essence of internationalization of currency is a process in which 4  Li Xiangyang, Ding Jianping, On Renminbi Internationalization from the Perspective of Capital Account Opening [J], Word Economy Studies, 2014(5): 10–15, 87. 5  Han Jun, Zhu Shuzhen. Reform of China’s Exchange Rate System in the Process of Renminbi Internationalization [J], The Journal of Humanities, 2014(4): 40–46. 6  Xu Mingqi, Renminbi Internationalization and Regionalization from the Experience and Lessons of Japanese Yen Internationalization [J], Word Economy Studies, 2005(12): 39–44. 7   Zhu Mengnan, Zhang Qiao, The Path of Renminbi Regionalization and Internationalization from the Perspective of Financial Crisis [J], Journal of Hebei University (Philosophy and Social Sciences Edition), 2010(5): 55–60. 8   Research group of “Research on Renminbi Regionalization and Border Trade Development Policy”, Development Research Center (DRC) of the State Council, Exploring Formal Financial Channels—Research on Status Quo of Renminbi Regionalization [J], Intertrade, 2003(5): 4–8. 9   Cohen B J. The Future of Sterling as an International Currency [M], London: Macmillan, 1971. 10  Mundell R.  A, The International Economics: Past, Present and Future [M], London: Macmillan, 2003.

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a country’s currency changes from domestic currency to international currency across national borders and plays the functions of pricing, settlement, reserve and market intervention tools. According to the definitions of currency regionalization and internationalization, it is not difficult to find that both currency regionalization and internationalization are expansions of currency across the circulation region of the country. However, the difference between them lies in that regionalization is only a small expansion of currency function when currency circulates beyond the national borders. This expansion is often restricted by various factors such as region, politics and economy. Currency internationalization will generally break the restriction of various complicated factors such as politics, economy, culture and religion so as to obtain a wider range of circulation and give full play to the function of a currency. The internationalization of US dollar and British pound reflects that these world currencies are not only circulating in a narrow region but also have a wide market in other regions outside America and Europe. Moreover, the monetary function of these internationalized currencies has gone beyond the simple function of transaction media, but they also play the role of the unit of account and store of value. Undoubtedly, currency internationalization is an advanced stage to promote currency development, but currency internationalization cannot be achieved overnight. It needs to be promoted step by step, supported by the country’s strong economic strength by following the pace of world financial development. The first step is regionalization. Looking at the development of world currencies, we may easily find that regionalization should precede internationalization, so we should promote renminbi regionalization first in the process of promoting renminbi development. It may not be effective in practice to directly promote renminbi internationalization by skipping the stage of renminbi regionalization, which may even end in failure. Furthermore, this chapter studies the monetary cooperation in the SREB as a regional promotion process. Therefore, this chapter focuses on the study of renminbi regionalization within the geographical scope of the SREB. 1.2  Theoretical Basis of Regional Monetary Cooperation Virtual economy and real economy promote each other and develop in coordination. Financial regionalization and globalization greatly promote the growth of global economy, and at the same time increase the instability of financial markets and systems in various countries. When countries

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share the benefits of economic development, they have to face the losses caused by this instability, and governments are also seeking and adopting various macroeconomic policies to avoid and reduce the financial turmoil, but the results have been unsatisfactory. The great progress of European integration, especially the emergence of Euro, provides a new idea of regional monetary cooperation for countries to solve the financial turmoil and financial crisis. The practice of regional monetary cooperation promotes the development of the theory of regional monetary cooperation, and these theoretical studies at the same time give guidance to the practice of regional monetary cooperation. The earliest cause of regional monetary cooperation is the emergence of the “Triffin” problem under the Bretton Woods system. To a certain extent, it shows that the world cannot be completely dominated by a dominant currency, but should embrace different dominant currencies in different regions. This idea has been gradually developed into Optimal Currency Area theory, and discussions on this theory are centered around the determination of the criteria of optimal currency area. The first criterion was proposed by Mundell (2003a),11 who believed that the high-speed liquidity of production factors can be used as the criterion for determining the optimal currency area. The free flow of production factors within a region can be used as a balance mechanism to regulate the artificial adjustment needed during economic disturbance, while the elastic exchange rate mechanism is used as the balance mechanism between regions. The second criterion is the level of economic opening up. With the increase in country’s opening up level, the effect of floating exchange rate mechanism will be weakened, and several countries with similar levels of economic opening up can form the optimal currency area (McKinnon 1963).12 The third criterion is product diversification (Kenen 1969).13 The increase in product export diversification can reduce a country’s external economic impact, and the countries with similar degrees of diversification can form an optimal currency area. The fourth criterion is the

11  Mundell R A. Exchange Rates and Optimal Currency Areas [M], Chinese version translated by Xiang Songxiang, China Financial Publishing House, 2003: 8–160. 12  McKinnon R.  L. Optimum Currency Areas, American Economic Review [M], 1963. 53(3): 457–477. 13  Kenen P B. The Theory of Optimum Currency Areas: An Eclectic View, In Funerary Problems of the International Economy [M], Chicago: University of Chicago Press, 1969.

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high degree of financial integration proposed by Ingram (1969),14 but this criterion is one-sided because it emphasizes the capital account but ignores the current account. The above four criteria become the mainstream criteria in judging the optimal currency area. There are also some other criteria with certain influence, such as inflation similarity, which advocates that countries or regions with similar inflation rates should be included in an optimal currency area. Besides, other criteria take political or financial factors into consideration in forming optimal currency areas. Each of these criterion has its own emphasis, which provides a theoretical basis for some countries or regions to establish optimal currency areas based on economic, political or financial commonalities.

2   Background Analysis of Developing Regional Monetary Cooperation in the SREB In recent years, economic and trade exchanges and regional cooperation between China and other SREB countries have been continuously strengthened. In the long run, it is necessary to seek a long-term institutional arrangement to realize the close cooperation and coordinated economic development among the SREB countries, of which the promotion of regional monetary cooperation is one of the main directions. As the largest developing country in the SREB, China has been increasing economic complementarity with countries along the route and renminbi is also gradually welcomed in this region. Therefore, it is necessary to accelerate the process of renminbi regionalization and enhance the regional and even international influence of renminbi. 2.1  Economic Benefit Analysis of Promoting Regional Monetary Cooperation in the SREB The benefit analysis of regional monetary cooperation in the SREB comprises cost analysis and return analysis. Based on these two considerations, the government can form a correct judgment on the feasibility of monetary regionalization. The implementation of regional monetary cooperation in the SREB faces multiple costs, and with the continuous deepening 14  Ingram J C.  Comment: The Currency Area Problem, in Monetary Problems of the International Economy [M], edited by Robert A Mundell and Alexander K Swoboda, Chicago and London: the University of Chicago Press, 1969.

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of regional currency cooperation, the costs will also be different. In general, the costs of regional monetary cooperation mainly exist in the advanced stage of regional economic integration. Therefore, the costs analyzed in this chapter mainly refer to those of regional monetary cooperation during the advanced stage of regional economic integration when the advanced monetary union has been formed among different SREB countries. The implementation of monetary policy among countries takes a coordinated approach and takes into account the overall interests of the regional economy. Generally, the currency of a country in the region or the union currency is used. At this time, the costs faced by each country in the region mainly have two aspects. First, the various independent monetary policy instruments have been limited or weakened. Under the independent monetary system, since there is no monetary cooperation mechanism, each country can adopt independent monetary policy to regulate its economic activities so as to ensure its stable economic development. For example, in order to increase exports or reduce external debt, a country can devalue its own currency. However, once a monetary union is formed, due to a series of framework agreements, each country will lose the autonomy of adopting independent monetary policy and cannot conduct counter-cyclical monetary policy operations. This choice is also explained in the “Impossible Trinity” principle: a country cannot realize fixed exchange rate system, free capital flow and independent monetary policy at the same time. Under the monetary union, exchange rate stability and free capital flow are guaranteed, but member states will lose the independence of monetary policy.15 Second, there is a large loss of seigniorage. Every central bank that issues currency will enjoy a certain amount of seigniorage revenue, but under the currency union, the loss of currency issuance rights will inevitably lead to the loss of the seigniorage that can be used to make up for the budgetary deficit. Seigniorage is determined by the ratio of reserve currency to GDP.  Countries with more reserve currency and less GDP will lose more seigniorage.16 When the SREB countries take a country’s currency as the union currency, that country will definitely benefit from it, but other countries will suffer a 15  Li Fuyou, Regional Monetary Cooperation: Theory, Practice and Choice of Asia [M], China Financial Publishing House, 2004. 16  Zhou Yuanyuan, Research on China-ASEAN Regional Monetary Cooperation and Renminbi Regionalization [J], Journal of Financial Research, 2008(5): 163–171.

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certain loss of seigniorage. This problem can be solved by agreeing on a series of systems for the reasonable redistribution of seigniorage. Although there are many costs in regional monetary cooperation in the SREB, the benefits are far greater than the costs in the long run. First, the monetary cooperation system can reduce financial risks and prevent the occurrence of financial crises. Under the current world economic structure, no country can cope with financial risks and financial crises alone. Regional monetary integration is obviously the best choice for those developing countries with weak economic foundation like China and other SREB countries to cope with complicated international capital flow and ever-changing economic situations. If SREB countries unite together, they will have a large amount of foreign exchange reserves to prevent financial crises, which will definitely reduce the possibility of financial crises and contribute to the stable development of the economy of various countries. Second, monetary union is beneficial for the stability of currency exchange market and the perfection of capital market. At the advanced stage of regional monetary cooperation, single currency form within the region reduces the exchange of currencies and the flow of different currencies between different countries. Thus, the transaction costs and exchange rate risks within the region are significantly reduced. At the same time, due to the emergence of a stable currency exchange market, the development of regional capital market will also be accelerated and the bond and stock markets will be gradually improved. Finally, monetary cooperation system promotes competition among enterprises and accelerates regional economic development. The development of a financial market is the foundation for the development of a real economy. The appearance of a unified monetary market facilitates the financing and investment of enterprises, reduces their costs and enables them to compete in a fair and transparent market environment. In the meantime, virtual economy and real economy complement each other in their development. In this virtuous circle, the regional economy will witness stable and sustained development. 2.2  Practical Need for Developing Regional Monetary Cooperation in the SREB First, SREB countries have increasingly high requirements for financial stability. With the rapid development of the financial industry, the

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innovation of financial instruments is accelerated and the international capital flow is complicated. The emergence of a financial crisis is often related to excessive capital, rapid influx and rapid withdrawal of capital. From the perspective of historical experience, countries in rapid development tend to ignore financial risks which lead to financial crises. The occurrence of the Southeast Asian financial crises was attributed to the rapid flow of capital and was also a consequence of Southeast Asian countries’ negligence of financial risk prevention and control. The SREB countries are located between the developed East Asian economic circle and the European Union economic circle, with great development potential and increasing attraction of foreign investment. In this process, we should draw lessons from the experiences of Southeast Asian countries, ensure financial stability and strengthen policy coordination and monetary cooperation among the countries in the region. Second, the degree of trade dependency among the SREB countries is increasing. In 2012, China’s oil dependence on foreign countries was 56.4%, and the oil and gas resources such as fossil oil and natural gas in Central Asia are important guarantees for China’s energy security.17 With closer economic and trade exchanges between China and other SREB countries and the increase in trade dependency, a currency for payment and settlement within the region is needed since the payment and settlement among different currencies not only brings huge transaction costs but also reduces trade efficiency. Both the EU and the NAFTA, which have good regional economic development, have a dominant currency in their respective regions. The determination of the main settlement currency in the SREB is very important for the rapid development of regional economy. Third, the process of economic integration within the region has been accelerated. Regionalization and globalization are two major themes of today’s world economic development. Since the establishment of the SCO, China has become an important strategic partner of Central Asian countries in the core area of the SREB.  The strengthening of regional economic cooperation has led to the development of monetary cooperation. However, the monetary cooperation between China and SREB countries is only at the initial stage of signing renminbi cross-border payment and settlement with individual countries, and renminbi can only be 17  Bai Yongxiu, Wang Songji, Background and Geopolitical Strategy of the Silk Road Economic Belt [J], Reform, 2014(3): 64–73.

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freely convertible under the current account.18 The increasingly close economic cooperation will inevitably require a higher level of monetary cooperation, and it is necessary to gradually promote the process of renminbi regionalization, so that renminbi will play a greater role as international currencies such as US dollar and Euro. 2.3  Mature Basic Conditions for Renminbi Regionalization in the SREB First, China’s economic strength is the foundation of renminbi regionalization. After China became the world’s second largest economy in 2010, China’s economy did not enter a low-speed development track, but changed from high-speed development to steady growth, which provides the basis for renminbi to become a regional currency. A look at international currencies such as US dollar and Euro can show that their status in the world or regions is closely related to their own country’s economic strength. China’s economic performance in the past 40 years and its current economic strength has met the conditions for renminbi to become a regional currency. With the deepening of regional cooperation in the SREB, the ties between China and these countries will become closer and closer, which will greatly facilitate the process of renminbi regionalization. Second, renminbi has obvious advantages in the region. The economic development level of each country along the route is quite different. The East Asian economic circle and the West European economic circle at both ends are economically developed regions, but the economic development of Central Asia in the core area is relatively backward, so the currencies of these countries naturally do not have the conditions to become the dominant currencies in the region. In recent years, renminbi has made important contributions to the economic development of the countries in the region by maintaining the basic stability of its currency value and withstanding various tests under complex economic situations. Among many countries in the region, renminbi has a strong economic strength as a guarantee; in addition, it has long-term stability of its currency value, which is the foundation for it to become the leading currency in the region.

18  Gao Chao, Zhang Ran, Research on Integration of Energy and Finance in Building the Silk Road Economic Belt [J], Foreign Economic Relations & Trade, 2014(4): 68–69.

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Third, regional economic development must have a currency as the regional core currency. For a long time, all SREB countries have been using the US dollar as the settlement currency, and the US dollar is in a dominant position in SREB countries. In order to ensure the long-term healthy and rapid development of a regional economy, it is necessary to have its own regional currency; otherwise, the situation of being subject to others in the competition will not change. Therefore, from the economic development process of many SREB countries and the actual consideration of regional development, it will be an inevitable choice for renminbi to become a regional currency in the SREB.

3   Practical Dilemma of Renminbi Regionalization in the SREB One of the goals of renminbi regionalization is to promote the coordinated development of the regional economy of the SREB for mutual benefit and win-win cooperation among SREB countries. However, there are many obstacles in the process of renminbi regionalization. For one thing, there are many countries in the SREB and the actual development situation of each country is quite different. For another, external factors interfere with the process of renminbi regionalization, which is also a practical dilemma for it to overcome the real resistance and become the world currency. Of course, no currency can become a world currency overnight since it is challenged by various types of difficulties. Overcoming these difficulties is a must before renminbi gradually expands its influence to become a regional currency. First, the big difference in the level of economic development among countries in the region is the primary obstacle for renminbi to become a regional currency in the SREB. The initial condition of regional monetary integration is the convergence of regional economic development. As a regional currency, Euro has maintained a good momentum of development, which is closely related to the close economic development level of all countries in the European Union. There are many countries in the SREB, but the economic development levels of the countries vary greatly. From the perspective of the GDP and its growth rate of countries in the economic core area and major regions of the Silk Road in 2013, the GDP of China, which was the largest in the region, reached 9.2 trillion US dollars that year, second only to that of the United States, which ranks first in the world with 16.8 trillion US dollars. However, the GDP of Kyrgyzstan,

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a country with the smallest economic volume, was only 0.0072 trillion US dollars. Mongolia ranked top with a GDP growth rate of 11.7%, while Iran’s growth rate was −5.8%. At the same time, influenced by the differences in economic systems and the problems of war, nationality and religion, the economic development of various countries saw great fluctuation. In the long run, only a few countries, such as China and India, have stable GDP growth and other countries have great fluctuation in their GDP growth. The differences in economic development make the volume of trade between countries relatively small. It is difficult for each country to complement each other’s advantages, and the small volume of trade reduces the demand for a regional currency, which is the obstacle for renminbi regionalization. See Table 6.1 for details. Second, renminbi regionalization poses a certain threat to US dollar and the US intervention is also a major obstacle. The beneficiaries of any existing system will not automatically withdraw from the system of interests or reduce vested interests. The United States, as a beneficiary from the hegemony of US dollar, has controlled the world economic development to a certain extent. Since renminbi regionalization is a necessary step for

Table 6.1  GDP and GDP growth rate in the core area and main regional countries in the SREB in 2013

Countries or regions GDP/trillion US dollars

GDP growth rate/%

China Kazakhstan Turkmenistan Uzbekistan Kyrgyzstan Tajikistan Russia India Pakistan Iran Afghanistan Mongolia Belarus Armenia Ukraine Moldova

7.7 6.0 10.2 8.0 10.5 7.4 1.3 5.0 6.1 -5.8 4.2 11.7 0.9 3.5 1.9 8.9

9.2403 0.2244 0.0419 0.0568 0.0072 0.0085 2.0968 1.8768 0.2366 0.3689 0.0207 0.0115 0.0717 0.0104 0.1774 0.0079

Data source: World Bank database

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its internationalization, which will pose a certain threat to US dollar, the United States will take various measures to intervene for the country’s own interests.19 This is also reflected in the process of constructing the SREB. Frederick Starr, an American scholar, put forward the idea of the “New Silk Road” Strategy of the United States in 2007. In 2011, Hillary Clinton, then Secretary of State, put forward the strategic idea of building the “New Silk Road” and vigorously promoted the idea, urging the formation of a “Central Asia–Afghanistan–South Asia” transportation and economic network under the leadership of the United States. Therefore, in the Silk Road regional currency cooperation process, promoting renminbi and weakening the status of US dollar will be blocked by the United States. However, regionalization of economic development is a major trend. In spite of the interference of the United States, the EU also promoted Euro and operated it well. As long as it is beneficial to regional economic development, renminbi regionalization will eventually become the choice of many countries in the SREB. Third, renminbi has not achieved a fully market-oriented operation. Regionalization of renminbi requires interest rate liberalization, exchange rate liberalization and capital account convertibility. First, renminbi interest rate has not been fully market-oriented and the upper limit of bank deposit interest rate is still regulated, which is a great resistance to renminbi regionalization and a major direction for financial reform. Second, our exchange rate system is a managed floating exchange rate system that pegs a basket of currencies. The fully floating exchange rate system has not yet been realized, which is an important step in the marketability of the exchange rate. Third, China has only realized the convertibility of the current account while the full convertibility of the capital account has not been realized. This is another requirement for financial market reform. The regionalization or internationalization of any currency is inseparable from the market-oriented interest rates, the exchange rates and the free flow of capital, which will have a certain impact on the country in the short term by weakening the independence and effectiveness of macroeconomic and monetary policies. But it will be of great benefit in the long run.20

19  Li Mingwei, A Historical Review of Studies on the Silk Road for a Century [J], Northwestern Journal of Ethnology, 2005(2): 90–106. 20  Yao Xiaodong, Discussion on optimal model of RMB regionalization Cooperation [J], Modem Finance and Economics, 2010(1): 24–29.

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Finally, the scale of trade with Central Asia and other countries is relatively small and the foundation of renminbi regionalization needs to be consolidated. The initial stage of currency regionalization cannot be separated from local currency settlement based on trade, which is an important stage to promote the influence of local currency in the region. At the initial stage of renminbi regionalization, it is crucial for China to establish stable and growing trade relations with other SREB countries. China became the world’s largest exporter for the first time in 2009 and the world’s largest trader of goods in 2012, with its foreign trade volume reaching 3.87 trillion US dollars. However, its trade with the five Central Asian countries was only 46 billion US dollars that year, accounting for only 1.12% of China’s total foreign trade. Although from the overall trend, the trade volume between China and the five Central Asian countries shows an upward trend, the total trade volume is still small. The trade volume between China and Kazakhstan has always been the first among the five Central Asian countries. Except for the impact of the financial crisis in 2009, the trade volume in other years has been rising rapidly. But in 2012, it was only about 45 billion US dollars. It is not difficult to see that the scale of trade between China and other SREB countries, especially Central Asian countries, is relatively small, so renminbi regionalization still lacks a solid trade foundation.21 See Fig. 6.1 for details.

Fig. 6.1  Trade volume between China and the five Central Asian countries in 2008–2012  Data source: China Statistical Yearbook 2009–2013.

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This is closely related to the lower overall economic level of Central Asian countries, the imperfect industrial system and the unbalanced regional economic development. It is necessary to promote in-depth cooperation between China and other SREB countries in its advantageous projects such as the development and utilization of natural resources so as to gradually increase the trade volume between the two parties. On this basis, renminbi’s functions of currency of price and medium of transaction in trade are promoted, its function of settlement in the region is boosted and renminbi settlement is gradually brought into the banking system to form a substantial regional currency.

4   Pathways of Implementing Renminbi Regionalization in the SREB In view of the practical resistance for renminbi to become a regional currency in the SREB, we should find solutions from various aspects. Specifically, we need to promote international exchanges, carry out domestic reform, strengthen the regional status of renminbi, expand the settlement business of renminbi and build the coordination and cooperation mechanism of SREB countries so as to gradually realize renminbi regionalization. First, we should strengthen exchanges among SREB countries and promote coordinated development of regional economy. To gradually improve the status of renminbi in the SREB requires strong foundation support, which cannot be separated from the continuous political, economic and cultural exchanges among countries in the region. Although there have been various exchanges between China and other SREB countries since the Han Dynasty, exchanges have gradually decreased in modern times. Then, the ties have gradually become closer in the process of promoting regional economic integration, but further efforts are needed to promote the core position of renminbi in the region. China and Central Asian countries have extensive bases for cooperation in energy resources, economic, trade, regional stability and so on. Cooperation based on this opportunity can not only alleviate China’s demand on energy to ensure China’s energy security but also accelerate the industrialization of Central Asian countries. Since the establishment of the SCO, China and Central Asian countries have achieved a series of cooperation results in economic and trade areas. Therefore, we should further expand the scale and form of bilateral trade for coordinated development of regional economy.

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Second, we should accelerate domestic financial reform and promote the market-oriented domestic capital factor flow. The basis for the regionalization or internationalization of any currency is the complete marketization of the currency. Only under the market-oriented condition can the currency break the circulation boundary and flow freely across the globe. As for renminbi, the primary problem is that China’s financial industry has not been fully market-oriented, so the first step to promote renminbi regionalization is to promote domestic financial reform. Generally speaking, financial reform involves three aspects: interest rate liberalization, exchange rate liberalization and capital account convertibility. The reform of China’s interest rate liberalization began in 1996. At present, the control of the lower limit of deposit interest rate has been liberalized, but there is still control of the upper limit of deposit interest rate in the interest rate market. The next step of reform should be to gradually abolish the control of the upper limit of deposit interest rate in financial institutions. The present exchange rate market is not completely market-oriented, but a managed floating exchange rate system based on the market supply and demand, adjusted with reference to a basket of currencies. This special exchange rate system arrangement weakens the initiative of monetary policy and makes the liquidity release grow rapidly. In the long run, the floating range of renminbi exchange rate should be gradually expanded and the exchange rate should be liberalized. In international exchange, current account convertibility is currently practiced, but there are certain restrictions on capital account convertibility. In the long run, it is inevitable to release the control of capital account, but it must be carried out gradually; otherwise, there will be a risk of inducing financial crisis. It should be noted that China’s financial reform has been gradually launched and has achieved certain results, but compared with other economically developed countries in the world, there is still a long way to go, which is also a necessary step for renminbi regionalization. Third, we should gradually expand the influence of renminbi and improve its regional status. As a monetary system arrangement, the core currency in the region plays the role of anchoring currency. When other neighboring countries increase or decrease money supply, the international reserve currency will flow into or out of the core country, so that the core country will reduce or increase the domestic money supply through the reverse monetary operation and smooth the currency fluctuation in the region. Through the reverse open market operation, the core country not only stabilizes its own monetary market but also reduces the

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fluctuation of money supply and demand in the region. There are many countries in the SREB, so we can adopt the step-by-step strategy of dealing with Central Asian countries first and then other regions, gradually expanding the influence of renminbi: we should strengthen the economic and trade exchanges with countries in the region. Although the trade scale between China and the five Central Asian countries has increased, the overall scale is still small and it will remain the same in the future. In addition, we cannot strengthen the regional status of renminbi without its free flow in the region, and as renminbi capital items are strictly controlled, loosening the control of capital items is another major direction of further development. In a word, in order to realize the core position of renminbi regional currency, it is necessary to continuously expand the circulation of renminbi in the SREB through various ways, not only through the goingout strategy of the real economy but also through the continuous adjustment and optimization of the monetary system. Fourth, we should promote renminbi settlement business and expand renminbi’s monetary function. In international trade, exchange rate risk and transaction costs are generally considered in the choice of settlement currency. There are mainly three choices: local currency, counterpart currency and third-country currency. And once the settlement currency is selected, currency inertia will form. At present, from a global perspective, the main currencies that have become settlement currencies are US dollar, British pound, Euro, Japanese Yen and so on. Due to the stability of China’s economic development and the huge scale of China’s foreign trade, since the country began to promote renminbi as the cross-border trade settlement currency in 2008, renminbi settlement has been developing rapidly and maintaining a good momentum. The expansion of renminbi’s local currency business should be gradually carried out from near to far and from neighboring countries to other countries in the region, which is an important step to expand renminbi’s regional influence. We can first expand the use of renminbi in the border trade with neighboring countries in the Silk Road, promote the settlement of renminbi in local currency, gradually expand the use of renminbi in a large scale in the trade with other neighboring countries and finally bring renminbi in local currency settlement into the banking system. Renminbi becoming the regional settlement currency is the logical starting point of renminbi regionalization. Then it will serve as the financial transaction currency, the international reserve currency and finally move to the status of a regional currency.

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Finally, we should build a coordination and cooperation mechanism among the SREB countries to confirm the regional status of renminbi from an institutional perspective. The cooperation between the SREB countries is not only about trade between enterprises, but the government should also play the role of coordinated planning to promote the establishment of cooperation mechanism and continuous communication and coordination from the top level.22 At present, the SCO established in the region has provided a good platform for promoting economic, political and cultural exchanges as well as cooperation in the region. On this basis, a deeper and closer coordination mechanism should be formed. In order to promote renminbi regionalization, the coordination mechanism should be established from three aspects. First, an exchange rate coordination mechanism should be established. We should gradually change the exchange rate system pegged to US dollar to the one pegged to a basket of currencies, then gradually increase the proportion of renminbi in a basket of currencies and the influence of renminbi, and finally form the regional pegged renminbi exchange rate system so as to reduce the exchange costs of regional trade and the exchange rate risk.23 Second, regional development banks should be established to coordinate regional capital circulation mechanism. The development of developing countries is often restricted by capital shortage, so it is of great significance to establish a development bank in the region to provide funds for investment and financing of various countries and coordinate the flow of capital in the region. At present, BRICS countries have established New Development Bank (NDB) funded by all countries on an equal investment, which is a model for us to learn from. Finally, a framework of policy coordination mechanism should be established. On the basis of the coordination mechanism of exchange rate and capital flow, the policy coordination mechanism among countries should be gradually established. Taking coordinated development among the SREB countries as the principle, we should seek benefits and gradually realize the development goal of renminbi regionalization. It can first perform the functions of valuation currency and transaction medium in a smaller area, then gradually expand its settlement trade, and finally become the real regional currency.  Hu Angang, Ma Wei, Yan Yilong, Silk Road Economic Belt: Connotation, Positioning and Realization Path [J], Journal of Xinjiang Normal University (Philosophy and Social Sciences Edition), 2014(2): 1–11. 23  He Huigang, Mode and Path of Regional Monetary Cooperation in East Asia [J], Research on Economics and Management, 2007(7): 1–11. 22

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In conclusion, it is of great significance to promote renminbi regionalization in the SREB, and it should be promoted in multiple steps from inside to outside. First, it is necessary to promote trade exchanges among the SREB countries and carry out domestic financial market reform to lay a good foundation for renminbi regionalization. Second, by expanding the use of renminbi in trade settlement, its international influence will be further enhanced. Finally, countries should strengthen communication and coordination in the formation of policies and gradually make renminbi a regional currency institutionally.

Bibliography Cohen B J, The Future of Sterling as an International Currency [M], London: Macmillan, 1971. Han Jun, Zhu Shuzhen, Reform of China’s Exchange Rate System in the Process of Renminbi Internationalization [J], The Journal of Humanities, 2014(4): 40–46. Kenen P B, The Theory of Optimum Currency Areas: An Eclectic View, In Funerary Problems of the International Economy, Chicago: University of Chicago Press, 1969. Li Chao, Does China’s trade base support Renminbi regionalization? [J], Journal of Financial Research, 2010(7): 1–17. Li Xiangyang, Ding Jianping, On Renminbi Internationalization from the Perspective of Capital Account Opening [J], Word Economy Studies, 2014 (5): 10–15. McKinnon R L, Optimum Currency Areas [J], American Economic Review, 1963,53(3): 457–477. Mundell R A, Exchange Rates and Optimal Currency Areas [M], Chinese version translated by Xiang Songxiang, China Financial Publishing House, 2003a. Mundell R A, The International Economics: Past, Present and Future [M]. London: Macmillan, 2003b. Xu Mingqi, Renminbi Internationalization and Regionalization from the Experience and Lessons of Japanese Yen Internationalization [J], World Economy Studies, 2005(12): 39–44. Yao Xiaodong, Sun Cong, Impact of Cross-border Renminbi Circulation and Process of Renminbi Regionalization [J], Comparative Economic & Social Systems, 2010(3): 23–30. Zhu Mengnan, Ye Fang, Research on Influencing Factors of Renminbi Regionalization: An Empirical Analysis Based on Gravity Model [J], Journal of Xiamen University (Philosophy and Social Sciences Edition), 2012(6): 102–109. Zhu Mengnan, Zhang Qiao, The Path of Renminbi Regionalization and Internationalization from the Perspective of Financial Crisis [J], Journal of Hebei University (Philosophy and Social Sciences Edition), 2010(5): 55–60.

CHAPTER 7

Guarantee Mechanism for the SREB

To build the SREB is a lengthy uphill struggle that calls for constant efforts. In this process, many difficulties need to be overcome and, therefore, we should make sound judgment and build feasible guarantee mechanisms.

1   Major Difficulties in Building the SREB The SREB involves many countries and passes through regions of complicated geopolitical relations. Therefore, there are bound to be many difficulties in carrying out the SREB Initiative. In this section, we will study the major difficulties to be solved in the fields of energy cooperation, infrastructure construction cooperation, financial cooperation, ecological and environmental cooperation as well as cultural and scientific cooperation. 1.1  Obstacles to Energy Cooperation 1.1.1 Complicated Geopolitics The SREB spans across regions of complicated geopolitical relations. As the hinterland of the Eurasian continent, Central Asia has been an arena for political struggle among major countries since ancient times. In addition, due to the overall weak national strength of various countries in Central Asia, it has always been subjected to the intervention and control © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9_7

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of other major countries. Therefore, most countries in this region pursue a “preferential but comprehensive and balanced diplomacy” to avoid geopolitical risks. The complicated geopolitical relations, to a large extent, are a result of different political and social systems, development levels, development targets, interest demands of countries along the route and volatile political situation in certain countries. Russia, with stronger national strength in this region, is utilizing its advantages to gradually tighten its grip on Central Asia. It has granted Kazakhstan an oil pipeline to Europe on loan, which not only promotes Russia’s political and economic cooperation with Kazakhstan but also strengthens its control on Kazakhstan’s oil and gas production and exports. Except for Turkmenistan, a permanently neutral state, the remaining four Central Asian countries are all CIS countries. CIS countries enjoy abundant energy and geopolitical advantages, which, on the one hand, bring them sound and stable economic, trade and energy cooperation with Europe; on the other hand, it limits their level of cooperation. China should strengthen energy development by enhancing the quality and level of energy cooperation along the route. In addition, the international society and cooperative partners hold different attitudes toward China’s foreign energy cooperation projects. In recent years, the rapid development of China’s economy requires more energy supply, which results in more energy investment by China in other countries. But such an energy-based diplomatic strategy which aims to boost the economy has been misinterpreted by the international society, which undermines regional energy cooperation. Although China has been adhering to the principle of win-win results in overseas energy cooperation, striving to repay its partners through public welfare programs, and fulfilling its social responsibilities, the international society still has misunderstanding about China’s energy strategy due to differences in ideology, culture and values. Playing up the “resources and energy plunder”, “the energy plunder” and “the China threat” damages the image of Chinese energy enterprises and undermines the efforts for further cooperation. 1.1.2 Weak Economic Strength The economic strength of most countries along the route is weak. Most of the countries along the route are developing or underdeveloped countries with a weak economic foundation and a shortage of capital and technology. In the Soviet era, the five Central Asian countries adopted centrally planned economic system which laid emphasis on the development of agriculture, animal husbandry, oil and gas, metallurgy and other

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industries in accordance with the division of labor and regional characteristics, which resulted in a seriously imbalanced industrial structure. After their independence, Kazakhstan and Kyrgyzstan took the lead in opening up their markets and, therefore, enjoyed a high degree of marketization and economic freedom. However, Kazakhstan is still earning foreign exchange through energy exports; Kyrgyzstan’s economy has taken a serious toll after two regime changes; Turkmenistan, under high-handed centralized rule, is less open; Uzbekistan has the most complete industrial structure among the five Central Asian countries, but it has not been open enough after its independence. Its management system is rigid and the economy is less integrated with the international market, which leads to slow economic development. Overall, the five Central Asian countries are dominated by the energy industry, which means that these countries urgently need to promote projects concerning large-scale hydropower and nuclear power, energy infrastructure construction and energy transportation passageways construction. However, the funding requirements of these projects generally exceed the government’s financial capacity, and the projects cannot be conducted in the long term with support only from their own governments. Therefore, most Central Asian countries hope that China can provide large amounts of aid funds and preferential loans, or ask China to implement projects in the form of “Build-Operate-­ Transfer” (BOT), which is demanding for Chinese enterprises because BOT means that they must be equipped with strong financial strength and financing capacity. In addition, economic cooperation involves high investment risks. After two decades of continuous expansion of foreign investment, Chinese oil and gas enterprises have made significant achievements in energy trade by establishing five major operating areas in Central Asia and Russia, the Middle East and Africa, Asia-Pacific and South America and North America, and four major oil and gas import channels in the north, west, south and east, which have brought steady increased multinational assets and profits. In 2013, the total crude oil trade volume between China and other countries along the route reached more than 130 million tons, including 121 million tons of crude oil imported from West Asia, 13.2 million tons of crude oil imported from Russia and Kazakhstan, and 29.2 billion cubic meters of natural gas from Turkmenistan.1 While stepping up energy cooperation with certain countries, China is faced with increasingly  Data source: China Statistical Yearbook 2014.

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great investment risks. For example, China is troubled by increased investment barriers, frequent law changes, changeable policies with poor continuity and stability, widespread government corruption and undue government intervention in the market. Meanwhile, China also lacks a sound and effective emergency response mechanism and risk management and control capabilities for major energy projects, which is a great obstacle to the further development of energy cooperation. 1.1.3 Energy Cooperation Problems The level of energy cooperation is low. The fact that China, Russia and the five Central Asian countries are at the low-end of the global value chain, to a large extent, means that energy cooperation along the route is at the low and middle level; in other words, in the middle and lower parts of the energy industry value chain. The energy cooperation mainly focuses on the exploration of oil, gas and coal fields and the mining and transportation of oil, gas and coal, but it rarely involves energy transformation and processing, fine processing of basic chemical raw materials and the end market for the distribution of energy products. Financial trade, warehouse logistics, engineering technology and equipment business of the countries are also at a low level, which cannot effectively help to improve the level of energy cooperation.2 It can be seen from the proportion of the trade structure of Central Asian countries that primary products account for a large proportion of the country’s export volume. Uzbekistan, Kyrgyzstan and Tajikistan have the highest export proportion of energy products, non-monetary gold and base metals and their products, the export of which accounts for 31.1%, 36.5% and 33.4%, respectively, of the total exports of the three countries.3 In addition, the development of energy cooperation among countries along the route is uneven. Kazakhstan, Uzbekistan and Turkmenistan are the pioneers of energy cooperation because these countries and China have the same cooperation intent, smooth progress and clear prospects. But the foundation for China’s energy cooperation with Tajikistan and 2  Secretariat of Eurasian Economic Forum of Xi’an Jiaotong University, Development Report of Eurasian Economic Forum 2013 [M], Xi’an Jiaotong University Press, 2013. 3  Data source: Economic and Commercial Counselor’s Office of the Embassy of People’s Republic of China in Tajikistan. http://tj.mofcomgov.cn/; Economic and Commercial Counselor’s Office of the Embassy of People’s Republic of China in Kyrgyzstan. http:// kg.mofcomgov.cn/; Economic and Commercial Counselor’s Office of the Embassy of People’s Republic of China in Uzbekistan. http://uz.mofcomgov.cn/.

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Kyrgyzstan is not solid; and the energy cooperation with Russia is also not stable because Russia, as a big country, regards its energy advantage as diplomatic leverage. 1.2  Obstacles to Infrastructure Construction Cooperation 1.2.1 Transportation Network First, some sections of railway construction are missing and the backbone channels have not been joined up. Many dead-end channels and limited coverage of transportation channels lead to poor transportation capacity of the SREB. At present, among Central Asian countries, China’s railways are only connected with Kazakhstan and there are no railways connecting with Kyrgyzstan, Tajikistan, Pakistan, Myanmar, India and Afghanistan. The southern part of Kyrgyzstan still operates the railways built during the Soviet era. After its independence, no new railways have been built and the country’s railway transportation is underdeveloped. Tajikistan is mainly a mountainous country, which causes difficulties in building railways. Consequently, road traffic is the most important mode of transportation in Tajikistan. Although Kazakhstan’s transportation infrastructure is the best among the five Central Asian countries, it still needs further improvement. China has not yet signed bilateral air transport agreements with the six countries in Central and Eastern Europe, and the number of air routes opened by countries that have signed deals with China is also relatively small. Moreover, many difficulties and barriers still exist in the operation of direct routes. Second, there are many passageways that are accessible but not usable, weakening the interconnection between countries. The transportation of various countries along the route is not of high level, mainly with low-­ grade roads. The port roads in Central Asian, South Asian and Southeast Asian countries that border China are also generally of low technical grades, only equivalent to roads of Grade III or Grade IV in China. A large number of port roads in these countries are in such bad repair that they even cannot be graded. Moreover, due to the complicated geographical conditions, transportation network, with low traffic capacity and insufficient safety protection facilities, is greatly constrained by natural disasters such as heavy rain or landslides which cause traffic stagnation. In the process of cross-border transportation, when bilateral or multilateral transportation agreements are involved, complicated procedure for customs

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clearance and transit transportation results in low efficiency of customs clearance and poor performance of transportation network. Third, the technical standards of the railroad track vary greatly and the railways are of different levels, resulting in low transportation efficiency. For example, the Chinese track gauge is generally 1435 mm; the Russian and Central Asian countries 1,520 mm, Pakistan, India and Bangladesh 1676 mm, Myanmar 1000 mm; and Western Asia, Iran, Turkey and Europe 1435 mm. The train must be changed many times in the process of transporting, increasing the port’s operation volume and time and leading to low transportation efficiency. Moreover, China and neighboring countries have different technical standards and regulations on vehicle axle load, emission standards, loads and signs. Fourth, there is a large demand for construction funds but low operating profit expectations. Most of the countries within the transportation network have a small population, weak economic strength and insufficient funds and technology. A large amount of capital is required for infrastructure construction, which far exceeds the fiscal revenue of the governments of these countries. Besides, the operating profits of infrastructure are low and the capital cost recovery cycle is long. Meanwhile, the transportation passageways run through areas of harsh natural environment and complex geological conditions; the projects are featured with long construction mileage and period; and current policies cannot meet the needs of the construction of these passageways. As a result, most projects are making slow progress. Finally, the round-trip transportation volume of land transportation passageways varies significantly and there is a high no-load rate. Due to the particularity of the trade structure, the New Asia–Europe Continental Bridge and the Chongqing–Xinjiang–Europe international railway currently debuting in China are mostly container transportation trains with insufficient cargo from Europe and non-container transport goods such as coal and minerals from Central Asia countries, which results in high costs of long-distance transportation and low economic profits.4 1.2.2 Communication Facilities First, the electronic communication industry is underdeveloped and the construction of communication facilities is making only slow progress. 4  Li Jinye, Shu Xin, An Analysis of Big-power Game in the Construction of Transportation Facilities in Central Asia [J], Asia-Pacific Economic Review, 2014(4):64–69.

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Despite its rapid development, the telecommunications industry in Central Asian countries is still far below the world average level due to its poor foundation. Their technology is backward and equipment needs to be updated urgently. Computer popularization is still in progress and the insufficient infrastructure hinders the development of telecommunications industry in Central Asian countries. The rural areas are lagging far behind the urban areas in terms of telecommunications development. By 2008, when the urban business volume of Kazakhstan’s mobile communication industry has already been close to saturation, the rural market had not yet been developed. For example, its network services were backward, network resources were extremely limited, e-government had just started and e-commerce hadn’t been developed at all. Second, foreign capital dominates the telecommunications markets in a few Central Asian countries. At the beginning of the independence of the five Central Asian countries, due to the lack of capital and technology, a large amount of foreign capital was introduced to these countries to satisfy their needs to develop their domestic telecommunications industry. But the growing foreign capital makes the telecommunications markets of Central Asian countries monopolized by certain countries, of which Russia has a large market share. More than 90% of Kazakhstan’s mobile communications market share is owned by two major companies, which have absolute dominance in the field of mobile telecommunications and act as makers of market rules. And one of these two companies belongs to Russia. Uzbekistan’s first and second largest telecommunications operators, which together account for more than 80% of the Ukrainian telecommunications market, are also controlled by a Russian telecommunications company. The monopoly is more serious in Turkmenistan, with only one mobile operator wholly owned by Russian MTC. This not only leads to the slow pace of development of the telecommunications industry in Central Asian countries but also makes it more difficult for these countries to cooperate with other countries along the route. As a result, it hinders further cross-regional and cross-industry cooperation. 1.3  Obstacles to Financial Cooperation 1.3.1 Influence of Geopolitics and Political Situation Central Asian countries, haunted by complex ethnic issues and unclear political situation, are in a critical period of economic transition. These

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countries are also afflicted by frequent disputes over water resources, drug smuggling and issues related to family power within the country, which seriously affect their financial cooperation with China. The financial cooperation within the SREB is a political game of multiple forces. After the disintegration of the Soviet Union, Russia took over most of the political and economic rights and still includes the CIS countries within its own political and economic sphere of influence. It has tightened its control over Central Asian countries, guarding against and restricting the involvement of third-party countries, which has seriously impeded China’s plan for promoting the common development and prosperity of all countries along the route. So far, it is precisely because of this geopolitical mindset that the financial cooperation between China and Central Asian countries has made only slow progress. In addition, the New Silk Road Strategy proposed by the United States and Japan’s Silk Road diplomacy have increased the complexity and instability of cooperation in the region. 1.3.2

 ompetitive Exclusion Effect of Existing Economic C Cooperation Organizations At present, the main economic cooperation organization in which Central Asian countries participate is the Eurasian Economic Union. The unified economic space of Russia, Belarus and Kazakhstan is developing rapidly and has formed a strong economic alliance with internal coordination battling against foreign forces, setting barriers for foreign economic forces’ interference in their market. At the same time, with the declining importance of the CIS, the Eurasian Economic Union has played a more significant role. The organization has four official member states: Russia, Belarus, Kazakhstan and Kyrgyzstan. Russia, Belarus and Kazakhstan have borne rich fruit in financial cooperation. In 2010, the three countries signed major agreements on the integration of financial markets within the framework of a unified economic space, including member states’ free capital movement agreements and member states’ services trade and investment agreements. Within the framework of the above-mentioned agreements, the financial markets of member countries will formulate unified laws and regulations regulating the activities of financial organizations in accordance with international practices and standards, and implement consistent licensing and supervision procedures for financial market participants before 2020. Member countries will seek to establish a supranational financial market coordination institution before 2015. According to the agreement reached by all

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parties, the supranational institution will be headquartered in Kazakhstan. All parties will strive for mutual recognition of banking, insurance and securities business licenses from January 1, 2020. Securities issued by various countries will be able to circulate within a unified economic space, and restrictions on investment in foreign exchange assets and transnational financial services will be eliminated at the legal level. The methods of regulating and controlling financial market risks and the risk management system of financial institutions will be unified according to international standards.5 1.3.3 Sharp Gap of Economic Development Most countries along the route are developing or underdeveloped countries with uneven economic development and a huge gap in their economic development. Among them, China and Russia are the first echelon, Kazakhstan and Turkmenistan the second, and Uzbekistan, Kyrgyzstan and Tajikistan the third. The greater is the gap between the economic development levels of countries in a region, the weaker the foundation for financial cooperation with each other will become. The countries with weak foundation can only have simple consultation and dialogue and policy agreements instead of a deeper level of cooperation. It is not difficult to see from the industrial development of the entire core area that only China and Russia have relatively complete industries and a relatively reasonable industrial structure. Since most of the countries in Central Asia were former Soviet Union countries and most of their post-independence industries have continued their past development paths, there has been a severe industry convergence, which has seriously inhibited further and deeper financial cooperation. Restricted by the overall level of economic development and the incomplete supporting system, factor liquidity is poor. However, one of the basic requirements for financial cooperation is the rapid circulation of economic factors in all aspects. Therefore, the present situation further restricts the effectiveness and convenience of financial cooperation in the region. 1.3.4 Influence of Financial Environment Two factors result in the unhealthy financial environment: weak financial management and financial supervision. Although the five countries in 5  Source: Ministry of Commerce of the People’s Republic of China [EB/OL]. http:// www.mofcom.gov.cn.

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Central Asia have enjoyed rapid economic development and people’s living standards have raised significantly since their independence, they are still in the early stages of economic development, which is more evident in the financial sector. To improve a country’s financial management and system requires long-term efforts of exploration and practice. However, due to the complexity and uniqueness of the national conditions of Central Asian countries and their short period of independence, they have only a limited understanding of their own financial and economic development. These series of problems make the risk control system of Central Asian countries unscientific and the financial management system unsound, which inhibits the normal circulation of international capital in the region and hinders the further development of financial cooperation. The financial regulatory authorities lack experience in regulation and capability of supervision due to the short history of financial economic development and special national conditions, thereby exacerbating the instability of the five countries’ financial industry and increasing investment risks. 1.3.5 Obstacles to Overseas Use of Renminbi The environment for the overseas use of renminbi needs to be improved. Renminbi has not yet been fully freely converted and its acceptance in other countries is limited. In many regions, renminbi business is not open and foreign companies and individuals cannot open renminbi accounts in their regions. There are insufficient overseas renminbi stocks and only a few renminbi investment return channels, weakening the willingness of overseas enterprises to use it for settlement. The current large-scale circulation of renminbi is only confined to the border areas between Yunnan province and the neighboring underdeveloped countries, such as Myanmar and Laos. The scope of use is restricted to small-scale border trade, impeding the advancement of cross-border renminbi settlement.6 Bank settlement channels are not smooth. First, most countries along the route are relatively backward and uneven in economic development and the banking industry is underdeveloped, which lowers the quality of bilateral bank cooperation. Second, the border areas of countries along the route are mostly mountains and deserts, and financial institutions are rarely seen there, let alone financial services, which makes it difficult to meet the border settlement needs of border residents. Third, Chinese 6  Yang Cuo, Silk Road Construction and Cross-border Renminbi Settlement [J], Qinghai Finance, 2015(2):28–30.

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large commercial banks rarely set up branches in second- and third-tier cities in the border areas, which causes inconvenience for Chinese companies to handle renminbi business outside of the country. Fourth, the countries along the route, especially Central Asian countries, have disadvantages such as high transaction fees, slow speed of fund arrival, simple settlement method and few settlement options, resulting in poor cross-border settlement of renminbi. Finally, due to the lack of banking services along the route, “booth banks” are thriving, which hinders the development of regular banks and affects the normal currency exchange business. 1.4  Obstacles to Ecological and Environmental Cooperation 1.4.1 Level of Cooperation First, the number of substantive cooperation projects is small. The economy of most countries along the route is not well-developed and these countries don’t pay due attention to environmental protection because of the shortage of funds. As a result, these countries hope to obtain more financial and technical support when cooperating with China. However, there are but a few substantial cooperation projects and most of the cooperation is carried out between government departments, mainly in the fields of dialogue and communication, personnel training and some facilities construction assistance, which is not closely related to actual needs. In South Asia, Central Asia and Central and Eastern Europe, ecological and environmental cooperation has just been put on the agenda, and cooperation models and areas are very limited. Second, there is a lack of a unified coordination mechanism. While economic growth brings productivity enhancement, some unhealthy growth modes have brought a series of disasters. Therefore, ecological and environmental cooperation has been gradually elevated to strategic heights by various countries, and a strong coordination and guidance mechanism is indispensable. However, the current cooperation is mainly based on the business transactions and the needs of various departments and relevant countries, and there are only a few core objectives and decentralized projects without an unified framework, coordination mechanism and an overall planning and layout of multiple objectives. Therefore, China cannot participate in cooperation in this area with strong synergies. At the same time, many countries have not established a bilateral cooperation

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mechanism, which stands in the way of the realization of the goals of these countries. Third, the research on policies of relevant countries and some deep-­ seated issues is insufficient. The political situation in some countries is turbulent and the policies are discontinuous. In addition, China has been involved in or taken the lead in international cooperation in ecological and environmental protection for only a short period of time, so there is generally inadequate research on the economy, society, laws and regulations, and policies of relevant countries. For example, the external cooperation of water conservancy is often influenced and suspended by local political conditions, national culture, religious beliefs and other factors. At the same time, the foreign investment environmental supervision system is unsound, and some enterprises do not have a strong sense of social responsibility. There is no thorough assessment of the impact of many companies that go global and some large-scale projects on the environment, and further study is needed on the specific links of regional ecological problems, transnational ecological environmental disputes and the vulnerable ecological environment. Finally, there is a serious shortage of cooperation funds. From the perspective of government cooperation, it is difficult to alleviate the shortage of funds in a long period of time. Many projects are running without the support of special funding schemes, and the governments as well as some private investment departments have also remained on the sidelines for a long time because of the complex situation in the cooperative areas. As for the role of social capital in cooperation, the qualifications of relevant enterprises are still set according to the countries’ own standards without being applicable to the situation of other countries, especially some small countries, which restricts a group of competitive enterprises from going global. At the same time, in terms of finance and credit, a policy system has not been in place for enterprises engaged in environmental protection, water conservancy and forestry to go global. 1.4.2

 egional Conflicts of Economic Cooperation R and Ecological Development

(1) Potential Influence of Infrastructure Construction on Environment The ecological environment along the route poses a potentially serious challenge to the economic cooperation events focusing on infrastructure

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construction, which, to a large extent, impedes regional ecological and environmental cooperation. Southeast Asia is located in ecologically sensitive areas, rich in biodiversity, which is a challenge for road and pipeline construction. Roads and pipelines may pass through areas rich in biodiversity, such as forest land, wetland or drinking water source protection areas, which not only harm the ecological environment but also cut the activity corridors of plants and animals, eventually threatening local biodiversity. The ecosystem in Central Asia is very vulnerable due to the special environment. Pipeline and highway construction may destroy the original landform and vegetation. If people cannot protect the environment properly, it will be very likely to worsen the already fragile ecology and aggravate desertification. Meanwhile, certain construction projects may also change the slope and the surface land, causing soil erosion along the route. Bridge construction can also change the river’s cross-sections and flow velocity to a certain extent, causing harm to the surface water environment. Building railway and port will affect the environment throughout the construction and operation period. In the initial railway construction stage, environmental damage is manifested in a large amount of land occupation and soil erosion. In the operation stage, it is manifested in the enormous solid pollution such as exhaust gas, sewage, solid waste, dust and invisible environmental pollution like noise and electromagnetic radiation. People and cargoes flood in the port area for border trade. On the one hand, it speeds up the local urbanization process; on the other hand, it accelerates environmental pollution, which leaves the surrounding ecological environment to be threatened by the invasion of foreign dangerous pests and the pollution from foreign toxic substances. (2) Potential Influence Environment

of

Economic

Zone

Construction

on

The economic zone, with different levels and characteristics, is a regional economic unit formed on the basis of regional division of labor. It is a regional production complex with the central cities as the core, agriculture as the foundation, industry as the leading factor, and transportation and commodity circulation as the framework. It is equipped with developed internal economic ties and specialized functions in the

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economic ties of the whole region.7 With deepening economic cooperation and stronger interconnection, the number of economic zones along the route will increase year by year, and more people and resources will gather here, which makes the area the center of economy and transportation. This gathering will inevitably lead to a sharp increase in the demand for resources. In consequence, natural resources will be easily destroyed, disorderly development at the development end of resources will cause environmental degradation, and waste water will increase at the end of resource use, thus accelerating the loss of water and soil resources. 1.4.3 Political Constraints Brought by Major Countries’ Competition First, the cooperation is restricted by interest protectionism within the region. Economic growth is the primary goal of all underdeveloped and developing countries against the current international background. But the earnings of ecological and environmental protection are difficult to be reflected by quantitative indicators, which may lead to a situation that the efforts to protect the environment seemingly run counter to the goal of economic growth in the short term. As a result, countries will seek to maximize benefits and make efforts to pass on these ecological costs while ensuring their own economic development, which takes place frequently in the Belt and Road Initiative region where developing countries account for the vast majority. For example, in the climate negotiations, Central and Eastern Europe demand a dynamic interpretation of the principle of “common but differentiated responsibilities” based on their own interests, which is, however, to the detriment of neighboring developing countries. Second, the forces outside the region restrain cooperation. With the rise of emerging market countries within the region, their requirements for political and economic cooperation have increased significantly. The ecological environment has become an important means of political bargaining and attracting international attention. It won’t be all plain sailing in promoting cooperation in ecological environmental protection and construction. For example, Vietnam actively gets ASEAN and United States involved in regional environmental cooperation. Western countries have also increased their influence on and penetration into the countries surrounding China’s transboundary rivers. Among them, the United States uses “water resources and water networks” as an important starting 7  Yi Pengfei, An Analysis of the Construction Mode of Southern Sichuan City Cluster [J], Journal of Sichuan Institute of Technology (Social Science Edition), 2010(2):71–75.

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point to intervene in the Mekong River, and provides support for research on “the impact of hydropower projects in the upper reaches of the Mekong River on the ecological environment”, forcing China to become the center of regional pressure. Moreover, international forces relate the environmental problems in the Greater Mekong Sub-region (GMS) to the ecological environment problems in the South China Sea, and make ecological problems an excuse to suppress China’s development space. In addition, Central Asia is also an important subject of major country competition because of its special geographical location. 1.5  Obstacles to Cultural, Technological and Scientific Cooperation 1.5.1 Obstacles to Cultural Cooperation First, China’s lack of medium and long-term cultural strategy is a barrier to cultural cooperation. To a certain extent, China does not have a clear direction and goals in the implementation of its foreign cultural strategy. Therefore, China is ambiguous in its position, direction of development and goals when conducting cultural cooperation with foreign countries. China’s existing cultural cooperation policy is fragmented, not continuous, not practical and not obviously effective. The policy cannot exert long-term and wide influence. Besides, it is difficult to continue some cultural activities due to the lack of fund. Second, the gap between countries’ economic development impedes cultural cooperation. After their independence, Central Asian countries have accelerated their economic development significantly, but the historical and convergent industrial structure has led to the slow improvement of people’s living standards. They prefer to have economic and trade cooperation instead of cultural exchanges, which results in the lack of fund for cultural cooperation projects. Some existing cultural exchange groups are also faced with poor conditions and incomplete facilities when performing in Central Asia, which makes cultural cooperation more difficult. Third, China’s weak cultural soft power also imposes restrictions on further cooperation. Chinese cultural industry is still in the primary stage and the proportion of Chinese cultural industry in global cultural industry is less than one-tenth of that of the United States, which is far behind that of western developed countries. For example, there are no Chinese newspapers and magazines founded by local people in Central Asian countries

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and Chinese newspapers and books in Central Asia are limited in number and are only sent as gifts during exchange activities. Local residents of Central Asia can only watch Chinese programs through satellite TV. However, their economic status does not allow every household to have a satellite TV, which is another obstacle for the spread of Chinese culture. Finally, the adverse influence of international public opinion restrains cultural cooperation. China has enormously improved its comprehensive national strength and has made remarkable achievements in various fields. However, China’s commitment to fulfilling its responsibilities as a major country arouses criticism from western countries. The “China threat” has emerged in the international community which claims that China’s strength will challenge the international political system headed by the United States and the security of neighboring countries, and the success of socialist cause will be a threat to western civilization. Due to the conflict of interests between Southeast Asia and China in the field of territory and ideology, the “China threat” makes people-to-people exchanges and cooperation rather difficult.8 1.5.2 Obstacles to Technological and Scientific Cooperation First, the adverse effects of the “China threat” hinder cooperation. Western countries’ efforts to demonize China make Central Asian countries on alert when dealing with China, which seriously thwarts the scientific and technological cooperation in the SREB region. On the one hand, there are sensitive issues between China and the five Central Asian countries, such as cross-border ethnic groups and water resources development and utilization. And some people in Central Asian countries lack understanding of and trust in China’s “good-neighborliness and friendship” policy. On the other hand, visa and other customs clearance procedures in Central Asian countries are very cumbersome, which increases the costs of scientific and technological cooperation and reduces the effective time of project cooperation. This issue becomes more prominent for the cooperation of season-­restricted agricultural projects because the long customs clearance procedure often makes our researchers fail to catch the best time for experiments. As for some core technologies, Central Asian countries have gradually shifted from the initial reciprocal exchange and selling at a low 8  Xu Er’cai, On the Cultural Exchange between China and Central Asia [J], Journal of Xinjiang University, 2012(3):105–108.

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price to selling at a high price or keeping them strictly confidential, which makes it impossible to carry out some research projects with potential great breakthroughs.9 Second, both sides of the cooperation underestimate each other. On the one hand, the five Central Asian countries put China in a minor position in diplomacy and pay more attention to forming relations with the United States, Russia, Japan and European countries. People in these countries undervalue China’s scientific and technological strength but value highly the scientific and technological cooperation with the United States, the European Union, Russia, Japan and South Korea. In addition, even in the process of cooperation with China, the five Central Asian countries focus on China’s developed inland and coastal areas, and show less interest in the northwest region. On the other hand, Chinese enterprises and research institutions have bias against the five Central Asian countries. They pay more attention to the United States and western developed countries and underestimate the scientific and technological strength of Central Asian countries to a certain extent, assuming that Central Asian countries are inferior to China in science and technology. Therefore, some research institutions and enterprises in China are unwilling to devote their efforts to scientific and technological cooperation with Central Asian countries and invest in the introduction of technology from these countries. This mindset and understanding of both sides is a great obstacle to the in-depth scientific and technological cooperation in the region. Finally, there are only a few large-scale cooperation projects. It seems that there are some scientific and technological cooperation projects and large cooperation fields between China and Central Asian countries, such as the establishment of China-Central Asia Science and Technology Cooperation and Exchange Center in Xinjiang, the construction of field scientific monitoring stations and scientific experiment demonstration sites in Central Asian countries, the implementation of scientific and technological aid in Central Asian countries, and the establishment of numerous Chinese science parks and agricultural demonstration bases. However, the overall scale of scientific and technological cooperation between the two sides is still limited and large-scale cooperation projects are rare. There 9   He Xi’an, Ren Hong, Zhang Xiaoyun, etc. On the Scientific and Technological Cooperation between Xinjiang, China and Five Central Asian Countries [J]. Sci-Tech Information Development & Economy, 2011(6):160–165.

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are few profitable projects, but there are many projects with low hanging fruits. Small enterprises occupy the majority while large and medium-sized enterprises are few. Some large-scale projects led by the state have a limited group size with limited scientific and technological catalytic effect and weak ability to transform into productivity, which makes it difficult to attract the attention of the host country.10

2   Guarantee Mechanisms for the SREB The SREB, spanning across Asia and Europe, involves dozens of countries and regions of different political systems, economic development levels, social culture and legal policies, which pose challenges to the implementation of the SREB Initiative. Therefore, countries along the route should work together to establish a guarantee mechanism and coordinate their policies and development strategies so as to lay a solid foundation for the smooth implementation of the SREB Initiative. 2.1  Intergovernmental Coordination and Guarantee Mechanism Building a guarantee mechanism for the SREB requires us to stay committed to achieving shared growth through consultation and collaboration. First, it is necessary to cement political trust and cooperation between governments and strive to create a peaceful and stable political environment. Second, on this basis we should establish an international communication and coordination institution for the SREB, and build a community of common interests for reaching bilateral, multilateral and regional agreements. Meanwhile, we should strengthen the integration of laws, regulations and policies of different countries, and formulate unified laws and regulations in financial policies, trade cooperation, ecological and environmental protection to provide a solid institutional guarantee for economic and trade cooperation among countries along the route. 2.1.1 Strengthen Political Trust and Cooperation The establishment and development of the SREB will not be possible without a peaceful and stable political environment. Political trust and 10  Zhu Xinguang, Zhang Shenyuan, Wu Bin, Climate and Environmental Cooperation between China and Central Asian Countries [J], Xinjiang Social Sciences, 2010(4):56–61.

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cooperation between governments is a strong guarantee for safeguarding the SREB. We should strengthen political trust between governments. Based on the purpose and principle of the Charter of the United Nations and the principle of “opening-up and cooperation, harmony and tolerance, market-orientation and mutual benefit” for the joint development of the SREB, countries along the route should build a macro policy communication system and an intergovernmental platform for cooperation and exchanges to promote political trust and in-depth integration of interests, and reach new consensus on the cooperation along the route. We should work together for regional security and stability. First, member countries of the SREB Initiative should stick to the Five Principles of Peaceful Coexistence: mutual respect for each other’s sovereignty and territorial integrity, mutual nonaggression, mutual noninterference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. Second, a security center for the SREB Initiative should be built. Countries along the route should foster an awareness of interests’ coordination, step up cooperation and mutual support on dealing with major issues involving sovereignty and territorial integrity as well as social security and stability, and safeguard the interests of their own and the overall interests of the Economic Belt. Member countries of the SREB Initiative should fully carry out the Shanghai Convention on Combating Terrorism, Separatism and Extremism, improve laws and regulations on the safe cooperation along the route, and build an efficient law enforcement system for security so as to create a safe and stable political environment for the prosperity and development of the SREB. 2.1.2

 uild an International Communication B and Coordination Mechanism The construction of the SREB is a systematic project that calls for coordination of economic policies and development strategies of countries along the route. By establishing international coordination and cooperation mechanism, bilateral and multilateral cooperation mechanisms and platforms for communication, we will work to strengthen the communication and exchanges of different areas and levels, building a mutually beneficial community of common interests for the prosperity of the SREB. We should build a multi-level international coordination and communication mechanism.

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First, we should build a meeting system as a top decision-making body for leaders of countries along the route to formulate short-term and long-­ term development outlines, plans and steps. Second, leaders’ meetings should be held on a regular basis to exchange views, seek synergy among the development strategies and policies of countries along the route, introduce favorable policies for major cooperative projects and deal with problems concerning different projects through negotiation. Meanwhile, the leaders’ meetings are supposed to decide the focus and priority areas of cooperation in the SREB and approve to implement the major projects so as to optimize the allocation of funds, human resources and production factors in the construction of the SREB. Finally, an execution and supervision institution consisting of expert committees should be established to organize forums, working groups and seminars to review and supervise how member countries perform the contractual obligations and deal with particular problems during cooperation.11 We should strengthen the role of bilateral and multilateral cooperation. First, governments and civil organizations of member countries should be engaged in communication and negotiation to promote the understanding and support for each other from political, economic, cultural and other aspects, and to coordinate the interests of all parties for comprehensive development of bilateral and multilateral relations. Member countries should sign bilateral or multilateral cooperation plans to set examples for the development of Economic Belt cooperation. Second, we should establish and improve a bilateral joint working system, propose outlines of plans as well as specific steps for the development of the SREB, and give play to the guiding role of existing committees in advancing the implementation of bilateral and multilateral projects. Moreover, we should also make full use of the existing multilateral cooperation mechanisms such as SCO, APEC and China-ASEAN “10 +1”12 to advance the establishment of communication and cooperation mechanisms on all fronts for member countries, and to provide a better soft environment for the integration initiative of the SREB. We should build various communication platforms.

11  Yuan Lihua, An Analysis on the Legal Guarantee of Sub-regional Economic Cooperation in the Silk Road Economic Belt [J], Journal of Lanzhou Commercial College, 2014(4):28–35. 12  Vision and Proposed Actions Outlined on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road [M], People’s Publishing House, 2015:15.

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We should continue to hold existing regional forums, such as Euro-­ Asia Economic Forum, Bo’ao Forum for Asia, China International Fair for Investment & Trade and enhance their roles.13 We should launch cultural exchange activities along the route, such as the Silk Road Film Festival, Cultural Expo and Cultural Exchange Festival to encourage the inheritance of historical culture along the route. By holding international summits, forums and expos under the theme of the SREB, we will strengthen mutual trust and understanding among all member countries for consensuses and deepened cooperation. 2.1.3 Improve Coordination of Policies and Regulations The essence of the SREB is to break the national and trade barriers to promote the free flow of funds and talents within the region, and realize common development and prosperity for the countries along the route by establishing regional economic cooperation organizations. Due to the significant differences among countries along the route in political systems and levels of economic development, it is difficult to adjust their needs of interests to establish a free trade zone. Moreover, most of the countries along the route are developing countries without sound laws and regulations, which results in the lack of scientific and unified institutional norms that can safeguard the trade along the route. Therefore, it is of great importance to coordinate the policies, regulations and development strategies of the member countries and work out unified institutional norms. We should strengthen the establishment of specific policies. First, member countries should clarify the rights and obligations of each country by proposing outlines of development plans and concrete steps, and formulating laws and regulations specially for the Economic Belt. Second, member countries should establish sound national laws and regulations as soon as possible, and then establish bilateral, multilateral and regional systems of laws and regulations, such as the SREB Regional Trade Agreement, Cross-border Transportation Agreement, Ecological Protection Agreement, Dispute Settlement Mechanism and Joint Early Warning Mechanism. Finally, member countries should harness the execution and supervision role of the relevant committees associated with the Economic Belt, find and solve problems promptly, strengthen the legislation through coordination and assurance of different aspects, and devote themselves to the building of a law-based and orderly Economic Belt.  Ibid.

13

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2.2  Financial Guarantee Mechanism The SREB stretches from the active Asia-Pacific Economic Circle in the east to the developed European Economic Circle in the west and joins developing countries of great potential. It can alleviate the conflicts among countries along the route and contribute to regional stability, political trust and cooperation, and the free trade zone can remove border-related trade barriers for the economic prosperity of countries along the route. The SREB is still in its infancy and there is a huge demand for funds for infrastructure construction in the early stage. Therefore, it is of great significance to build a financial guarantee mechanism to provide financial support and safeguard regional financial stability. To this end, first, we should gear up building the financing guarantee mechanism with the AIIB and the SRF as its main body. Second, we should also build a regional financial center, a platform for international financial cooperation and exchange and a financial information-sharing mechanism for the efficient allocation of capital. Finally, we should enhance free trade settlement and exchange through implementing local currency settlement system along the route to lay a solid financial foundation for the prosperity of the SREB. 2.2.1 Build a Financial Guarantee Mechanism We should step up our efforts to build a financial guarantee mechanism with the AIIB14 and the SRF15 at its core so as to help narrow the funding gap and ensure the smooth running of the infrastructure construction projects.

14  The AIIB is an intergovernmental multilateral development agency in Asia, with supporting infrastructure construction its major goal. As of April 15, 2015, the number of AIIB’s intentional founding member states was 57, including 37 intra-regional countries and 20 extra-regional countries. It covers major Western countries except the United States, Japan and Canada, as well as most countries in Asia and Europe, with members spreading across five continents. Other countries and regions can still join the AIIB as ordinary members in the future. 15  The Silk Road Fund was established on December 29, 2014. It is the largest and highest-­ level government multilateral cooperation fund in China to date. It covers Central Asia, South Asia, West Asia, Southeast Asia, and Central and Eastern Europe. It mainly provides investment and financing support for infrastructure, resource development, industrial cooperation, financial cooperation and other interconnection-related projects in countries along the Belt and Road to promote common development and prosperity, and achieve reasonable financial returns and medium- and long-term sustainable development.

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We should enhance the currency investment and financing system along the route. On the one hand, we should make earnest efforts to build regional investment and financing platforms, take an active part in the preparation work of the AIIB, the SRF, and the SCO Development Bank, carry out bilateral and multilateral financial cooperation, and give play to the financing role of international bank through offering loans and granting credit. On the other hand, we should make sure that every investment of the SRF, investment fund and relief loan fund is concretely implemented by drawing on the strength of the SRF and sovereign wealth fund to support real economy and infrastructure construction,16 and encouraging commercial equity investment funds and private funds to participate in the construction of key projects along the route. We should increase support for policy financial institutions, broaden the access to loans, enlarge the scope of loans and introduce preferential policies of loans for key projects for the development of the Economic Belt and countries along the route. We should build an international financial cooperation and exchange platform. We should give full play to SCO’s exemplary and leading role by organizing meetings on financial cooperation between governments, cities and financial institutions regularly to strengthen their dialogue and cooperation for the purpose of enhancing the influence and catalytic effect of financial meetings. We should publicize more about the SREB Initiative among micro economic entities along the route to activate their participation so as to meet the long-term financing needs. We should establish an efficient financing supervision mechanism by improving the supervision and guarantee mechanism for regional financing activities and strengthening the policy and regulation control on financing activities. First, we should increase bilateral and multilateral cooperation on regulation and reach new consensuses through signing regulatory cooperation memorandums and other means. Second, we should build a regional financial early warning mechanism, improve our ability to predict and respond to financial risks and establish a regional cross-border financial risk response mechanism to reduce losses. Finally, we should communicate and cooperate more with credit rating agencies and credit management 16  Zhang Hongli, Financial Guidance and the Belt and Road Initiative [J], Finance Forum, 2015(4):8–14.

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departments to ensure the safety of financing activities concerning the SREB. We should establish a Silk Road financial talent pool. Economic and trade cooperation along the route is not possible without financial talents with strong comprehensive abilities and a global vision. Therefore, we should step up efforts to establish a system for people to learn and discuss knowledge about finance so as to put right people at right positions and pool intelligent resources for the smooth implementation of the SREB Initiative. 2.2.2 Build Regional Financial Centers We should quicken our pace in regional financial integration on the basis of economic integration along the route.17 Regional financial centers, as the foundation for financial integration,18 are of strategic significance in optimizing resource allocation, distributing financial information, preventing risks, enhancing cities’ and regions’ core competitiveness and promoting their fast and sustainable development.19 In view of this, member countries should participate in consultation and accelerate the building of financial centers in transportation hub cities with sound financial system, such as Urumqi and Xi’an, to improve financial service system along the route. We should build Urumqi into the financial center of the SREB.  The reasons are as follows: First, Urumqi, the capital city of Xinjiang, located in the geographic center of Eurasia and facing Central Asia, is China’s bridgehead to open to the west. It used to be an important city along the ancient Silk Road; it is the center city of the New Eurasian Land Bridge and an important transportation hub for China to connect with Central Asia and Europe, all of which gives Urumqi unique geographical advantages. Second, the catalytic effect of Xinjiang on trade and cooperation between China and Central Asian Countries has laid the foundation for financial cooperation. 17  Regional financial integration refers to the integration of financial resources, financial markets and financial activities within a specific geographic area. 18  A regional financial center is a financing hub with concentrated financial institutions, developed financial markets, quick access to financial information, advanced financial facilities and efficient financial services. 19  Wang Baozhong, He Liancheng, Li Zhongmin, Strategic Path and Implementation Countermeasures of Integration in the New Silk Road Economic Belt [J], Economic Review Journal, 2013(11):60–65.

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Third, Xinjiang enjoys robust economic strengths, and its finance, securities and insurance have taken an initial shape. In a word, Xinjiang is well-­ equipped for becoming the financial center for the SREB.  Besides, we should build a multilateral clearing and settlement system with a commercial bank as the center for factoring and international factoring transactions between the five Central Asian countries along the route and other countries.20 We should build Xi’an into the financial center of the SREB. The reasons are as follows: Xi’an is a famous city with incomparable geographical advantages and well-developed transportation system. The city enjoys an abundant pool of human resources and exceptional technological support. Besides, Xi’an also boasts ample financial resources with sound financial system and financial supervision and management system.21 Xi’an, located at the center of Chinese mainland territory, is the largest city along New Eurasian Land Bridge and in the Yellow River basin. It is the political, economic, cultural, educational and technological center of Shaanxi Province, and the economic, cultural and business and trade center along the route. In addition, Xi’an, as an important national research, education and industrial base, is one of China’s five major education and scientific research centers with the highest density of colleges and universities in China and the largest number of people with higher education degrees. Moreover, we should build Xi’an into a financial center with the help of scientific and technological innovation, releasing innovative products and service and developing Internet finance. We should leverage the abundant human resources and quality education resources, increase investment in financial and economic education programs and select an excellent team of teachers and students to establish the SREB Development Research Institute. By building such regional financial centers, we may establish a multi-­ level financial market to provide strong financial support for trade and investment facilitation. Meanwhile, we should strengthen cooperation in investment and project financing among countries along the route so as to promote regional economic integration. 20  Zhang Yongming, Wang Haiyan, A Comparative Study of Financial Systems between Five Central Asian Countries and China’s Xinjiang [J], Russian Central Asian & East European Market, 2007(5):13–17. 21  Guo Pusong, Research on Path of Building Xi’an into New Silk Road Financial Center [J], China Business & Trade, 2014(34):91–95.

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2.2.3 Build Local Currency Settlement System for Trade First, we should work out an agreement about local currency settlement. To be specific, we should strengthen bilateral and multilateral consultation and communication to make currency circulate and be used legally and normally by entering into local currency settlement; we should encourage member countries of the SREB Initiative to open renminbi settlement account in banks in China or banks of China and other countries to open renminbi account in order to promote renminbi to act as the currency of settlement in foreign countries. Second, we should encourage more bilateral and multilateral cooperation between financial institutions. Bilateral trade should be cemented through bilateral credit, currency swap and payment system. Cooperation between commercial banks should be carried out by establishing correspondent banking relationships, strengthening business connections and broadening the scope of cooperation. We should solve the problems of border trade payments and settlements, establish credit card payments mechanism and scale up foreign currency payments to facilitate the settlement for businessmen. We should keep Chinese enterprises informed of the situation of certain countries by different ways and make sure the performance letter of guarantee is issued even the transaction is completed through advance or direct payment. Finally, a cross-border capital flow supervision mechanism should be established. We should work for better communication and consultation between central banks of two countries, strengthen the effective supervision of cross-border capital flows, and further improve the ability to prevent financial risks while opening to the global market.22 We should forewarn and cope with risks of international market to maintain the security of capital markets and financial system. At present, China has successively realized local currency settlement with Russia, Kazakhstan and Kyrgyzstan, and should expand bilateral economic opening up and encourage more cooperation for mutual development. First, local currency settlement is more convenient than US dollar settlement in their procedures and can enjoy the preferential policy of free 22  Financial Cooperation and Institutional Arrangement between China and Kazakhstan— Discussion on Local currency Settlement between China and Kazakhstan. China, Russia, East Asia and Central Asia Research [EB/OL]. http://euroasia.cass.cn/news/126438.htm.

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settlement fees. While providing new settlement channels for enterprises, it also brings good economic benefits to commercial banks, which is a win-­ win result for both banks and enterprises and can further expand trade among countries. Second, local currency settlement is helpful to prevent the exchange rate risk of the US dollar. In order to stimulate the domestic economy, the United States has implemented quantitative easing policies, which has continuously lowered the exchange rate of the US dollar and increased the risk of depreciation. Third, using the US dollar as a settlement method has raised the transaction costs of the intermediate links, which is not conducive to achieving the balance of bilateral trade settlement. Settlement in local currency can make it more convenient and faster to record settlement funds, reduce the exchange costs caused by the use of US dollars and euros, and lower transaction costs with more trading gains. Finally, it can also reduce dependence on the US dollar and effectively resist the moral hazard brought about by the hegemony of the international monetary system. Generally speaking, the degree of trade facilitation between China and Central Asian countries is still relatively low. It requires the joint efforts of all parties to eliminate barriers and push bilateral economic and trade cooperation to a higher level. 2.3  Industrial Cooperation Guarantee Mechanism The development of the SREB is inseparable from industrial cooperation between countries and regions. The countries along the route should optimize the division of labor in the industrial chain, develop various industrial parks and strengthen in-depth cooperation in various industrial fields in accordance with the principle of complementary advantages and mutual benefit. In order to ensure that countries along the route can better carry out industrial cooperation, first of all, an industrial cooperation coordination mechanism should be established to play the role of government policy guidance and comprehensive coordination; second, an information resource-sharing platform should be established by using the Internet to establish the economic and social database of SREB, which can provide sufficient information resources for industrial cooperation within the region; and finally, the establishment of a regional talent market service mechanism will promote the free flow and full utilization of talents and personnel.

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2.3.1 Establish Industrial Cooperation and Coordination Mechanism The establishment of a regional industrial cooperation and coordination mechanism is an important guarantee for the long-term and effective cooperation of the countries in the region. The industrial cooperation and coordination mechanism should first be a service and cooperation mechanism with a high level of cooperation between the two parties. It can give full play to the role of market mechanism, and at the same time it also attaches great importance to the government role of comprehensive coordination and policy guidance by relying on the macro-control “visible hand” to overcome some limitations, such as the blind industrial layout and the simple pursuit of maximal self-interest.23 First, every government of member countries in the Economic Belt should make a strategic, systematic and mutually beneficial industrial cooperation plan by regarding all members as a whole, and clarify the objectives, implementation paths, and cooperation framework and safeguard measures for industrial cooperation in the SREB. Second, regular and irregular industrial cooperation consultation meetings should be held to strengthen coordination and exchanges with each other, to explore the connection and integration of various market resources and to resolve economic conflicts between the two countries in the development of an integrated economy. The industrial structure of the five Central Asian countries is dominated by industries such as natural gas, mining, metallurgy, non-ferrous metals and equipment manufacturing. Such industries, with the advantage of energy resources, should continue to be developed. China has vigorously developed its advantageous industries including transportation, post and telecommunications, textile, chemical, food, consumer goods production and others; has already formed a cooperative channel with the five Central Asian countries in complementary resources, markets and factors; and has enhanced the industrial synergy of the SREB to form a network industry layout with complementary advantages. Finally, a venture investment cooperation mechanism should be established. The first is to encourage cooperation in new industries by promoting in-depth cooperation in the emerging industries of new energy and information technology to develop environment-friendly and high-­ effective products of science and technology. The second is to encourage 23  Strengthen Industrial Cooperation and Build Guarantee Mechanism [EB/OL]. [2012 5 31]. http://www.kelamayi.com.cn/news/2012-05/31/content_968044.htm.

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the exploration of new modes of investment and cooperation by increasing the construction of various cross-border industrial parks to exert the effect of industrial clusters, radiate and drive the development of related upstream and downstream industries. The third is to adhere to the principle of sustainable development, strengthen the in-depth cooperation of member countries in the ecological environment, climate change, biodiversity and so on. At the same time, in order to build a green Silk Road, countries should implement the concept of ecological environment to jointly maintain its sustainable development. 2.3.2 Establish an Information Resource-Sharing Platform Western China and the five Central Asian countries have a high degree of similarity in terms of natural resources and advantageous industries. When formulating priority industrial development plans, each country or region must consider the status quo of domestic or regional industrial development as well as the entire economic zone. They should coordinate the layout of industries, strengthen the policy communication and establish an information resource-sharing platform. An economic and social database of the SREB should be established. Each country should use the Internet to realize the interconnection and intercommunication of information resources such as economic and social data in the economic belt, to achieve the sharing of information resources, and to jointly improve the application level of information technology. Each country should provide data analysis and guidance for industry cooperation so as to avoid disorderly and inefficient competition caused by excessive homogenization of products and reduce resource waste and overcapacity. In addition, a credit system for the SREB should be built. The countries should establish a unified credit evaluation standard for the SREB and improve the corporate credit information system, corporate credit information management system and disclosure system. To realize the sharing of credit information resources, a public platform for economic belt credit information should be established. 2.3.3 Establish a Regional Talent Market Service Mechanism The establishment of the SREB is the process of achieving regional economic integration. The free flow of human capital within the region plays a vital role in the process of regional economic integration. At the same time, dozens of countries along the route require a large number of

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outstanding professionals with comprehensive competence. Therefore, to develop the SREB, it is of essential importance to develop talents with great potential in order to provide guarantee for the supply of talents. On the one hand, establish a unified talent service system in the SREB. The countries should make use of the Internet to establish a talent and personnel database in the SREB to form a unified talent market and improve the mechanisms of talents flow and employment so as to achieve the effective allocation of talent resources within the region. A unified talent training mechanism for the economic belt should be established. First, the countries should establish and organize the implementation of professional and comprehensive talent training programs, and, in particular, set up specialized talent training institutions in the economic belt to strengthen the training of talents in the aspects of language, law, international trade and professional technology. To provide human resources guarantee for the development of the SREB, the countries should establish the talent reserve mechanism in the economic belt and make full use of the key role of human capital in economic development. Second, in order to have more high-level, urgently-needed professionals and innovative talents, the countries should implement talent training programs to increase the training of professional talents in colleges and universities and build a talent reserve mechanism for economic development.24 Finally, in order to provide a strong talent support for economic integration and development, the countries should establish a talent incentive mechanism and increase the recognition and reward of excellent talents, as well as encourage international exchanges and cooperation of talents. 2.4  Guarantee Mechanism for Infrastructure Construction Infrastructure construction is not only hardware condition for the implementation of the SREB Initiative but also a key factor determining the volume of trade of the countries along the route. At present, under the impetus of the SCO, countries along the route have initially established a comprehensive railway, highway, aviation, maritime transportation, oil and gas pipeline, transmission line and communication network across the continents of Asia and Europe. Though a three-dimensional 24  Made in China 2025 [EB/OL]. 2015-5-19. fortune/2015-05/19/c_127817932_7.htm.

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interconnected transportation network has been built, it is still necessary to speed up the construction of planned new lines and increase the investment and construction of the telecommunications and power grids. The countries should build a regional transportation and logistics service system, which includes the interconnection of railways, highways, aviation, telecommunications, power grids and energy pipelines. To activate new economic growth points, the countries should also promote cooperation in the movement of capital, logistics, personnel and information among the countries along the route to build a solid foundation for the economic and trade development of the SREB. 2.4.1

 stablish Government Coordination Mechanism E for Infrastructure Construction Special conferences on infrastructure construction of the SREB should be held. First, by holding special conferences frequently to strengthen consultation and exchanges between governments in the economic belt, the countries can formulate long-term, medium-term and short-term plans for infrastructure construction; clarify the implementation plans and steps of infrastructure construction; and coordinate investment cooperation. Second, the countries should increase investment in transportation infrastructure and prioritize the construction of key projects such as transportation hubs and key channels which will improve road accessibility. The goal is to build a sound three-dimensional transportation network to ensure the smooth development of trade logistics. Most of the countries in SREB are developing countries at low economic level. The national infrastructure in the countries of Eurasia is relatively backward and funding problems have become the biggest challenge to infrastructure construction in various countries. Therefore, in the process of infrastructure construction, each country should strengthen communication and consultation between governments and put forward clearly the focus and sequence of infrastructure construction. Each country should regard SREB as a whole, trying to avoid excessively pursuing its national interests but ignoring the overall economic development. In addition, a unified whole-process transportation coordination mechanism should be established. At present, there are many barriers and obstacles in the international transport routes. The New Eurasian Continental Bridge passes through many countries and it is influenced by many factors. Unlike the railroad standards used in Europe and China, Central Asian countries still use wide-gauge railways, so cargo trains have

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to change tracks. Some countries in the economic belt, on the basis of mutual respect for national sovereignty and territorial security, should enhance the accessibility of international trunk roads and strengthen the joint of technical standards, which can save transportation time and reduce costs. On the basis of the Agreement on the Facilitation of International Road Transport among the Member Countries of the SCO, we should actively promote member countries to sign the Agreement on the Facilitation of International Road Transport among the SREB to establish railway freight transportation international conventions and joint transportation agreements.25 Under the license system, each member should give the other parties the right of road transportation carriers and vehicles. They should mutually accept each other’s driving licenses and allow each other to cross the border by transit transportation according to the agreed routes; every member should simplify the border customs transit procedures and prepare multiple exit and entry documents for the drivers of transit vehicles; the charging standards for vehicles should be unified; the related insurance for transit vehicles, passengers and drivers should be arranged.26 With all of this done, an infrastructure network in Asian sub-­ regions and regions between Asia, Europe and Africa will be gradually formed. 2.4.2

 stablish a Joint Committee Mechanism E for Infrastructure Construction Due to great differences in political system and level of economic development, the countries along the route are faced with many challenges in cooperation. Therefore, exploring a mutually beneficial cooperation mechanism is helpful for bilateral and multilateral cooperation. To this end, a joint committee for infrastructure construction should be set up to deal specifically with many problems in the current SREB construction. At first, the committee should be established to decide the sequence of infrastructure construction, and then take the responsibility for the management of special funds for infrastructure construction.

25  Luo Gang, Discussion on Coordination and Promotion of Transportation and Logistics System in Construction of the Silk Road Economic Belt [J], Research on Development, 2014(2):45–49. 26  Su Hui, Li Yan, IRU: New Silk Road to be Completed within 10 Years, Shaanxi Daily, October 28, 2004.

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The committee should first decide the sequence of infrastructure construction. First of all, the overall infrastructure construction in the Eurasian border regions of the SREB is relatively lagging behind. Therefore, it is necessary to increase investment in the Eurasian border regions to accelerate infrastructure construction and the establishment of a comprehensive three-dimensional transportation logistics network system in the economic belt. Second, China needs to increase construction assistance to Kyrgyzstan, Laos and Myanmar as these three countries are the transportation hub of the New Silk Road and have strategic significance in the construction of the SREB. Finally, due to the limited economic strength of these three countries, road construction cannot be completed by their own, so they are eager to improve the accessibility of their roads by obtaining foreign assistance. At the same time, in order to accelerate the construction of the Southwest passage and Northwest passage, China has the strength and necessity to provide strategic transportation assistance to the above three countries.27 The committee should also be responsible for the management of special funds for infrastructure construction. First of all, the committee should carefully review feasibility reports of infrastructure construction projects and relevant project establishment documents to ensure reasonable and effective use of the special funds. Second, the committee should regularly inspect the implementation of the projects and allocate funds in a timely manner according to the progress of the projects to avoid project delays caused by funding problems. Third, the committee should strengthen the supervision and inspection of the projects by controlling the availability and use of the special funds. Any violation against the legal use of the special funds of the projects should be punished according to the seriousness of the circumstances and such penalties as warning or withdrawal of funds should be imposed, and the relevant responsible persons should be strictly investigated. The committee should uphold the principle of using special funds for special purpose to ensure the effective use of these special funds.

27  Gan Junxian, Silk Road Revival Plan and China’s Diplomacy [J], Northeast Asia Forum, 2010(5):65–73.

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2.5  Guarantee Mechanism for Trade and Investment Cooperation 2.5.1 Policy Coordination Between Countries There is a relatively big gap among countries along the route in terms of development level, so there is a deviation in the understanding of the level of participation in economic and trade cooperation. On the one hand, although the overall governance situation remains stable in Central Asian countries, there still exist a series of relatively complex risks. For example, their governments are still plagued by mass incidents and terrorist incidents. On the other hand, although the establishment of the SCO has made outstanding contributions to the promotion of economic and trade cooperation between China and the five Central Asian countries, the Central Asian countries are still in the process of transition, and the relevant market economic system has not yet been fully established.28 The lack of consistency and stability of policies has hindered the in-depth development of trade and investment cooperation in the SREB to a certain extent. Therefore, it is necessary to strengthen policy coordination among countries along the route. (1) Establish an Intergovernmental Policy Coordination Mechanism First, formulate a scientific and sound trade and investment mechanism. All countries along the route should formulate the SREB trade and investment mechanism on the basis of consensus, including a series of normative cooperation documents, which should clearly stipulate the SREB development objectives, development goals, development principles, internal policies and external policies.29 Second, establish and improve the discussion framework among countries. Regular summits of member countries and special summits on investment and trade should be held. In these summits, all members will analyze the practical problems and challenges in the process of the construction and development of the economic belt, and discuss together to find reasonable and efficient solutions. In order to cope with unexpected 28  Yuan Lijun, Gao Zhigang, Strengthening Regional Economic Cooperation through the Transnational Silk Road [J], Research on Development, 2014(1):55–58. 29  Zhu Xiaomin, Idea of Establishing Central Asia Free Trade Area [J], Journal of Yili Normal University (Social Science Edition), 2014(3):70–74.

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situations and make the construction and development of the SREB more formal, a standing committee and a secretariat should be established to coordinate and report on daily affairs. Finally, establish and improve the dispute settlement mechanism for trade and investment in the SREB. Most of the countries along the route are developing countries differing in the level of economic, cultural and social development as well as legal systems. Therefore, whether the disputes can be resolved reasonably is of particular importance to the development of trade and investment. As a result, a series of measures should be taken. For example, dispute settlement institutions should be established; further education and training of working staff in these institutions should be carried out; a “third-party” supervision platform to ensure the fairness of dispute settlement should be established and improved; a punishment mechanism should be established to guarantee the enforcement of a reasonable verdict. (2) Government-Led Construction of a Platform to Promote Trade Development We should take China–Kazakhstan International Border Cooperation Center in Horgos as a focus and build it into an example of trade and investment activities in the SREB. The center is a cross-border economic trade zone and an investment cooperation center established on both sides of the national border between China and Kazakhstan, close to the Horgos Port.30 At present, the China–Kazakhstan International Border Cooperation Center is mainly used as a venue for commercial and trade cooperation, merchandise exhibition, cargo storage, logistics, infrastructure provision, as well as various regional and international economic and trade negotiation meetings. Under the background of China’s western development strategy and the construction of the SREB, China– Kazakhstan International Border Cooperation Center should be built into a demonstration and experimental zone for trade and investment activities in the SREB.  The center should play an exemplary role in driving the development of the entire SREB by promoting further development in trade and investment facilitation through the concerted efforts of all 30  Zhang Ye, Bi Yanru, China-Kazakhstan Horgos International Border Cooperation Center, a New Model of Regional Economic Cooperation [J], Journal of Shihezi University (Philosophy and Social Sciences Edition), 2009(1):1–4.

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­ arties to realize the efficient circulation of capital, technology, talents, p materials, information and other resources in the SREB. We should try to build more similar centers for multilateral cooperation to accelerate the further development of trade and investment activities in the SREB.31 In addition, we need to draw on the experience of China-Eurasia Expo to integrate existing exhibition and conference resources and promote diversified exchanges and cooperation. While conducting economic and trade exchanges, China-Eurasia Expo is also actively carrying out in-depth communication and cooperation in the fields of tourism, culture, science and technology and transportation. We should take China-Eurasia Expo as a platform to hold multi-level summits attended by heads and ministers of various countries to discuss cooperation issues in such fields as economic and trade, science and technology, culture, transportation and tourism in the region and sub-regions; and the relevant departments of China and its neighboring countries should co-chair various thematic forums by inviting government officials, experts and scholars, Chairman of chambers of commerce and senior executives of large enterprises to attend these forums to promote bilateral and multilateral exchanges and dialogues in various fields. This shows that the China-Eurasia Expo has become a platform for economic cooperation between China and many countries in Asia and Europe, and a bridge for cultural exchanges, as well as a booster for win-win development.32 Therefore, by integrating existing exhibition and conference resources, and exploring and establishing new regional international forums and conference mechanisms, we can lay a more solid foundation and provide guarantee for cooperation, which is conducive to the promotion of public and cultural diplomacy. The forums and conference mechanisms can also facilitate friendly exchanges between countries and help build a harmonious international public opinion environment by enhancing friendship, minimizing misunderstandings, reducing frictions and resolving conflicts33 so as to eventually expand the breadth

31  Zhang Yinshan, Qin Fangming, Thoughts on Accelerating the Construction of China-­ Central Asia Free Trade Area under the Background of the Silk Road Economic Belt [J], Review of Economic Research, 2014(55):19–26. 32  Li Jianglong, Research on Development of China-Eurasia Expo, master’s dissertation, Xinjiang Agricultural University, 2012. 33  Zhang Yinshan, Qin Fangming, Thoughts on Accelerating the Construction of China-­ Central Asia Free Trade Area under the Background of the Silk Road Economic Belt [J], Review of Economic Research, 2014(55):19–26.

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and depth of the investment and trade development in SREB and enable the SREB to get better development on broader and diverse platforms. 2.5.2

Construction of a Cooperative Environment

(1) Port Infrastructure Construction The narrow market and backward infrastructure conditions in Central Asian countries have severely restricted these countries from opening to the outside world. However, China and Central Asian countries have strong complementarities in terms of resource endowment, industrial structure and market demand. Therefore, how to upgrade the degree of trade facilitation between China and Central Asian countries has become an important part of building SREB. At present, the costs of trade and transportation between China and Central Asian countries are too high. At the same time, the construction of interregional cross-border transit systems is still in its infancy with low operating efficiency, which restricts the efficiency of business and trade development in the economic belt to a certain extent. In view of this, it is necessary to strengthen the construction of a comprehensive transportation network including roads, railways, aviation and pipelines, as well as vigorously promote the construction of major transportation channels with a focus on railway construction.34 With the acceleration of customs modernization, reducing transaction costs between regions requires not only a highly accessible transportation network but also the establishment of institutions and supervision and coordination agencies. In view of this, modern management methods should be adopted in border management agencies in standardization, sanitation, inspection and quarantine, transportation and other aspects.35 During the construction of the SREB, China is a country with a relatively high level of logistics compared to the five Central Asian countries. Therefore, China should provide support in terms of human resources and technology, prepare cross-border transportation infrastructure plans and effectively use member countries’ transportation resources. 34  Yuan Lijun, Gao Zhigang, Strengthening Regional Economic Cooperation through the Transnational Silk Road [J], Research on Development, 2014(1):55–58. 35  Ai Sai-tijiang, Guo Yudan. An Analysis of Trade Facilitation of Five Central Asian Countries [J], Social Sciences in Xinjiang, 2012(4):75–80.

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A unified customs and port management agency should be established to coordinate the construction of transportation systems between various regions; a resource transportation system should be gradually formed to enable free and efficient flow of personnel, logistics and capital so that cross-border transportation service capabilities can be improved. There will be complex legal and trade difficulties as cross-border logistics activities involve a wide range of fields; therefore, an arbitration mechanism for logistics disputes in the Central Asia Free Trade Zone should be built because a professional arbitration mechanism can ensure the fair, equitable and reasonable settlement of cross-border logistics disputes.36 A modern warehouse management system in logistics technology should be established by renovating and upgrading existing facilities and equipment as well as introducing advanced loading and unloading technologies. New customs clearance technology should be adopted to improve the level of trade facilitation in Central Asia. In a word, China should expand the space for more in-depth economic and trade cooperation among all countries along the route, with a view to achieving the strategic objective of an interconnected SREB. (2) Construction of Network Platform

Economic

and

Trade

Information

First, we need to build an intergovernmental communication mechanism and an economic and trade information transmission mechanism. Governments along the route should establish and improve cooperation and communication mechanisms among themselves. Governments and relevant departments of various countries should expand the scope of the announcement, evaluation and hearing of relevant policies on economic and trade cooperation in the SREB, clarify and further strengthen the functions of government departments responsible for all aspects of import and export trade, simplify the approval procedures for trade processes, establish efficient policy advice and consultation mechanism, and keep abreast of the policy requirements for developing import-export trade enterprises so as to solve the existing problems in the transnational trade in a timely manner in the construction of the SREB.37 36  Cao Ping, Yang Peng, Research on Arbitration Settlement Mechanism of Logistics Disputes in China-ASEAN Free Trade Area [J], Legal System and Economy, 2014(1):60–62. 37  Cheng Zhonghai, Sun Peilei, Research on Factors of Trade Facilitation between China and Central Asian Countries [J], Commercial Research, 2014(11):99–105.

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Second, we need to establish a government-led research institute for economic and trade information on the SREB.38 The institute is mainly responsible for carrying out researches on the culture, geography, ethnics and customs of various countries along the route so as to decide the priority direction and main areas of economic cooperation in the Belt. This is a common task faced by member countries of the Belt. Cooperation and exchanges carried out with the help of such an institute can reduce the barriers in the construction of the SREB and free trade zones to a certain extent, and adjust the information asymmetry in cross-border trade, thereby enhancing the member countries’ initiative. Finally, we need to vigorously develop e-commerce platforms. E-commerce has gradually become the main mode of modern business transactions. Among the countries in the SREB, China is a developing country with relatively complete information network hardware infrastructure compared to the five Central Asian countries, while the five Central Asian countries are relatively backward in this respect. So first of all, we should promote the construction of telecommunications optical cable transportation networks in Central Asian countries along the route. Each country should strive to build an electronic network exchange platform supported by advanced technology, including logistics and transportation, trade and investment, government interaction and financial industry services in order to reduce transaction costs between countries in the Belt. Each country should strive to improve the competitiveness of the SREB in global economic competition and its radiating influence on the economic development of its neighboring countries. 2.6  Guarantee Mechanism for Energy Cooperation Among the countries along the route, countries in Central Asian countries and Russia not only have vast territory but also boast rich energy resources, so they are known as strategic energy bases in the twenty-first century. China’s energy cooperation with these countries will not only enable both sides to achieve substantial development but also promote the rise of the

38  Yuan Lijun, Gao Zhigang, Strengthening Regional Economic Cooperation through the Transnational Silk Road [J], Research on Development, 2014(1):55–58.

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SREB to a large extent and further push forward high-level and wide-­ ranging cooperation in energy.39 However, at present, there are many obstacles and bottlenecks in the energy trade among countries along the route. The energy cooperation between China and Central Asia is still in its infancy, mainly based on some general trade. Such a single form of trade hinders the further development of mutual trade. Considering the existing comparative advantages of trade, the existing trade level is far from being satisfactory. In the context of the construction of the SREB, energy trade lacks unified and efficient trade cooperation and supervision mechanism. Therefore, it is necessary to establish a specific coordination system of energy trade within the SREB. Various countries along the route should make corresponding regulations on the export of energy products, import flows, quotas, dispute settlement mechanisms and the construction of a unified energy market, which provides effective and long-term institutional guarantee for the smooth development of energy trade between China and Central Asia. 2.6.1 Building a Regional Energy Cooperation Mechanism It is necessary to build a multilateral energy cooperation dialogue and coordination mechanism. In multilateral energy cooperation, the establishment of an efficient energy dialogue and coordination mechanism can reduce cooperation risks and safeguard multilateral common interests. Energy policy dialogues and high-level energy conferences should be launched among countries in the Belt for governments, business leaders and scholars from various countries to discuss issues including national energy policies, energy technologies, energy market prospects analysis and outlook, as well as energy pricing methods. Through these dialogues and energy conferences, they can also conduct in-depth discussions on ways to revise common energy industry standards in the construction of the SREB, and formulate guidelines recognized by various countries for energy use and development on the premise of the integration of energy extraction and circulation in the economic zone so as to ensure equality, stability, sustainability and mutual benefit of economic cooperation in the SREB. Second, SCO has formed a relatively mature and feasible model in the field of energy cooperation. It is expected to establish a unified energy 39  Gao Zhigang, Research Ideas on Energy and Trade Interconnection between China (Xinjiang) and Neighboring Countries under the Framework of the Silk Road Economic Belt [J], Research on Development, 2014(1):46–50.

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market and provide a model for the establishment and development of the energy cooperation mechanism in the SREB. In addition, build a dispute settlement mechanism for energy cooperation. Since the countries along the route have huge differences in social system, ideology and economic development, a unified institutional arrangement should be made to standardize the rules of conduct of each country in the construction of the SREB and to solve the disputes during cooperation. Establishing an energy cooperation dispute settlement mechanism can effectively reduce and avoid resource disputes and vicious competition. 2.6.2

Exploring New Ways of Energy Cooperation

(1) Energy Technology Sharing Mechanism Although the countries along the route are geographically adjacent, the energy information, data and personnel exchanges within the SREB are very limited. Adequate information is needed to improve the energy cooperation mechanism of the Belt. The construction of this mechanism can help to share the burdens among the governments along the route so that they will not shirk their responsibilities, but will work together for the goals of the SREB construction. At the same time, through the construction of energy technology sharing mechanism, it is possible to gradually discover substantive shared interests by providing information for and sharing information with the governments of various countries, which can promote cooperation between governments on energy technology.40 Therefore, it is necessary to construct an energy database sharing mechanism of the SREB. Through the energy database of the SREB, basic energy statistics can be shared among the countries along the route, and each country will strengthen its in-depth understanding of each other’s economic and trade investment policies, energy development plans, and energy laws and regulations; in addition, in order to reduce the blindness in energy cooperation, to improve the quality and speed of energy information exchange, and to enhance the transparency of the energy market, the energy data sharing platform should further train talents in energy cooperation projects, provide technical support for related energy 40  Tang Yanlin, Construction of Multilateral Energy Cooperation Mechanism in Northeast Asia under the Background of International Politics [J], Siberian Studies, 2006(4):46–51.

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c­ooperation, evaluate the feasibility of energy projects and ultimately improve the efficiency of energy cooperation in the SREB. (2) Energy Cooperation Fund Guarantee Mechanism First, governments of various countries should increase financial investment in energy cooperation. A government-led special fund for energy cooperation projects in the SREB should be established. The fund will be used for energy exploration, energy development, energy planning and energy pipeline construction. It is necessary to open an emergency funds account through coordination and consensus. The cooperation between China and Central Asian countries, restricted by the national energy policy in Central Asia, can only be in the form of equity participation. China and Russia adopted the arrangement of providing oil for the former while granting loans to the latter in their energy cooperation.41 However, under the current international situation, especially in the context of the construction of the SREB, all the countries along the route are short of funds for their energy construction. Therefore, these countries should be encouraged to adopt direct investment in the energy field, which not only will increase capital operation efficiency but can also contribute to the supervision of the progress of energy cooperation projects to a certain extent. Second, it is necessary to vigorously develop private financing under the leadership of various governments. Energy cooperation projects, which are large in scale, require large amounts of capital. If all of the capital comes from government financial input, it will increase the burden on the government and it is also not conducive to the maximum improvement of capital mobility if private capital is not fully absorbed. Therefore, the governments, as major players of the SREB, should participate in the construction of the financial markets in the form of legal entities (such as a platform company) under the premise of keeping their credit42 so that they can maximize the absorption of the idle funds of commercial

41  Zhang Xinhua, An Analysis of Energy Cooperation between China and Central Asian Countries and Russia in Building the Silk Road Economic Belt [J], Tribune of Social Sciences in Xinjiang, 2013(6):21–28. 42  Lin Zhihua, Elements and Improvement Measures of Capital Guarantee Mechanism for Urbanization Construction [J], Hainan Finance, 2014(3):30–33.

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institutions and the public, which can provide services and capital guarantee for energy cooperation projects in the SREB. Finally, various financial institutions should be encouraged to participate in energy cooperation projects. The capital demand caused by the energy cooperation construction of the SREB has brought unprecedented opportunities and challenges to various commercial banks. However, the long operation cycle and the large number of clients in energy cooperation projects also bring many risks to commercial banks. Therefore, it is necessary to strictly evaluate the loan risk rating with the support of the government and strengthen payment collection measures. In order to ensure the continuity and stability of external capital investment, policy banks should be established with unified and feasible objectives to maximize the absorption of funds in order to achieve a healthy cycle of the construction of energy cooperation projects and capital investment in the SREB. At the same time, due to the unstable political situation in Central Asia, the energy industry is a capital-intensive and technology-intensive basic industry with a long investment return cycle. A series of processes from energy exploration to energy application require a lot of capital investment. Therefore, in the process of energy cooperation, it is necessary to use various financial platforms to widely carry out option futures trade, processing trade and re-export trade, which can not only improve the efficiency of energy use but also avoid the risks of energy trade and losses caused by frequent fluctuations in transaction prices to a large extent, thereby promoting energy cooperation in countries along the route to achieve sustainable development.43 (3) Settlement Mechanism for Energy Cooperation Disputes Among the countries in the SREB, especially Central Asian countries, the energy industry is still the mainstay of their economic development. These countries tend to protect the security and independence of their economy by adopting energy trade protection policies in energy cooperation, which will support the sustainable development of their own energy industry and the growth of their own energy companies. Due to differences in geographical location, economic policies, industry standards and 43  An Deli, Research on the Status Quo and Development Prospect of Energy Trade between China and Central Asia. Master’s dissertation, University of International Business and Economics, 2012.

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development strategies of various countries, the disputes ranging from energy policy, energy trade, energy pricing to energy cross-border transportation exist widely in the energy cooperation of the SREB, so a practical and feasible dispute settlement mechanism of energy cooperation is an important prerequisite for the smooth progress of energy cooperation projects. Mandatory and non-mandatory methods are currently the two main methods for resolving international energy conflicts. The mandatory method refers to the fact that one party takes compulsory measures against the will of the other party, forcing the other party to accept the method of dispute settlement that it proposes. These mandatory measures include war and non-war armed acts, pacific blockades, interference and reprisals. The non-mandatory method refers to a method in which both parties jointly resolve disputes by adhering to the principle of voluntariness, equality and consensus.44 A dispute settlement management committee should be established for dispute settlement of energy cooperation in the SREB on the basis of consensus. The committee should be responsible for resolving disputes encountered in energy cooperation of the SREB. Consultation, negotiation, conciliation and mediation are the main ways of deriving political solutions, while the main legal solutions include arbitration and court settlement. In addition, it is necessary to improve the continuing education and competence training of dispute settlement personnel and investigators so that the energy trade disputes can be fairly resolved on the basis of reason and evidence. 2.7  Science and Education Cooperation Guarantee Mechanism Science and education cooperation can not only cultivate a large number of skilled and knowledgeable talents to participate in the construction and development of the SREB but also use and integrate more efficiently the scientific and educational resources of various countries. Therefore, education, scientific research, production and the development of the Belt should be combined. At present, in the main model of regional cooperation in science and education, the promotion methods based on

44  Chen Tingting, Research on Dispute Settlement Mechanism in Energy Cooperation and Development between EU and Russia. Master’s dissertation, Northwest University, 2014.

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cooperation can be divided into two kinds: government-led cooperation mechanism and non-government cooperation mechanism.45 2.7.1 Government-Led Cooperation Mechanism At present, the educational cooperation in the SREB has achieved remarkable results. By June 2014, ten Confucius Institutes in Central Asia had been set up with their rich and colorful cultural activities. University of SCO (USCO), a non-entity cooperation network among universities from SCO member countries, consists of 74 institutions and began to recruit graduate students since September 2012. Thus, the government is the main driving force for international scientific and technological cooperation and exchanges. First, it is necessary to formulate a relatively long-term strategic development plan. The government should pay attention to the common interests and long-term interests of various countries in the economic belt, and establish a long-term and effective liaison mechanism between education authorities, universities and scientific research institutions in various countries in the Belt. The government should build such a platform to allocate funds for programs such as “Education Leaders Forum”, “Teacher Exchange Training”, “Key Research Project” and “International Student Training”. At the same time, due to the wide gap in the economic development level of various countries in the SREB, there is inevitable speculation and alertness in scientific and technical cooperation. Therefore, each country should attach importance to the strategic choice of intellectual property and establish a mechanism of intellectual property of the SREB by way of dialogue, consultation and supervision. Each country should encourage excellent enterprises to obtain intellectual property rights in other countries of the SREB and encourage export-oriented enterprises, scientific research institutions and other educational cooperation subjects to improve their ability and level of using intellectual property rights to participate in international market competition, with a view to establishing a better legal system for the protection of intellectual property rights in the Belt. Second, it is necessary to launch in-depth analysis of the complementarity of scientific and technological cooperation among member countries to 45  Ma Shuqiang, An Analysis of Regional Education Cooperation: Mode, Dynamic Mechanism and Process Model [J], Journal of National Academy of Education Administration, 2010(7):3–7.

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clarify the key areas in scientific and technological cooperation. In the agricultural sector, Central Asian countries have achieved intensive production in grain and cotton, but this extensive production is still the mainstream, and cannot meet the growing demand. Therefore, every country along the route, especially China, has objective needs to promote cooperation in agricultural technology. Each country should introduce excellent product varieties, adopt advanced production technology and equipment as well as agricultural product processing equipment to accelerate the process of agricultural modernization and achieve mutual benefit and win-win result among the countries. In terms of energy production cooperation, more countries should join energy science and technology cooperation and formulate comprehensive strategies for the development among themselves. In terms of ecological environment protection, each country should focus on improving the harsh environment in Central Asia by carrying out scientific cooperation on climate and environment. For Central Asia, where sand and dust storms are frequent, the severe weather early warning system should be strengthened to study regional climate change and enhance the ability of each country to respond to climate and environmental change. Third, it is necessary to establish a network platform to promote the sharing and exchange of scientific and technological education information in the SREB. Relying on multimedia and network information technology, each country can break the limitation of time, space and language, enabling science education practitioners to share their research results and form an independent team to jointly overcome major scientific research problems. Through such a network platform, information can be shared and feedback can be got in a timely manner. At the same time, in the educational cooperation of the SREB, each member should regard USCO as a model and Confucius Institute as a reference to carry out extensive cooperation in the forms of running schools and carrying out talent and academic exchanges, which will lay the foundation for sound cultural communication and education cooperation. 2.7.2 Non-governmental Cooperation Mechanism Non-governmental science and education cooperation mechanism mainly relies on specific educational projects. The cooperative subjects choose partners according to their own needs and cooperation can be carried out between universities, universities and enterprises, universities and scientific research institutions, universities and educational intermediaries, scientific

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researchers and other educational cooperation entities for training talents, running schools, developing technology, conducting scientific research and carrying out achievement transfer.46 First, universities and research institutes should work together closely to actively promote empirical research in the field of scientific and technological cooperation. Their current research involving the construction of SREB mainly focuses on cross-border economic and trade cooperation in the macroeconomic field. However, empirical research in specific areas of scientific and technological cooperation is relatively scarce.47 Therefore, universities and research institutions should pay attention to the trend of economic integration during the construction of the SREB, actively carrying out multi-level and multi-field academic exchanges. Universities and research institutions should hold academic meetings and formulate joint training plans for special talents. It is necessary to set up the SREB Project Cooperation Organization responsible for promoting the establishment, development and application of scientific and technological innovation projects for integrated development of production, education and research. Second, the enterprises must conduct market research by analyzing economic development trends to formulate scientific and reasonable development strategies, scientific and technological cooperation strategies in accordance with the macroeconomic policies and laws of various countries so as to reduce blindness and increase initiative in scientific research cooperation. The enterprises can only gain more economic profits under the background of the construction of the SREB by relying on various intergovernmental exchange platforms, strengthening cooperation with domestic and foreign universities, scientific research institutions and technology enterprises at the same time and comprehensively improving their core technical levels while focusing on innovation and the improvement of originalities. They should analyze the needs and advantages of various countries along the route in the development of science and education, clarify the market demand gap and flexibly choose bilateral, multilateral, intergovernmental or private cooperation forms. On the basis of in-depth understanding of the relevant legal regulations and management methods 46  Hua Jinmu, Lu Yan, Tan Junlei, Status Quo, Problems and Suggestions of Science and Technology Cooperation between China’s Xinjiang and the Five Central Asian Countries [J], Social Sciences in Xinjiang, 2014(5):88–93. 47  Ma Shuqiang, An Analysis of Regional Education Cooperation: Mode, Dynamic Mechanism and Process Model [J], Journal of National Academy of Education Administration, 2010(7):3–7.

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of technological intellectual property in the countries along the route, they should maximize the protection of their own legitimate rights and interests and strengthen the management of their own intellectual property rights to gain an advantageous position in the development of the economic belt. Third, it is necessary to encourage the development of private institutions, organizations, conferences and forums. In recent years, driven by the SCO, the China-Eurasia Expo and the China-Central Asia Science and Technology Cooperation Center, many private institutions and organizations have successively emerged in various countries. These institutions and organizations mainly provide information on scientific and technological research from Central Asian countries and countries along the route. With the further development of the SREB, it is necessary to segment the market according to the information provided by these institutions and organizations, to integrate existing resources efficiently and to apply for and use special funds efficiently. These institutions and organizations should provide more high-quality and efficient information to expand their communication power and influence. It is necessary to give play to the functions of such forums and exhibitions as “Kazakhstan Asia Commodity Fair” and “China-Eurasia Expo” to carry out technology products exhibition and promotion, which can contribute to academic exchanges and technical cooperation. 2.8  Ecological Environment Guarantee Mechanism Since the beginning of the new century, the economy of various countries along the route has achieved cross-regional development, but the ecological and environmental problems have become increasingly prominent, which has seriously hindered economic development and social stability and exerted a great influence on the relations between different countries. Central Asia is located in the hinterland of Eurasia, with a dry climate and widespread deserts. The main causes of its ecological crisis are atmospheric pollution, nuclear pollution and industrial pollution. The main manifestations are the salt sea and sandstorms. The former Soviet Union’s national industrialization policy has produced a large number of long-standing ecological problems, causing serious air pollution and serious deterioration of water quality. With the disintegration of the Soviet Union, the military equipment, nuclear waste and chemical weapons in the US-Soviet arms race have done a new round of harm to the ecological environment.

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However, in recent years, the Russian government has made significant adjustments to ecological and environmental problems through the formulation and adjustment of ecological and environmental protection policies. A lot of its experience can be applied to the development of the ecological environment in the SREB.  Therefore, regional coordination and cooperation must be carried out in the protection of the ecological environment. 2.8.1

 stablishment of More International Cooperation E in Ecological Protection It is necessary to formulate SREB ecological protection treaties, establish SREB ecological and environmental protection centers and raise SREB ecological cooperation funds. On the basis of recognizing the importance of international cooperation in ecological and environmental protection, all countries along the route should carry out practical international cooperation. Relying on the SCO, an eco-environmental protection committee should be established by absorbing eco-environmental observers from Eastern Europe and Northeast Asia. The committee should regularly conduct economic belt eco-environmental testing and evaluation meetings and establish a strict coordination mechanism and information transmission mechanism. The committee should also build a natural resources database in the economic belt to analyze existing ecological and environmental problems, figure out possible solutions and take precautions against possible ecological problems in the future. In addition, it is necessary to formulate normative legal documents for adjusting international relations concerning ecological environment protection. Due to the differences in the economic development levels, the countries along the route do not attach equal importance to ecological and environmental issues. Take the use of ecological environmental protection funds as an example. Lack of sufficient funds will indirectly threaten ecological security. Therefore, it is necessary to provide legal guarantee for ecological safety among countries in the economic belt and formulate a series of laws and regulations for ecological safety protection in the SREB which not only stipulate the ecological environmental protection expenditures of each country but also clearly specify punishment and supervision measures. These laws and regulations ensure that any behavior of violation will be subject to strict punishments and sanctions so as to better protect ecological security and the interests of citizens as well as ecological social associations.

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2.8.2

 stablishment of an Ecological Environment E Compensation Mechanism An ecological compensation mechanism is established to protect ecological environment by using a combination of administrative and market means to adjust the environmental and economic policies of the interest relationship between the parties involved in ecological environmental protection and construction. Its main goal is to solve the external problems of ecological resource utilization in economic development, ultimately achieving a dynamic and balanced development between the ecological environment and economic growth.48 As an effective means of protecting the ecological environment, it has important strategic significance since it is conducive to the harmonious development of the SREB. First, the responsibility confirmation mechanism in the ecological compensation system of the SREB should be established, clarifying who is responsible for ecological compensation, mainly referring to the persons responsible for ecological compensation and the responsibilities they should bear. The ecological compensation scope and standards should be clearly defined. The protection mechanisms for the ecological compensation system should be established as well.49 Second, under the framework of establishing the SREB ecological compensation system, countries, on the basis of equal consultation, should work together to establish a unified ecological compensation finance system and a special fund for ecological environment construction. It is necessary to support Central Asia, where the ecological environment is fragile, to carry out water resources protection, sand-dust control and nuclear pollution cleanup. The five northwestern provinces of China, especially Xinjiang Uygur Autonomous Region, should focus on the prevention and control of desertification and the construction of green industrial parks. Russia should establish Arctic environmental monitoring and evaluation system to strengthen the protection of ecological diversity in temperate deciduous forest climate. Third, in the construction of the SREB, differential environmental protection taxes should be levied on different resources according to the 48  Liu Li, Research on China’s National Ecological Compensation Mechanism, doctoral dissertation, Qingdao University, 2010. 49  Wang Nvjie, Liu Jian, Wu Daqian, et al. Regional Ecological Compensation Based on Ecosystem Service Value: A Case Study of Shandong Province [J], Acta Ecologica Sinica, 2010(23):6646–6653.

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environmental differences between countries. For example, for Central Asia, water resources tax and grassland resources tax are levied; nomadic tax should be levied in the five northwestern provinces of China, especially Xinjiang Uygur Autonomous Region; forest resources tax should be levied in Russia. It can not only strengthen enterprises and resource users’ awareness of environmental protection but also maximize the regulatory effect of ecological environmental taxes on environmental protection. Finally, since ecological compensation is a new research topic with complexity, it requires researchers and scholars to carry out further research. To this end, a research center for the ecological compensation mechanism of the SREB should be established under the background of the construction of the SREB to attract outstanding talents to study the basic theories of eco-compensation, formulate scientific compensation standards and help establish mechanisms concerning ecological auditing, insurance, certification and licensing.50 Eventually, the environmental compensation system of the SREB will be legalized, specialized and standardized. 2.8.3 Establishment of the Concept of Ecological Protection Among the countries in the SREB, the strengthening of ecological environmental protection awareness and the construction of ecological protection concept are still in the initial stage. Each country should raise the awareness of ecological environmental protection in an all-round way by carrying out ecological training and establishing an ecological education system. The lack of ecological culture is an important factor leading to the deterioration of the ecological environment. Therefore, in the sustainable development of the SREB, the shaping of modern ecological culture is of particular importance. Governments of all countries should step up efforts to publicize the concept of ecological protection and popularize knowledge about ecology to raise public awareness of ecological civilization by means of special reports, literature, films and music. They should also strengthen the protection of rights of ecological environmental protection associations or groups so as to create a good social environment for the healthy development of ecological culture.

50  Yan Shipeng, On Legislative Guarantee of Ecological Security in Russia and Its Reference Significance to China, conference paper (2005) of Research Institute of Environmental Law, Wuhan University.

Appendix: Big Events

September 2013 On September 7, 2013, President Xi Jinping delivered a speech at Nazarbayev University in Kazakhstan titled “Promote Friendship Between Our People and Work Together to Build a Bright Future”, proposing that Asian and European countries should jointly build the SREB through an innovative cooperation mode as a great cause for the people of all countries along the route. On September 11, 2013, President Xi Jinping held talks with President Almazbek Sharshenovich Atambayev of Kyrgyzstan, announcing that China–Kyrgyzstan relations should be promoted as a strategic partnership. The Kyrgyzstan side supported the SREB Initiative proposed by President Xi. On September 12, 2013, President Xi Jinping met with President Emomali Rahmon of Tajikistan. Both sides expressed their intention to strengthen cooperation in economy and trade as well as counter-terrorism so as to safeguard common peace and prosperity. The two governments signed a cooperation agreement on the construction and operation of natural gas pipelines. On September 13, 2013, the 13th meeting of the Council of heads of state of the SCO member states was held in Bishkek, Kyrgyzstan. President Xi Jinping delivered an important speech titled “Championing the Shanghai Spirit and Promoting Common Development”. He made five © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9

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suggestions for promoting the construction of the SREB and launching practical cooperation in building the SCO into a community of a shared future and common interests for its member states. From September 25 to 28, Afghan President Hamid Karzai visited China and held talks with President Xi Jinping and Premier Li Keqiang respectively. He also attended the 2013 Eurasian Economic Forum and delivered a speech expressing his support for the SREB Initiative. China and Afghanistan signed cooperation agreements in economic assistance, extradition of criminals and university cooperation. From June 26 to 28, the fifth Euro-Asia Economic Forum was held in Xi’an, the goals of which were to “promote the rejuvenation along the ancient Silk Road and the connectivity of the new Eurasian Continental Bridge”.

October 2013 From October 24 to 25, the symposium on the work of peripheral diplomacy was held in Beijing. President Xi Jinping delivered an important speech at the meeting, stressing that doing a good job in peripheral diplomacy is necessary for achieving the “two centenary goals” and realizing the Chinese dream of great rejuvenation of the Chinese nation, and that we should promote peripheral diplomacy to improve the surrounding environment for China’s development so as to bring more benefits to the surrounding countries. From October 28 to 30, the International Silk Road Conference was held in Istanbul, Turkey.

November 2013 On November 12, the Third Plenary Session of the 18th CPC Central Committee adopted the Decision of the CPC Central Committee on Several Major Issues Pertaining to Comprehensively Deepening Reform, which clearly stated the promotion of the construction of the SREB and the Maritime Silk Road so as to form a new pattern of all-round opening up. On November 17, Urumqi City of China’s Xinjiang Uygur Autonomous Region proposed to build the “five centers” of the SREB: important transportation center, commercial logistics center, financial center, cultural and technological center as well as medical service center. On November 21, Premier Li Keqiang co-chaired the 16th China–EU summit held in Beijing with President of the European Council Herman

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van Rompuy and President of the European Commission Jose Manuel Barroso, and attended the signing ceremony of relevant cooperation documents in the fields of agriculture, energy and intellectual property between China and the EU. The two sides jointly issued China–EU 2020 Strategic Agenda for Cooperation. On November 26, Premier Li Keqiang attended the China–CEE summit in Bucharest and put forward “three principles” for China–CEE cooperation and six suggestions for deepening cooperation. After the meeting, China and 16 CEE countries jointly issued The Bucharest Guidelines for Cooperation between China and Central and Eastern European Countries. On November 28, “Chang’an”, the first international freight train, was in official operation. It starts from Xi’an through Baoji, Urumqi and the Alataw Pass to Almaty, Kazakhstan, with a length of 3860 km. On November 29, Premier Li Keqiang attended the 12th Prime Ministers’ Meeting of the SCO Member States and put forward six proposals on deepening practical cooperation of the SCO, including deepening security cooperation, accelerating road connectivity construction, promoting trade and investment facilitation, strengthening financial cooperation, promoting ecological and energy cooperation, and expanding people-to-people and cultural exchanges.

January 2014 On January 9, President Xi Jinping and President Nazarbayev Kazakhstan witnessed the official launching of the logistics cooperation project between Lianyungang City and Harbin Iron and Steel Co. in Lianyungang of east China’s Jiangsu Province after four months of preparation. On January 17, China expressed to the visiting Gulf Cooperation Council (GCC) that China is willing to join hands with the Gulf States to promote the construction of the SREB and the Twenty-First Century Maritime Silk Road.

February 2014 The first Zhengzhou–Europe return freight train departed from Hamburg Station in Germany on January 14th, passed through Poland, Belarus, Russia and Kazakhstan, entered China at Erenhot Port on the early morning of February 2nd, and arrived at Zhengzhou Railway Container Center Station on February 8, covering 10, 399 km within 25 days.

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From February 6 to 8, President Xi Jinping attended the opening ceremony of the 22nd Winter Olympic Games in Sochi, Russia, and made strategic plans for the development of China–Russia relations in the new year. On February 10, the National Development and Reform Commission (NDRC) announced nine key areas for the development of China’s western region, and proposed that China’s western region should vigorously develop cultural tourism and implement the SREB Initiative. From February 10 to 11, the 17th Special Representatives’ Meeting of China and India on Border Issues was held in New Delhi, India. The two sides expressed their willingness to actively promote the docking of the two major markets of China and India, steadily promote cooperation in the construction of railways and industrial parks as well as the Bangladesh– China–India–Myanmar Economic Corridor (BCIMEC), and jointly build the SREB. On February 19, the second meeting of the Joint Committee on Long-­ term Planning and Cooperation of China-Pakistan Economic Corridor was held in Beijing. China National Tourism Administration (CNTA) released China tourism route map with the Silk Road as the first route. On February 23, Chinese Foreign Minister Wang Yi paid a visit to Iraq. The Foreign Minister said that China and Iran will take the building of the SREB and the Twenty-First Century Maritime Silk Road as cooperation platforms to achieve common development. The two sides should strengthen connectivity, jointly promote trade liberalization and investment facilitation, and make use of complementary advantages in resources, technology and market. On February 24, China proposed that China and ASEAN should launch a new batch of service trade commitment negotiations, striving to achieve a bilateral trade volume of US $1 trillion by 2020, and a new two-­ way investment of US $150 billion in the next eight years.

March 2014 On March 4, Committee of the Silk Road Peace Prize was established in Beijing, China. On March 5, in his report on the work of the government, Premier Li Keqiang pointed out that we should “step up the planning of the SREB and the Twenty-First Century Maritime Silk Road”. On March 12, China–Uzbekistan Silk Road Economic and Trade Cooperation Forum was held in Tashkent, Uzbekistan.

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On March 30, President Xi Jinping visited Duisburg of Germany’s North Rhine-Westphalia. This is the terminal of Chongqing–Xinjiang– Europe International Railway, which starts from Chongqing and runs through Xinjiang and Eurasia to Europe. Hannelore Kraft, governor of North Rhine-Westphalia and Soren Link, Mayor of Duisburg, said they will seize the new opportunities brought by the SREB Initiative for North Rhine-Westphalia and Duisburg, and strengthen cooperation with China.

April 2014 On April 10, 2014, Premier Li Keqiang attended the opening ceremony of the annual conference of the Boao Forum for Asia (BFA), and delivered a keynote speech titled “Jointly Open up New Vistas for Asia’s Development”, with special emphasis on promoting the construction of the Belt and Road Initiative. Yang Jiechi presided over the subforum themed “Rejuvenation of the Silk Road: Dialogue with Asian Leaders”.

May 2014 On May 9, the second natural gas treatment plant in BaggDelle of Turkmenistan, the contract area of China National Petroleum Corporation (CNPC), was completed and put into operation. This is one of the largest engineering procurement construction (EPC) projects in the world in recent years. The completion of the project will facilitate the transportation of natural gas produced there to China. On May 12, President Xi Jinping held talks with President Gurbanguly Berdimuhamedov of Turkmenistan in Beijing. The two heads of state jointly signed the Treaty of Friendship and Cooperation between People’s Republic of China and Turkmenistan, the Joint Declaration on Further Developing and Deepening China- Turkmenistan Strategic Partnership and Statement on Adoption of the Development Plan for China- Turkmenistan Strategic Partnership (2014–2018). They witnessed the signing of a number of cooperation documents in the fields of natural gas, agriculture, transportation, finance, culture and local development. On May 18, President Xi Jinping held talks with President Almazbek Sharshenovich Atambayev of Kyrgyzstan. The two heads of state jointly signed the Joint Declaration on Further Deepening China-Kyrgyzstan Strategic Partnership, and witnessed the signing of cooperation documents in areas such as safety law enforcement and infrastructure construction.

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On May 20, President Xi Jinping and Russian President Vladimir Putin attended the opening ceremony of China–Russia “Maritime Cooperation 2014” joint military exercise at Wusong Naval Port in Shanghai. On May 21, the fourth summit of the Conference on Interaction and Confidence-Building Measures in Asia (CICA) was held in Shanghai. President Xi Jinping chaired the meeting and delivered the keynote speech titled “New Asian Security Concept for New Progress in Security Cooperation”. Xi stressed that China will work together with all parties to actively advocate common, comprehensive, cooperative and sustainable security in Asia; build new regional security architecture; and jointly build a road of security in Asia for win-win results shared by all. On May 21, Chinese President Xi Jinping and President Nazarbayev of Kazakhstan jointly launched the Lianyungang International Logistics Center, the first entity platform for the construction of the SREB, marking that, with the support of the Asian European continental bridges, the concept of the joint construction of the SREB by China and Kazakhstan has entered the implementation stage.

June 2014 On June 5, the sixth ministerial meeting of the China–Arab States Cooperation Forum (CASCF) was opened in Beijing. President Xi Jinping delivered an important speech titled “Promoting the Spirit of Silk Road, Enhancing China-Arab States Cooperation”, hoping that the two sides will carry forward the spirit of the Silk Road, and take the SREB and the Twenty-First Century Maritime Silk Road as a new opportunity and starting point to deepen the China–Arab strategic cooperative relationship featuring comprehensive cooperation and common development. On June 15, representatives from CNPC, KazTransGas and Horgos Port Management Committee jointly activated the ignition button at Xinjiang Horgos Metering Station, announcing that Line C of the Central Asia natural gas pipelines began to transmit gas from Turkmenistan to China. On June 22, the routes network of “Chang’an-Tianshan Corridor” jointly submitted by China, Kazakhstan and Kyrgyzstan was successfully inscribed in the list of World Cultural Heritage Sites, becoming the first World Heritage project approved through transnational cooperation.

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July 2014 On July 11, the State Council approved the establishment of county-level Horgos City in Xinjiang Uygur Autonomous Region to facilitate the construction of the SREB.

September 2014 On September 24, the round-table conference on cooperation and development of cities along the SREB was held in Xi’an, China. Representatives of some cities along the route gathered in Xi’an to seek practical cooperation. During the meeting, cities along the SREB signed the Memorandum on Deepening Cooperation and Development of Cities along the SREB.

October 2014 On October 14, representatives of the eight provinces and autonomous regions of Jiangsu, Shandong, Henan, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang jointly signed Opinions on Cooperation in Coordinated Development of Logistics in the SREB in Lianyungang, and the cooperation alliance for coordinated development of logistics in the SREB was officially established.

November 2014 On November 4, President Xi Jinping announced at the APEC summit that China will set up the Silk Road Fund with $40  billion to provide investment and financing support for infrastructure construction, resource development and industrial cooperation in the countries along the route. At the same time, the preparatory work of the Asian Infrastructure Investment Bank (AIIB) had taken a substantial step and its founding member countries had just signed an intergovernmental memorandum of understanding (MOU) in Beijing.

December 2014 From December 9 to 11, the central economic work conference was held, proposing that we should optimize the spatial pattern of economic development and focus on the implementation of the three strategies of the Belt and Road Initiative, the coordinated development of Beijing, Tianjin

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and Hebei, and the Yangtze River Economic Belt, and that we should strive for a good beginning in 2015. On December 29, President Almazbek Sharshenovich Atambayev of Kyrgyzstan met with the special envoy of President Xi Jinping and State Councilor Yang Jiechi in Bishkek, stating that Kyrgyzstan is willing to strengthen pragmatic cooperation with China, actively participate in the construction of the SREB, deepen law enforcement and security cooperation, and jointly safeguard regional peace and stability.

January 2015 From January 15 to 16, the second negotiation conference on preparation for the establishment of the Asian Infrastructure Investment Bank was held in Mumbai, India.

March 2015 On March 5, Premier Li Keqiang delivered the Report on the Work of the Government 2015, stating that “We will foster a new environment in all-­ round opening up. We will work with the relevant countries in developing the Silk Road Economic Belt and the Twenty-First Century Maritime Silk Road. We will move faster to strengthen infrastructure connectivity with China’s neighbors, simplify customs clearance procedures, and build international logistics gateways”. On March 28, the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce jointly issued Vision and Actions on Jointly Building SREB and Twenty-First Century Maritime Silk Road. From March 30 to 31, the third negotiation conference on preparation for the establishment of the Asian Infrastructure Investment Bank was held in Almaty, Kazakhstan. By March 31, Yinchuan Customs and the other nine SREB customs had started the reform of regional customs clearance integration and started integrated customs clearance from May 1.

April 2015 From April 27 to 28, the fourth negotiation conference on preparation for the establishment of the Asian Infrastructure Investment Bank was held in Beijing, China.

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On April 27, 54 sets of semiconductor equipment silencers imported from South Korea by Samsung (China) Semiconductor Co., Ltd. under the jurisdiction of Xi’an Customs were successfully cleared at Qingdao Port through regional integrated customs clearance, marking the start of the reform and trial operation of regional customs clearance integration in the SREB. On April 27, the 10 customs of Qingdao, Jinan, Zhengzhou, Taiyuan, Xi’an, Lanzhou, Yinchuan, Xining, Urumqi and Lhasa signed the Customs Cooperation Agreement of the SREB in Qingdao, China.

May 2015 On May 7, President Xi Jinping visited Kazakhstan, expressing China’s willingness to promote the docking of the SREB Initiative with Kazakhstan’s Bright Road Strategy. On May 8, President Xi Jinping visited Russia. The two sides signed a package of bilateral documents (more than 30 agreements and memoranda), and adopted the Joint Declaration on Deepening Comprehensive Strategic Partnership of Cooperation and Advocating Win-win Cooperation and the Joint Declaration on the docking of Construction of the Eurasian Economic Alliance with the Construction of the SREB. On May 10, President Xi Jinping visited Belarus to promote China– Belarus cooperation in the construction of the SREB. On May 20–22, the fifth negotiation conference on preparation for the establishment of the Asian Infrastructure Investment Bank was held in Singapore. On May 22, the 19th China International Fair for Investment and Trade (CIFIT) and Silk Road Expo themed “Building the Cooperation Platform in the Silk Road and promoting Opening and Development in the Region” kicked off in Xi’an, and activities with B&R characteristics were carried out.

June 2015 On June 17, the International Symposium on the SREB was held in Almaty, Kazakhstan. Experts, scholars and business representatives from China, Kazakhstan, Kyrgyzstan, South Korea and Russia as well as United Nations officials discussed the significance and prospects of the SREB and the opportunities it will bring to the countries in the region as well as the problems to be solved in its construction.

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On June 17, Zhong Shan, China International Trade Representative and Vice Minister of Commerce, and ElyorGaniev, the Minister of Foreign Economic Relations, Investments and Trade of the Republic of Uzbekistan, jointly signed the Agreement on Expanding Mutually Beneficial Trade and Economic Cooperation Under the Framework of “SREB” Initiative. On June 29, the signing ceremony of the Agreement of the Asian Infrastructure Investment Bank (hereinafter referred to as the Agreement) was held in Beijing, China. The finance ministers or authorized representatives of 57 prospective founding member states of the AIIB attended the signing ceremony, among which 50 countries that had passed the domestic approval procedures formally signed the Agreement. The parties agreed that, after getting approval from a legitimate number of countries, the Agreement would come into force and the AIIB would be officially established by the end of 2015.

July 2015 On July 1, in order to facilitate the construction of the SREB, 11 provinces and regions of Gansu, Shandong, Shanxi, Inner Mongolia, Henan, Sichuan, Tibet, Shaanxi, Qinghai, Ningxia and Xinjiang achieved the integration of inspection, quarantine and customs clearance. On July 24, the third SREB Forum for City Cooperation and Development kicked off in Xinjiang Uygur Autonomous Region, China.

August 2015 On August 19, the SREB regional customs successfully cleared the first batch of cross-border aggregate taxable goods in Qingdao, China. On August 24, Jin Liqun, Secretary General of AIIB Multilateral Interim Secretariat, was elected president designate of the bank by consensus at the sixth negotiation conference on preparation for the establishment of the Asian Infrastructure Investment Bank. According to the Agreement, after the establishment of the AIIB, the president designate would be elected as president at the first meeting of the board of directors. From August 25 to 28, activities about China–Arab states cooperation and exchanges in jointly building SREB and Arab envoys’ trip to Tianshui were held in Tianshui City of northwest China’s Gansu Province. On August 26, the second Issyk-Kul International Economic Forum kicked off in Kyrgyzstan. Kyrgyzstan expressed it will more actively promote

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the docking of the SREB with the Eurasian Economic Union. Representatives of China Road and Bridge Corporation, Huahe International (a business consulting agency), Urumqi High-tech Industrial Development Zone and Bishkek Free Economic Zone signed the Memorandum of China-Kyrgyzstan Cooperation on Industrial Park Projects. On August 28, the 19th meeting of the Transport Cooperation Subcommittee of China–Russia Prime Ministers5 Regular Meeting Committee was held in Xi’an, China. The two sides conducted in-depth and positive exchanges on promoting the strategic docking between the SREB and the Eurasian Economic Union, and deepening China–Russia transport cooperation. On August 31, President Xi Jinping and the visiting President of Kazakhstan, Nazarbayev, held talks in Beijing. The two heads of state jointly signed the Joint Declaration of the People’s Republic of China and the Republic of Kazakhstan on the New Stage of Comprehensive Strategic Partnership, and decided to promote bilateral relations to a higher level and a wider space. The two sides stressed that the docking of China’s SREB Initiative with Kazakhstan’s new economic policy of the Bright Road Strategy is conducive to deepening comprehensive cooperation between the two countries. Both sides decided to take this opportunity to further strengthen production capacity and investment cooperation. On August 31, President Xi Jinping held talks with President Tomislav Nikolic of Serbia. President Xi stressed that China regards Serbia as an important partner. Serbia, as one of the central and eastern European countries along the route, and China can make full use of the current favorable conditions to get new important opportunities for the two countries during the construction of the Belt and Road Initiative so as to facilitate the economic and social development of the two countries. Nikolic said that Serbia is willing to strengthen cooperation with China in such fields as communication, automobile manufacturing, transportation and water conservancy infrastructure construction. On August 31, President Xi Jinping held talks with Choummaly Sayasone, visiting President of the People’s Democratic Republic of Laos and General Secretary of the Lao People’s Revolutionary Party. Xi Jinping stressed that China is willing to actively promote the effective docking of the construction of the Belt and Road Initiative with the development strategy of the Laos and carry out mutually beneficial and win-win cooperation in production capacity so as to expand common interests of both sides. It is hoped that the two sides will continue to strengthen

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cooperation through multilateral mechanisms such as the United Nations, ASEAN-China (10 + 1), ASEAN-China, Japan, South Korea (10 + 3) and the Greater Mekong Subregion Economic Cooperation (GMS).

September 2015 On September 1, President Xi Jinping met with Sultan President Omar Hasan Ahmad Al-Bashir. The two heads of state jointly signed the Joint Declaration of the People’s Republic of China and the Republic of Sudan on the Establishment of Strategic Partnership, and witnessed the signing of cooperation documents in the field of science and technology. The Sudanese side hoped to expand the fields of cooperation with China, and thought highly of the Belt and Road Initiative, willing to carry out relevant cooperation. On September 2, President Xi Jinping met with Pakistan President Mamnoon Hussain. Xi Jinping pointed out that at present, great progress has been made in the construction of China–Pakistan Economic Corridor (CPEC) and that China is willing to keep close communication with Pakistan on accelerating cooperation in production capacity and industrial parks, as well as development and construction of relevant livelihood projects. Hussain said that Pakistan cherishes the fraternal friendly relationship with China, and that it is committed to promoting practical cooperation in various fields with the construction of China–Pakistan Economic Corridor as the center, and will continue to strengthen coordination and cooperation with China in international affairs. On September 2, President Xi Jinping met with South Korean President Park Geun-hye. Xi Jinping pointed out that the Eurasian Cooperation Initiative proposed by South Korea is highly compatible with the Belt and Road Initiative and that South Korea is welcomed to actively participate in the construction of the Belt and Road Initiative and the Asia Infrastructure Investment Bank. Park Geun-hye said that South Korea is willing to promote cooperation with China in various fields and strengthen the coordination and docking of the Eurasian Cooperation Initiative with the Belt and Road Initiative. On September 2, President Xi Jinping met with Tajikistan President Emomali Rahmon. Xi Jinping pointed out that China is willing to work with Tajikistan to strengthen cooperation in the construction of the SREB under the principle of consultation, co-construction and sharing, and promote the docking of the SREB with the three major development

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strategies of energy, transportation and grain, which are of great concern to Tajikistan. Rahmon said that bilateral cooperation in such fields as economy and trade, security, local development and infrastructure has been further promoted, and cooperation under the Belt and Road framework has achieved initial results, and that Tajikistan is thankful for China’s support and is willing to continue to strengthen practical cooperation with China in various fields. On September 2, President Xi Jinping met with Almazbek Sharshenovich Atambayev, the then president of Kyrgyzstan. Xi Jinping pointed out that China is willing to take an active part in the major cooperation projects in the strategy of Kyrgyzstan’s national stability and development under the framework of the SREB, and work together with Kyrgyzstan to build China–Central Asia–Western Asia Economic Corridor. President Atambayev said that Kyrgyzstan thanked the Chinese side for its support for the economic and social development of Kyrgyzstan, and that it is willing to strengthen cooperation with China in economic, trade and security cooperation, participate in the cooperation in the docking of the Belt and Road Initiative with the Eurasian Economic Union, and continue to consolidate friendly relations with China. On September 2, President Xi Jinping met with Islom Karimov, the then President of Uzbekistan. Xi Jinping pointed out that China has always been committed to promoting the development of China– Uzbekistan bilateral strategic partnership and is thankful for the positive support offered by Uzbekistan to the construction of the SREB, and that China is willing to actively strengthen cooperation in transportation infrastructure construction and expand trade and investment scale. Karimov said that Uzbekistan is willing to maintain close coordination and cooperation with China to achieve common development and maintain regional and international peace. On September 2, President Xi Jinping met with Belarus President Alexander Grigoryevich Lukashenko. Xi Jinping pointed out that both sides should join hands to achieve initial results in the construction of the SREB and promote all-round cooperation in trade, investment, finance and local development through the construction of China–Belarus Industrial Park. China is willing to promote the docking of the construction of the SREB with that of the Eurasian Economic Union on the basis of equality and mutual benefit. Lukashenko said that Belarus is willing to promote the docking of the SREB with the Eurasian Economic Union. On September 2, President Xi Jinping met with Egyptian President Abdelfattah al Sisi. The Egyptian president said that Egypt is committed

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to promoting cooperation in all fields between the two countries and is willing to participate in cooperation under the framework of the Belt and Road Initiative. The two heads of state witnessed the signing of cooperation documents on production capacity, finance and other fields. On September 3, President Xi Jinping met with Russian President Vladimir Putin. Xi Jinping stressed that the two sides need to expand cooperation in finance, investment, energy and local development, and formulate long-term plans for cooperation and docking of the SREB with the Eurasian Economic Union. Putin said that Russia is willing to continue to promote practical cooperation between the two countries in such fields as energy, petrochemical, finance, aerospace, science and technology as well as manufacturing, and strengthen coordination and cooperation with China in regional and international organizations such as the United Nations. After the meeting, the two heads of state witnessed the signing of cooperation agreements in the fields of diplomacy, infrastructure, local development, education, science and technology, customs, economy, energy, investment, finance, trade, electricity, transportation, network, automobile and so on. On September 3, President Xi Jinping met with Vietnamese President Truong Tan Sang. Xi Jinping pointed out that the two sides should continue to maintain top-level exchanges, promote the docking of the development strategies of the two countries and strengthen cooperation under the frameworks of the Belt and Road Initiative and the Two Economic Corridors and One Economic Circle. Truong Tan Sang said that Vietnam is willing to enhance political mutual trust, strengthen personnel exchanges, handle differences prudently, and expand equal and mutually beneficial cooperation with China. On September 3, President Xi Jinping met with Mongolian President Tsakhiagiin Elbegdorj. Xi Jinping pointed out that the two sides should accelerate the docking of China’s SREB Initiative with Mongolia’s Grassland Road Strategy, and launch a number of landmark projects as soon as possible so as to enhance the level of pragmatic cooperation between China and Mongolia. China is willing to maintain close communication with Mongolia and Russia and promote the construction of China–Mongolia–Russia Economic Corridor (CMREC) so as to achieve the development and prosperity of the three countries and even the region. Elbegdorj expressed his hope for the two sides to promptly implement the consensus reached by practical cooperation between the two countries, strengthen cooperation on major projects and promote in-depth development of China–Mongolia comprehensive strategic partnership.

Epilogue

On September 7, 2013, Chinese President Xi Jinping proposed the joint building of the SREB during his visit to Kazakhstan, which was warmly received by the countries and regions along the Silk Road. In November 2013, the Decision of the CPC Central Committee on Several Major Issues Pertaining to Comprehensively Deepening Reform adopted at the Third Plenary Session of the 18th CPC Central Committee clearly stated that “[We will] work hard to build a SREB and a Maritime Silk Road, so as to form a new pattern of all-round opening”. This shows that the construction of the SREB has become a major measure for China’s economic development and opening-up in the future. After more than a year of concept design and planning, the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MFA) and the Ministry of Commerce (MOC) jointly issued Vision and Proposed Actions Outlined on Jointly Building SREB and Twenty-First Century Maritime Silk Road on March 28, 2015, marking that the building of the SREB has officially entered the stage of practical cooperation. From then on, the focus of work should be to actively and steadily promote the construction of the SREB so that the vision can gradually become a reality.  After the proposal was put forward, our research team carried out systematic and in-depth research on the SREB in terms of its background, spatial scope, connotations and characteristics, construction steps, tasks and difficulties, industrial cooperation, and strategic significance. By September 2015, © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 Y. Bai, S. Wang, Spirit of the Silk Road, https://doi.org/10.1007/978-981-16-4541-9

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nine papers had been published in such journals as The Reform, The Journal of Humanities, Journal of Lanzhou University, Journal of Northwest University, Economic Review, Ningxia Social Sciences and China Science Daily. One of these papers was reprinted by Xinhua Digest, and three were included in Photocopied Periodical and Newspaper Database of Renmin University of China. We have won the honor of “Excellent Thesis for Serving the Central Committee’s Decision-making” awarded by The Reform, which has aroused great social repercussions. At the same time, I presided over three projects entrusted by Industry and Information Technology Department of Shaanxi Province, Xi’an Municipal Development and Reform Commission, and Xi’an Municipal Decision and Consultation Commission, and the relevant research achievements have won the second prize of “Xi’an Decision and Consultation Projects” and some other honors. In the process of carrying out the research on the SREB, we formed a plan to write the book A Preliminary Research on the SREB. At the beginning of 2015, Dr. Wang Songji assisted me to draw up the outline and the writing style of this book and work out the main ideas and contents of each chapter. The following contributors are responsible for writing each chapter and chronicling big events: Chapter 1: Bai Yongxiu, Wang Songji, Wu Hang and Wang Zerun Chapter 2: Min Jie, Li Jie and Wang Bin Chapter 3: Liu Jun Chapter 4: Wang Zerun and Wang Songji Chapter 5: Wang Songji and Bai Yongxiu Chapter 6: Ni Mingming Chapter 7: Wang Yuhao, Huang Ying and Wu Yeyan The Chronicle of Big Events: Wang Zerun and Huang Ying Finally, Wang Songji, Wang Zerun and Wang Yuhao assisted me in compiling the manuscript. Based on our previous research results, this book further explores the key issues of SREB connectivity construction, trade and investment facilitation, industrial cooperation, security mechanism and so on, and reflects our latest thinking on the SREB. In June 2015, the project I presided over, namely, Strategic Research on the Construction of the SREB under New Global Economic Pattern, was approved as a key project of the National Social Science Fund. In the future, our team will carry out further research on the issues concerning goal orientation, key contents, promotion path and support system of the

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construction of the SREB in the context of the new global economic pattern and strive to produce a series of high-level research results. We shall give our thanks to Cheng Hua, the editor of SDX Joint Publishing Company, who has contributed a lot to the publication of this book. At present, the research on the SREB is still on the rise. It is hoped that the publication of this book will be helpful to the academic discussion and practical promotion of the SREB. Although we strive for excellence, due to our limited ability and understanding of the topic as well as incomplete data collection, there must be some shortcomings in the book and readers are kindly invited to offer criticisms and suggestions for further improvement. Bai Yongxiu Taibai Campus of Northwest University

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