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Section 4. World economy
https://doi.org/10.29013/EJEMS -20-2-31-37
Ashyrbekova Aiperi, Master of International Trade College of Economics and Management, Northeast Forestry University, Harbin China E-mail: xuhuixin@gmail.com; Ajt_2013@mail.ru
Su Lei,
Correspondent writer, Associate Professor of International Trade and Economics, College of Economics and Management, Northeast Forestry University, Harbin China E-mail: 24757211@qq.com
INVESTMENT IN HIGHWAY CONSTRUCTION IN KYRGYZSTAN UNDER THE "ONE BELT AND ONE ROAD" INITIATIVE
Abstract. As one of the key countries in the "one belt and one road" infrastructure construction, the development level of transportation infrastructure in Kyrgyzstan is related to the interconnection of "one belt and one road". Therefore, Chinese enterprises' participation in highway construction in Kyrgyzstan not only helps to promote the development of their transport infrastructure, but also facilitates the construction of "one belt and one road" construction. Based on the analysis of the investment environment of highway construction in Kyrgyzstan, this paper points out the precautions for Chinese enterprises to invest in highway construction in Kyrgyzstan, which will be beneficial for Chinese enterprises to make steady progress in the process of "going out".
Keywords: China, Kyrgyzstan, highway construction, investment, one belt and road.
ABBREVIATIONS: "one belt and one road" has been upgraded to China's
BRI Belt and Road Initiative all-round opening up strategy in the new era. Central
CAREC Central Asia Regional Economic Asian countries such as Kyrgyzstan are the core area
Cooperation Program of the Silk Road Economic Belt Construction, and
CHY Chinese yuan have important geopolitical and geopolitical eco-
FDI Foreign direct investments nomic strategic positions. China has a wide range
USD US dollar of interests in Central Asia. In the meantime China
Introduction has established a multi-level strategic partnership
Since September 2013, when President Xi Jin- of cooperation with Kyrgyzstan and other Central
ping put forward the proposal to build the Silk Road Asian countries. With the advance of the "one belt Economic Belt in Kyrgyzstan, the construction of and one way" initiative, the scope and depth of Sino
Kyrgyzstan cooperation have been increasing. China in the construction of Kyrgyzstan's highways, which
has become the largest source of foreign investment has important practical significance for deepening
in Kyrgyzstan. In this context, this paper focuses on the economic cooperation and development be-
the strategies of Chinese enterprises participating tween China and Kyrgyzstan.
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Figure1. Infrastructure projects being planned and undertaken as of December 2015 in China's Belt and Road initiative
2. Literature review
2.1 Investment. Definition
Investing is putting money to work to start or expand a project, or to purchase an asset, or interest where those funds are then put to work, with the goal to income and increased value over time. The term "investment" can refer to any mechanism used for generating future income. In the financial sense, this includes the purchase ofbonds, stocks or real estate property among several others. Additionally, a constructed building or other facility used to produce goods can be seen as an investment. The production of goods required to produce other goods may also be seen as investing.
For Kyrgyzstan, China is one of the most important economic partners. There are 397 Chinese enterprises in Kyrgyzstan and another 170 joint Kyrgyz-Chinese enterprises. Tax revenues from large enterprises with Chinese investments in 2018 amounted to 3.8 billion soms (showing an increase of 20% compared to 2017). However, Sino-Kyrgyz economic cooperation has its pitfalls.
China is the largest investor in the Kyrgyz economy: in 2018, the share of China amounted to 43.1% of the total investment received and amounted to $245.6 million. According to the American Enterprise Institute (AEI), the amount of accumulated Chinese investment in Kyrgyzstan in 2005-2019 years amounted to $4.73 billion. For a small-sized Kyrgyz economy, this is a significant amount. However, according to the press service of the Government of Kyrgyzstan, Chinese investments in 2018 decreased by 19% compared to the previous year.
3. Methodology and data
3.1. Methodology
In this paper will address the following issues: Road projects, Foreign direct investments, understanding China's Belt and Road Initiative, key BRI-Related ongoing activities in Kyrgyzstan, environmental analysis of highway investment in Kyrgyzstan, evaluation of investment environment of Kyrgyzstan's highway. For data, the author used questionnaires, interviews, and independent re-
search in order to gather also resources and mediums used data collection such as official news articles and other relevant information.
3.1.1 Road projects
With a total value of US $1,128 million are aimed at improvement of transport communications within Kyrgyzstan in the north-south direction and east -west. At the same time, these projects are components of the so-called CAREC corridors that are designed to improve transport links within the Asia and connect the region with China, South and West Asia, Europe. Road Bishkek - Naryn - Torugart is part of the corridor 1c, alternative North - South road connects corridors 1 and 3, and the Osh - Sarytash - Irkeshtam and Osh - Batken - Isfana roads enter nyat in corridor 2. These roads are considered as strategic for the country. Bishkek-Naryn - Torugart and Osh - Sarytash - Irkeshtam are the main roads connecting the Kyrgyzstan with China; the North -
South alternative road will become the second road connecting northern and southern parts of Kyrgyzstan, separated by mountains; Osh - Batken - Isfana Road built to bypass Uzbek and Tajik enclaves and create opportunities for unhindered traffic between the Batken region and the rest of Kyrgyzstan.
A promising area of cooperation was the laying and modernization of roads in Kyrgyzstan. Kyrgyzstan is the transshipment base of Chinese trade in Central Asia, and it is for this reason that China is most active in shaping the modern logistics and transport infrastructure in the republic. By 2019, China has provided Kyrgyzstan with loans worth about $1.69 billion for transport projects. Beijing has already implemented such major infrastructure projects as the rehabilitation of the Bishkek - Naryn - Torugart road connecting Kyrgyzstan with China (total investment is $ 600 million) and the construction of the North - South highway.
Figure 2. BRI-related automobile road projects in Kyrgyzstan
In January 2016, during the visit of the then China - Kyrgyzstan - Uzbekistan railway (KKU-
Prime Minister of Kyrgyzstan Temir Sariev to Chi- ZhD) and the ring road around Lake Issyk-Kul.
na, priorities for bilateral cooperation were identi- If the ring road around the lake is partially reha-
fied. Two of the three main priorities were related bilitated, the KKUZHD project has not yet been
to transport infrastructure: the construction of the agreed.
Figure 3. The construction of the China -
Previously, Beijing presented its version of the railway construction project with a Kyrgyz section of 268 km, while the Kyrgyz proj ect was 112 km longer. The Kyrgyz side explained this by the fact that the road would go around the mountains. So you do not need to build additional tunnels, which will significantly reduce costs. The second Chinese construction option did not suit Bishkek with the gauge of the
Kyrgyzstan - Uzbekistan railway KKUZhD
railway tracks adopted in the PRC (1435 mm), since in Kyrgyzstan, like in Uzbekistan (the third participant in the project), a gauge of 1520 mm wide is used 3.2. Questionnaire
As we can see in figure 4, the key of Chinese investment sectors are geological explorations, the mining industry and the production of refined petroleum products.
Other sectors
Geological explorations
3.3 Foreign Direct Investments lative gross of Chinese FDI inflow was equal to
Since 2012, China has become the largest source USD2.3 billion. For this period, Chinese FDI con-
of foreign direct investments into the economy of stituted 25-50% of total FDI to Kyrgyzstan, which
Kyrgyzstan (Figure 5); for 2006-2017, the cumu- is equivalent to 2-7% of the country's GDP.
1600
2009 2010 2011 2012 2013 China Other countries Figure 5. Gross inflow of FDI from China and other countries
2017
3.4 Interview people of Kyrgyzstan and they gave their opinion
Via social media messages was conducted a sur- about Chinese investment in Kyrgyzstan. vey, the survey was conducted among the common Here are the questions and they answers:
Table 1.
Does Chinese investments im- What do you feel about Chinese Does Kyrgyzstan has advantag-
prove Kyrgyzstan's economy investments in Kyrgyzstan es from Chinese investments
Yes No Positively Negatively Pros Cons
61% 39% 65% 35% 61% 39%
4. Understanding China's Belt and Road Initiative Background of Chinese enterprises' participation in Kyrgyz highway investment
The Belt and Road refers to the Silk Road Economic Belt and the maritime Silk Road in twenty-first Century. It is an initiative made by Chinese President Xi Jinping when he visited Central Asia and Southeast Asian countries in September 2013 and October. The "one belt and one way" initiative is based on the idea and initiative of the cooperation between the state and the region, and is promoted by the joint efforts of all countries to realize the economic development of the developing countries
and the improvement of people's living standards. At present, more and more countries are actively responding to and participating in the construction and development of the "one belt and one road". China and Kyrgyzstan are adjacent in landscape, have a long history of exchanges, and have good cooperative relations.
4.1 BRI-related investments on the roads in Kyrgyzstan
Recently, the Chinese government has supported the implementation of several major infrastructure projects in Kyrgyzstan. Almost all projects in this list was financed through soft loans. Total amount loans
for the projects shown in the table are 2.1 billion US dollars; if to add grants and the cost of the project "resources in exchange for investments" to this amount, then the total cost of infrastructure projects funded by China in Kyrgyzstan, will reach 2.2 billion US dollars. Road projects with a total value of US $1,128 million are aimed at improvement of transport communications within Kyrgyzstan in the north-south direction and east - west. At the same time, these projects are components of the so-called
CAREC corridors that are designed to improve transport links within the Asia and connect the region with China, South and West Asia, Europe.
4.2 Environmental analysis of highway investment in Kyrgyzstan
Kyrgyzstan is located in Central Asia, covering an area of199900 square kilometers. Neighboring countries include China, Kazakhstan, Uzbekistan and Tajikistan. It is a typical landlocked country. Kyrgyzstan is adjacent to the mountains and waters of Xinjiang in China. It is the only way to communicate between China and Central Asia. Kyrgyzstan is an important neighboring country of China. The area along the way is from Kyrgyzstan to the central part of the Asian continent to Europe. Therefore, Kyrgyzstan's position in the initiative of China is very important.
4.3 Evaluation of investment environment of Kyrgyzstan's highway
Over the years, the Chinese and Kyrgyz governments have reached cooperation agreements in various aspects, and the two governments have made a lot of efforts and contributions to the smooth investment of Chinese enterprises in Kyrgyzstan. Howev-
er, there are still some deficiencies in Kyrgyzstan's investment environment, and Chinese enterprises do face some difficulties and deficiencies worthy of attention. For example, Kyrgyzstan's labor force of suitable age is insufficient, the financial system is not perfect, Chinese enterprises do not know enough about the market of Kyrgyzstan. On the other hand, the laws and regulations on foreign investment in Kyrgyzstan are still lacking, and the investment of Chinese enterprises in Kyrgyzstan is too single.
Conclusion
After the initiative was put forward, the scope and depth of Sino Kyrgyzstan cooperation continued to expand. With the development of Kyrgyzstan's economy, the demand for transportation in Kyrgyzstan is increasing gradually every year, but the current infrastructure is still very inadequate. On the one hand, the existing transportation facilities in Kyrgyzstan, such as roads, railways and airports, are in disrepair and in urgent need of maintenance. On the other hand, Kyrgyzstan needs to expand roads and railways and build corresponding supporting infrastructure. However, since there are risks in investment, through the evaluation of Kyrgyzstan's highway construction investment environment, the paper also lists the precautions of Chinese enterprises in Kyrgyzstan's highway construction investment, and emphasize that while seizing opportunities, Chinese enterprises also need to carefully consider and timely pay attention to relevant information in the whole process of investment, so as to minimize the possibility and risk of investment failure, Ensure the smooth implementation and completion of the investment.
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