Posts Tagged ‘railways’

China pollution, ‘Belt and Road’ may aid iron ore, coal amid steel slowdown

October 30, 2017

London (Platts)–30 Oct 2017 811 am EDT/1211 GMT


Iron ore and coal miners may have been reassured last week as China’s National Congress showcased stronger determination to tackle pollution in lifting living standards, a move likely achieved by more higher-grade raw materials and imports.

China is looking to cut pollution by curbing steel output and at domestic processing plants this winter.

This creates the incentive for importing higher grade iron ore to operate at the remaining operating plants, and for boosting productivity when restrictions are lifted during the seven or so months outside winter.

At the same time, China’s steel-reliant “Belt and Road” initiative — a plan to build and strengthen overland and sea logistics routes across Asia and into Africa — was added into China’s constitution. This is the strongest indication for infrastructure shaping China’s trade and foreign policy.

A stronger signal for optimism in seaborne steel raw materials trade is that China looks to be taking on pollution cutting seriously.

This year marks the first winter steel and aluminum plants will be idled for months at a time to improve air quality. And this may become a regular seasonal occurrence, Russian aluminum producer Rusal indicated to investors in August.

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China with smog…

China may reduce steel production by about 33 million mt between mid-November and the end of March 2018, based on S&P Global Platts estimates published Friday.

These cuts, which comprise 3.9% of China’s projected 2017 crude steel output, are taking place across the provinces of Hebei, Shandong, Henan and Shanxi plus Beijing and Tianjin, and may provide longer term support to currently robust steel margins.

As President Xi Jinping stressed at the National Congress, much remains to be done to cut and improve pollution levels.

Processing iron with less slag emitted, and cutting coke and other energy consumption may be a benefit and aid demand for seaborne cargoes, especially at coastal plants.

“We believe environmental measures are more a reality than they were before, this is supportive for iron ore premiums, for higher quality iron ore,” a steel and iron ore industry analyst said.

Iron ore prices have been volatile, rising during China’s summer, before falling back in September, with a wider price spread between high and low grade ores.

A drop for 62% Fe fines to below $50/dry mt CFR China against current quality-based pricing adjustments may spell danger for cash margins at lower quality Australian mines.

Prices for IODEX 62% Fe fines closed Friday at $59.10/dmt CFR China, dropping $3.20/dmt from Thursday. IODEX averaged at almost $70/dmt in September.

Iron ore miner Fortescue Metals Group said Chinese steel mill profitability remaining at historically high levels “continues to incentivize blast furnaces to maximize production supporting the premium for higher grade iron ore,” in an update report Thursday.

“This has maintained the spread in prices between iron ore grades and these are expected to remain in the near term,” the Australian company said.

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FMG cut its July 2017-June 2018 price guidance for its ore to price at a lower 70%-75% ratio of the Platts 62% Fe IODEX CFR index, from its earlier estimate of achieving 75%-80% of IODEX.High grade iron ore and pellet prices this year into China have increased premiums over reference import 62% Fe fines to new highs.

For 65% Fe fines pricing, this premium is exceeding 30% on an equivalent iron content and gangue basis in the past month.

S&P Global Market Intelligence expects 62% Fe reference fines to average at $64.10/dmt CFR China in Q4 2017 and prices to fall further in 2018 and 2019.

“Prominent volatility and continued environmental pressures [are expected to] enact stronger downward forces on 58% Fe prices,” an S&P Global research report Friday said.

China coking coal imports surged by 24% so far over this year, while China’s blast furnace iron output rose around 3.5%.

Additional steel output-tied demand, looks to have prioritized imported raw materials. Potential for a price arbitrage between domestic Chinese materials against imports from spot markets is adding interest.

Without drivers of additional steel demand, analysts are expecting a slowdown in several steel consuming sectors in China next year may lead to flatter steel output growth.

Support from infrastructure may be welcomed. The indoctrination of the Belt and Road infrastructure initiative into the construction may help it to be carried out to a stronger conclusion and implemented at the grandest scale outlined in blueprints, withstanding wider political backing.

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 Chinese steel mill

Steel-fed railways and other haulage and logistics chains and terminals needing steel, cement, and power may crisscross Eurasia and Southeast Asia.

Beijing has a desire for new markets to help reduce its overcapacity in steel and cement, and this is seen in the Belt and Road’s focus on infrastructure, and rail lines, according to Howard French, a China expert, and author.


Beijing and the commodity markets may see the Belt and Road scheme providing China with another lever in managing domestic steel demand and output.

The Belt and Road may serve as a stop gap in a wider transition in China to greater consumerism from the economy’s reliance on investing in heavy industry and construction within China.

It may aid demand for raw materials imports as domestic steel usage slows or slips.

“Companies who supply steel, aluminum, cement and other construction-related materials,” will stand to immediately benefit from the Belt and Road Initiative, according to HSBC bank’s website, with a section dedicated to the project and its financing and investment needs.

Tata Steel Managing Director TV Narendran, in his role as chairman of World Steel Association’s economics committee, said this month that Belt and Road will have an impact on countries participating in it, reflected in the steel demand forecast of those countries, rather than China itself.

But China’s steel exports could fill some of the neighboring demand generated by the project.

The Belt and Road is not expected to help demand for Russian steel, with the networks in southern Eurasia more likely to be the focus, said a source at an industrial steel and mining group.

It may be good for Chinese steel, and any benefit may be indirect in supporting the seaborne coal and iron ore markets, he said.

“Africa could be the one that needs more steel than Belt and Road,” he added.

–Hector Forster,
–Edited by Richard Rubin,


Japan’s Abe to Launch $17-Billion Indian Bullet Train Project as Ties Deepen

September 12, 2017

NEW DELHI/TOKYO — Japan’s Prime Minister Shinzo Abe will lay the foundation stone for India’s first bullet train in Prime Minister Narendra Modi’s home state this week, in a tightening of ties just days after New Delhi ended a dangerous military confrontation with China.

The move by Abe, who starts a two-day visit to India on Wednesday, highlights an early lead for Japan in a sector where the Chinese have also been trying to secure a foothold, but without much success.

Modi has made the 500-km- (311-mile-) long high-speed rail link between the financial hub of Mumbai and the industrial city of Ahmedabad in western Gujarat a centerpiece of his efforts to showcase India’s ability to build cutting-edge infrastructure.

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The leaders will launch the start of work on the line on Thursday, India’s railways ministry said in a statement.

“This technology will revolutionize and transform the transport sector,” said Railways Minister Piyush Goyal, welcoming the prospects for growth brought by Japan’s high-speed “shinkansen” technology.

In Tokyo, a Japanese foreign ministry official told reporters, “We would like to support ‘Make in India’ as much as possible,” referring to Modi’s signature policy to lure investors in manufacturing.

“And for that, we want to do what’s beyond the Mumbai-Ahmedabad line and achieve economies of scale.”

India would make “all-out efforts” to complete the line by August 2022, more than a year earlier than planned, the government said this week.

Japan is providing 81 percent of the funding for the 1.08-trillion-rupee ($16.9-billion) project, through a 50-year loan at 0.1 percent annual interest.


Ties between India and Japan have blossomed as Modi and Abe increasingly see eye-to-eye in countering growing Chinese assertiveness across Asia.

Japanese investment into India has surged in areas ranging from automotives to infrastructure in the remote northeast, making Tokyo its third-largest foreign direct investor.

India and Japan are also trying to move forward on a plan for New Delhi to buy Japanese amphibious aircraft – ShinMaywa Industries’ US-2 – in what would be one of Tokyo’s first arms transfers since ending a self-imposed embargo.

Tokyo hopes that by gaining a head start on rival exporters of rail technology such as China and Germany, its companies will be able to dominate business in one of the most promising markets for high-speed rail equipment.

In 2015, China won a contract to assess the feasibility of a high-speed link between Delhi and Mumbai, part of a network of more than 10,000 km (6,214 miles) of track India wants to set up, but little progress has been made.

Bullet train critics say the funds would be far better spent to modernize India’s slow and rickety state-controlled rail system, the world’s fourth largest.

But a $15-billion safety overhaul has hit delays as a state steel firm proved unable to fill demand for new rail.

(Additional reporting by Sanjeev Miglani and Rupam Jain in NEW DELHI; Editing by Clarence Fernandez)


Hong Kong firms join forces to make deals under Silk Road plan

June 19, 2017

Companies will draw on their experience to initially establish infrastructure projects and industrial parks in Thailand and Vietnam

By Josh Ye
South China Morning Post

Monday, June 19, 2017, 8:48pm

Hong Kong companies will form a consortium to build infrastructure projects and industrial parks in Thailand and Vietnam under mainland China’s Silk Road project, the Trade Development Council says.

Council president Vincent Lo Hong-sui said over 40 business leaders from Hong Kong and Shanghai formed a delegation while visiting the two countries last month and met both prime ministers.

He added that this was one of many steps in further involving Hong Kong companies with the “One Belt, One Road” initiative.

Lo said the statutory body was now forming “a consortium of local companies” to help them enter these developing markets as a collective force.

“We are looking to build infrastructure projects and industrial parks in countries under the belt and road initiative.”

The initiative was launched by Beijing in 2013 to promote the building of railways, roads, power plants and other infrastructure projects in 60 countries from Asia to Europe on its old Silk Road to promote trade and economic growth.

The council has identified eight countries out of the 65 under the scheme as the initial destinations for Hong Kong investment – Vietnam, Thailand, Indonesia, Saudi Arabia, United Arab Emirates, Poland, Hungary and the Czech Republic.

Nicholas Kwan, research director at the council, said Hong Kong investors were seasoned in managing supply chain systems across countries.

 Vincent Lo says numerous multibillion-dollar deals will be closed this year. Photo: Sam Tsang

Lo said the development level of many of the belt and road countries reminded him of mainland China three decades ago.

“Hong Kong investors have garnered a lot of practical experience in developing mainland China,” he said. “This experience is unique and will definitely benefit other countries.”

He said the council aimed to close several deals this year and estimated some projects were worth more than US$10 billion.

Lo added that chief executive-elect Carrie Lam Cheng Yuet-ngor had told him the next administration would fully support the council in furthering deals with countries linked to the trade initiative.

The council also announced that it would host its second belt and road summit in September, which looked to introduce more concrete plans for local firms to enter relevant countries.

Commentary: China’s One Belt, One Road gaining traction but unanswered questions leave funding uncertain

April 22, 2017

By Diaan Yi Lin and Joseph Luc Ngai

Channel News Asia

Coming to four years since China’s unveiling of the One Belt One Road initiative, many substantial questions remain, which has implications for financing this ambitious project.

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One Belt, One Road is an ambitious development initiative, a multi-trillion dollar plan to link Asia to Europe with an unbroken chain of modern infrastructure. It has the potential to kick start economic growth in countries stretching from the South China Sea to the English Channel.

Put forward by the Beijing government, funding for the infrastructure proposal has gained some traction lately with accumulated pledges of about US$240 billion, but private investors will need more persuasion before they commit fully.

The One Belt, One Road initiative was proposed by China in 2013 as a way to modernise trading routes running from East Asia to Europe. The “belt” represents land routes that would run through Central Asia and the Middle East before reaching Northern Europe. The “road” represents sea routes that pass Southeast Asia, South Asia and Africa, before turning northward up the Suez Canal and terminating in the Northern Adriatic Sea.

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If successful, the initiative represents the world’s largest example of regional economic cooperation.

Altogether, it will connect about 80 countries with road, seaports, railways, and pipelines, covering roughly two-thirds of the world’s population, about a third of its GDP, and about a quarter of total global trade in goods and services.


As with any ambitious initiative, One Belt, One Road faces significant obstacles, and the first is financing. A crucial factor behind China’s economic miracle in the late 20th century was aggressive infrastructure investment, and to create similar infrastructure improvements through Asia and Africa, annual investment of US$2 trillion to US$3 trillion will be needed. Altogether, the initiative could need public and private investments roughly 12 times the size of the Marshall Plan that helped rebuild Europe after World War II.

Public funding for the effort has already raised hundreds of billions of dollars in pledges. For example, the Asian Infrastructure Investment Bank, funded largely by China, has about US$100 billion available for the program. The Silk Road Fund, also set up by China, has about US$40 billion, and the New Development Bank, which focuses on projects in Brazil, Russia, India, and China, has another US$100 billion. These commitments show the seriousness China and other countries along the route are giving the One Belt, One Road initiative.

While this committed US$240 billion is roughly the annual GDP of Finland, it is still less than an eighth of what is needed annually to finance the infrastructure needs of the emerging economies along the land and sea routes. Further commitments will be needed, not only from developing markets that would be the direct beneficiaries of the infrastructure improvements, but also from European governments that would benefit from improved trade connections as well as private investors.

Meanwhile, the world is watching closely to see whether China’s enthusiasm for the initiative might ebb following a slowdown in the country’s economic growth rates in recent years.


With funding sources starting to materialize, the second major challenge in attacking the One Belt, One Road initiative is to create transparency in all aspects of administration and investment. Private investors especially will hesitate to join the effort unless they are persuaded that the funds and assets will be used effectively.

In particular, how the available funds will be deployed and how the programme will be administered remain critical uncertainties that hinder further commitments. This is because infrastructure investment in emerging markets is notoriously risky, and corruption and wasteful bureaucracies remain unfortunate realities for many of the countries along the routes. So public and private investors will want some assurances that the funds are not being misused on over-priced projects with no real impact on promoting trade.

China, as the primary promoter of the initiative, should take the lead in assuaging these concerns. For China, the initiative has an economic and a political dimension, and officials should be crystal clear on their motives and the economic rationale. If rhetoric can be matched with action, investor scepticism can be turned around.

Operations and projects supported by the investment funds will be scrutinised with some questions in mind. First, can One Belt One Road show that its investments follow market principles? Second, do projects adopt a clear regulatory system that transcends borders? Third, is there an appropriate balance between public and private investment such that risks are shared? If these questions are answered, they can change how private investors think about risk in these regions and for the project.


Governments outside China have given the One Belt, One Road initiative mixed receptions. Some, for instance Indonesia and Malaysia, have welcomed the proposal, focusing primarily on the economic benefits it could deliver. For others, however, the economics are muddled by geopolitical disputes and other challenges, such as the conflicting territorial claims to the Spratly Islands in the South China Sea, which make bi- and multilateral discussions about funding and project priorities more complicated.

Countries that are not directly on One Belt One Road land or sea routes, such as Japan and the United States, are also likely to focus on potential political implications. For example, concerns have been raised of whether One Belt One Road will expand China’s economic influence at the expense of these countries. This may be the case especially if the Asian Infrastructure Investment Bank tries to wrestle influence from more established institutions led by developed countries such as the US, like the Asian Development Bank and the World Bank.


Faced with these obstacles, it would be easy for investors to wait on the sidelines until there are more certainties around the One Belt, One Road initiative. Outstanding questions should give any executive pause: Is this primarily a foreign policy play by China? Do the economics actually work? Is the geographic breadth too big? Will returns be realised?

While it might still be too early to commit financially unless these questions are answered, aggressive companies will want to devote resources to staying informed of its progress and be ready to commit if the opportunity arises.

On the flipside, for most private and public investors, it is also still too early to decide to opt out. Doing so might relegate them to watching as others seize the opportunities presented by the world largest single trade and development initiative.

Diaan-Yi Lin is managing partner, Singapore and Joseph Luc Ngai is managing partner, Greater China in McKinsey and Company. 

Source: CNA/sl


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Will international law be respected? Will human rights be respected?


 A Chinese cargo train, to be used as part of China-Iran efforts to revive the Silk Road, arrives in Tehran in February 2016. Photo: EPA
Chinese ant-terror troops in Kashgar, Xinjiang Uighur Autonomous Region, China, February 27, 2017. REUTERS/Stringer

Paramilitary policemen stand in formation as they take part in an anti-terrorism oath-taking rally, in Kashgar, Xinjiang Uighur Autonomous Region, China, February 27, 2017. REUTERS/Stringer (Is there really so much terrorism there?)

China starts $21.8 billion offshore fund amid currency concerns, new Silk Road initiative

December 7, 2016


China’s central government has launched a 150 billion yuan ($21.79 billion) fund designed to support investments offshore by Chinese companies as well as the country’s so-called new Silk Road initiative.

The first phase of the Guotong Fund, capitalized at 70 billion yuan, was registered on Nov. 25 in Hangzhou, according to a statement posted Wednesday on the website of the State-owned Assets Supervision and Administration Commission (SASAC).

The statement cited equipment manufacturing as one type of offshore investment the fund might support, and said the new vehicle might take a role in mergers.

Announcement of the fund comes as Chinese regulators tighten restrictions on foreign exchange transactions and outflows amid growing concern that offshore currency movement is adding pressure on the weakening yuan currency.

On Tuesday, officials from the National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China, and the State Administration of Foreign Exchange said that authorities will prevent risks from outbound investment to help maintain a balance in international payments, according to the official Xinhua News Agency.

China Reform Holdings Corp., an investment firm established by the State Council under the supervision of SASAC, is managing the fund, according to the statement.

It said China Reform, along with 10 central state-owned enterprises, China Postal Savings Bank (1658.HK), five other financial institutions and Zhejiang State-owned Assets Management Co, established the Guotong Fund.

China’s new Silk Road initiative, also known as the “One Belt, One Road” program, aims to open new trade and investment markets for firms as the domestic market slows.

The program aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe.

(Reporting by Matthew Miller; Editing by Richard Borsuk)

Why tensions are inevitable on China’s New Silk Road

September 6, 2016

Much-vaunted project is a thinly veiled aggressive export policy that will make mutually beneficial partnerships impossible – and offer a test for its diplomats

By Jonathan Holslag
South China Morning Post


China today boasts one of the most capable foreign services in the world. I have learned to appreciate its young diplomats as remarkably diligent, perceptive, and acculturated. Yet, even those bright officials struggle with an increasingly pressing challenge: to reconcile China’s promise of mutually beneficial foreign relations with a reality of unequal economic partnerships. China’s New Silk Road, also known as One Belt, One Road, is set to make that problem much worse as it is, in reality, not much more than a guise for a very aggressive export policy that will inevitably spark new tensions.

 A Chinese cargo train, to be used as part of China-Iran efforts to revive the Silk Road, arrives in Tehran in February 2016. Photo: EPA

A careful review of dozens of policy papers recently issued by various government departments affirms the need for an open world market and for China to cement stable economic relations with its partners. But it is impossible to comprehend how this can be squared with some of the other statements.

The general argument of the Chinese government seems to be that the world is in for more trouble, that protectionism looms, and that it has to act more vigorously to preserve the world market as a safety valve for its own congested economy.

The promotion of exports of manufactured goods remains key. For all China’s promises about rebalancing, its economy has become only more imbalanced. Last year, the trade surplus hit a record of US$293 billion. This trade surplus represents as much as 42 per cent of production in the manufacturing sector and the dependency of factories on exports continues to increase. The New Silk Road has to help China siphon off some of this glut.

 Employees work at a factory of XCMG Group, in Xuzhou, Jiangsu province. Two years after China unveiled a sweeping plan to rebuild Silk Road trade links with Europe and Asia, machinery maker XCMG Group has opened a factory in Uzbekistan, sent 300 staff abroad and set ambitious goals to grow overseas. Photo: Reuters

In one of its notes, the industry ministry vows to defend China’s international market share in labour-intensive manufacturing, given the millions of unskilled workers at home.

One paper calculates the 20,000km of new railways in the framework of the New Silk Road could create demand for as much as 85 million tons of Chinese steel. China also seeks to increase its market share in high-tech areas, like automobiles, planes, and renewable energy. In that regard, the New Silk Road is all about penetrating markets, overcoming possible trade barriers, and supporting national companies to develop better brands and distribution chains.

A relatively new aspiration is to boost exports of services. Thus far, services have mostly catered to China’s domestic market, but as investment in infrastructure is slowing down, firms in the sectors of construction, railway development, electricity, and telecommunications need to conquer markets overseas. China also seeks to break through in so-called new services, like finance, shipping, and airlines. Even if it already had large companies in shipping, like COSCO, the aim in this cluster is to support traditional freighting with business services: engineering, brokerage, maritime legal services and insurance, and “to compete with today’s leaders of London, Singapore and Hong Kong”.

 A Chinese national photographs his colleague at the Pakistan-China Khunjerab Pass, the world’s highest paved border crossing at 4,600 metres above sea level. The crossing is part of the New Silk Road under construction in northern Pakistan. Photo: AFP

The government is aware, however, that this push for exports has to coincide with the promotion of certain imports, of tourist services, for instance, and of raw materials. The objective remains to have more imported energy supplied by Chinese firms. The government also wants to secure minerals. It vows to map “the metallogenic belt” along the New Silk Road and highlights the need to control foreign iron ore mines. Japan, for example, covers 50 per cent of its iron imports with equity ores, thus ensuring production by Japanese firms, whereas the equivalent figure is 8 per cent for China.

Those aspirations will make it impossible for China and its partners to build truly mutually beneficial partnerships. Out of the 34 countries along the New Silk Road, 30 already record a trade deficit. Those countries see their roles increasingly defined as raw material suppliers, which is not very convenient as global commodity prices plummet. As much as 78 per cent of the growth of Chinese imports from Silk Road countries since 2008 consisted of raw materials.

To developing countries that seek to create more manufacturing jobs, the New Silk Road does not necessarily come as a blessing either.

China provides loans for roads, but real investment in manufacturing remains very small. Only five per cent of China’s foreign investments are sunk into the manufacturing sector.

The new imbalances resulting from the New Silk Road will thus come as an even more taxing test to the agility of China’s diplomacy.

Thus far, China has mollified some of its partners with the promise of more gains, but with the gap between promises and reality growing, that may no longer be so easy.

Jonathan Holslag teaches international politics at the Free University Brussels. He is the author of China’s Coming War with Asia

China, Southeast Asian Leaders Seek Greater Cooperation Starting With Drought Fighting Water from China

March 23, 2016

Australia increases scrutiny on infrastructure sales to foreigners — compiling a register of agricultural land owned by foreigners

March 18, 2016


Australia is already compiling a register of agricultural land owned by foreigners

© AFP/File | Under new rules, Australia’s Foreign Investment Review Board is to more closely scrutinise the sale of major state-owned infrastructure to private foreign investors

SYDNEY (AFP) – The sale of major Australian state-owned infrastructure to private foreign investors will face tougher scrutiny under new rules announced Friday, after a deal involving a Chinese company last year drew criticism.

The new rules will apply from March 31 and ensure that sales of critical infrastructure to private foreign investors will be subject to a formal review by Australia’s foreign investment advisory body.

Under previous rules, the Foreign Investment Review Board (FIRB) was only required to assess the sale of such infrastructure to foreign state-owned enterprises.

The rules cover major assets such as airports, ports, public transport infrastructure, and electricity, gas, water and sewerage systems, while existing and proposed roads, railways, telecommunications infrastructure and nuclear facilities could also be reviewed by the body.

“While we welcome foreign investment in Australia it is imperative that critical infrastructure sales are scrutinised to ensure any potential national security risks can be addressed,” Treasurer Scott Morrison said.

The new rules follow the granting in 2015 of a 99-year lease for the Port of Darwin to China’s Landbridge Group.

United States President Barack Obama, whose Marines rotate through Darwin, reportedly chided Prime Minister Malcolm Turnbull over that deal, with the Australian Financial Review quoting him as saying: “Let us know next time”.

Canberra defended the decision which had been made in consultation with Australia’s Department of Defence, but a review of the rules followed.

“Foreign investment is an important source of capital to build the infrastructure that Australia needs and the government recognises that this investment can provide access to funds to restore and enhance ageing infrastructure networks and assets,” Morrison said Friday.

“But the government recognises this investment should occur on our terms, must be appropriately scrutinised and not be contrary to the national interest.”

Under pressure over the seemingly increasing foreign ownership of farmland, the government is already in the process of compiling a register of agricultural land owned by foreigners.

It has also lowered the threshold for screening proposed foreign purchases of agricultural land to Aus$15 million.


See also:

Chinese investors heat up Australian farm buying

China Working To Make Xinjiang Contribute More Economically — But Muslim Uighurs Seethe Under Chinese Rule

January 3, 2016


Location of Xinjiang Uyghur Autonomous Region in China. Source: Wikipedia Commons.

By Altay Atli*

The Xinjiang Uyghur Autonomous Region is territorially the largest administrative unit of China1, covering around one sixth of the country’s total area, and neighboring eight independent countries (Afghanistan, India, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Russia, Tajikistan). The region was under the spotlight of the world during the summer of 2009 when clashes between the two major ethnic groups, Uyghurs and the Han Chinese, left around 200 people dead in Urumqi. In their attempts to explain the violence in Xinjiang, most analysts overplayed the ethnic factor, largely ignoring the socio-economic context within which the ethnic structure of the region should be evaluated. Evidence suggests that the leading cause of the instability in Xinjiang is not the failure of different ethnic groups to coexist, but mainly the relative economic backwardness of the region, which results in large income disparities between these groups, creating a fertile ground for unrest, one that is further worsened by the ethnic policies adopted by the central government in Beijing.
At the same time, it has to be admitted that the central government has been heavily investing in Xinjiang’s development over the past decade. There are continued economic reforms accompanied by limited cultural and political openings, and as David Gosset argues, “in a fragile macro-region, Xinjiang stands, by sharp contrast, as a pole of stability and economic development.”2

The main question addressed in this article is why the economic development of Xinjiang is a priority for the Beijing government. As will be discussed below, most scholars and China-watchers approach this issue by emphasizing the intention of Beijing to keep ethnic separatism at bay. The situation is often portrayed as a Faustian bargain, in which Beijing provides the ethnic groups with greater welfare, asking them in return to give up their demands for political freedom. However, this line of reasoning leads to a serious dilemma: If this is the primary motivation of the government, how can we explain the fact that Beijing’s investment in Xinjiang is much higher than its investment in other regions populated by predominantly non- Han Chinese population?3

In order to understand Beijing’s determination in economically developing Xinjiang, we need to go beyond the ethnic issues and consider the case of Xinjiang within the larger framework of China’s economic security. The Chinese economy is growing rapidly and so are its requirements and needs, including but not limited to raw materials and resources. Xinjiang’s geographical position as China’s gateway to Central Asia and its endowment of natural resources make it an important actor in this respect. In order to illustrate this argument, this article will first discuss what economic security means in the Chinese context, provide brief background information on Xinjiang’s economic development, and then proceed to evaluate the region within the Chinese context in order to assess to what extent Xinjiang contributes to the overall economic security of China. In this way, this article hopes to shed light on the motivation behind the Chinese government’s intensive efforts for developing this region.

  • The question is, why does Beijing invest in Xinjiang?
  • Is it because Beijing wants to improve the living standards of the people living in Xinjiang?
  • Is it because Beijing wants to prevent ethnic separatism in Xinjiang?
  • Is it because Beijing wants to establish a buffer against Central Asia?
  • Is it because Beijing wants to source raw materials from Xinjiang for the rest of the country?

Whereas all of these questions can be responded to in the affirmative, Beijing’s motivation for investing in Xinjiang should be evaluated within the larger framework of the “economic security” concept. This paper argues that Xinjiang’s development is of vital importance for the central government because this region is playing a key role vis-à-vis the economic security of China. Before moving to elucidate this argument, we will first discuss what economic security means in the Chinese context.

1. China and the Concept of Economic Security

The current era of globalization, marked by growing economic interdependence among countries, has given rise to the necessity of redefining the concept of “security”. As greater openness and interconnectedness brought about higher degrees of economic volatility, uncertainty, and vulnerability, traditional security perceptions such as interstate military conflict came to be replaced by not only non-conventional forms of violence such as global terrorism, but also by economic security concerns. As a result, scholars began to pay greater attention on issues related to economic security. In one of the groundbreaking studies in this field, Barry Buzan looked at the main features of new patterns of global security relations. Accordingly, the changes in security relations between the center and the periphery were happening in five sectors: political, military, economic, societal and environmental.4 Buzan defined economic security as being “about access to resources, finance and markets necessary to sustain acceptable levels of welfare and state power.”5

Another development with regard to the literature on economic security was the diversification of regions analyzed. Whereas in past decades scholars mostly dealt with developed countries and particularly the United States, there emerged lately a greater interest in the developing parts of the world, where globalization and the challenges it brought led to a redefinition of the economic security concept in an on-going process. China is one of the countries where this redefinition has been most dramatic, since in China globalization has coincided with the opening up of a socialist economy and the consequent rapid growth. China’s economic growth is remarkably impressive by any measure and it is fair to say that China’s growth is one of the most important factors shaping today’s global economy. However, on the other side of the coin, the issue of economic security raised by China’s rapid growth remains as a major concern, both for the government and the academia.

Several scholars have discussed the economic security dimension of China’s rapid growth. Wang Zhengyi, for one, argued that the evolution of the relationship between economic growth and national security since the opening up of China in 1978 can be divided in two stages. They were first regarded to as two separate logics; however from the mid-1990s on, especially after the Asian financial crisis and China’s accession to the World Trade Organization (WTO), they came to be viewed as constituting one single domain.6 According to Zhenyi, three features of the economic growth in China, i.e. incomplete transformation of the economic structure, increasing dependence on the world economy and intensifying socio- economic polarization, led to this reconceptualization of the linkage between economic growth and security.7 Zhenyi further stated that the economic insecurities resulting from the above mentioned features of Chinese economic growth are:

i) Rising unemployment;

ii) Severe economic disparities between coastal and interior regions, as well as between urban and rural areas;

iii) Decentralization of authority in the Chinese economy and society.8

Similarly, in a volume of essays edited by Werner Draguhn and Robert Ash, the following were addressed as the most crucial determinants of China’s economic insecurity: regional disparities, rural-urban migration, unemployment, food supply, energy supply and environmental protection.9

Another scholar from China, Jiang Yong, evaluated economic security in the Chinese context as “the ability to provide a steady increase in the standard of living for the whole population through national economic development while maintaining economic independence.”10 Accordingly, in order to ensure economic security, China should adopt a policy of “balanced opening”, i.e. while increasing its competitiveness, it should also safeguard the independence of sovereignty over the economy, particularly against foreign capital.11

A remarkable point related to the literature on Chinese economic security is that a significant portion of it is dealing empirically with what Vincent Cable labeled as “security of supply”.12 Economic interdependence is inescapable in the era of globalization, and depending on other countries for means of supply. Cable saw two separate problems here: First, interruptions in import supply can severely disrupt the national economy, and second, overseas suppliers can acquire a monopoly position turning the terms of trade against the importer. Cable argues that these two arguments usually went together, and they were especially evident in the areas of food, strategic minerals (those used in industries regarded as strategic such as aircraft manufacture), energy (esp. oil and gas) and advanced technology.13 In China’s case, since its rapid growth requires a constant supply of raw materials of which the prices are on the rise in the world markets, security of supply and especially the security of energy supply began to top the agenda. For instance, Linda Jakobson and Zha Daojiong, in their study of the motivations behind China’s pursuit of offshore oil supplies, defined the concept of security of supply as the “availability of oil, reliability in delivery and reasonability in prices.”14 The authors suggested that under current circumstances, it would be in the interest of China as well as the established economies to collaborate with rather than confront each other in shaping a new global structure for oil trade.15 Within this framework of collaboration in oil trade, one of the most important aspects is the pipeline transportation, which was examined in the Chinese context by Pak K. Lee, who drew a rather pessimistic picture arguing that possibilities of bilateral or multilateral energy cooperation were rather remote.16

In sum, it can be argued that for China and its rapidly growing economy, economic security means sustaining its growth rate, welfare, and economic power. This is to be achieved by ensuring access to export markets, securing sources of raw materials, especially strategic minerals and hydrocarbons, keeping the import routes open, and preserving macroeconomic stability. The question is then to what extent Xinjiang contributes to this picture, however, before dealing with this question this region’s economic development needs to be evaluated within a historical perspective.

2. Economic Development of Xinjiang in Historical Context

Throughout history, Xinjiang’s economic development has been shaped by a strong confluence of environmental and socio-political factors.17 On the environmental side, the remote and land-locked position of Xinjiang and its inhospitable environmental features emerged as significant obstacles against the economic development of the region.18 However, offsetting these disadvantages, the region is rich in natural resources, including hydrocarbons. The socio-political side, on the other hand, is more complex, and it is related to the complex ethnic composition of Xinjiang. The single largest ethnic group in Xinjiang is the Uyghurs whereas other major non-Han ethnic groups include the Kazakhs, Kyrgyz, Uzbeks and Tajiks, all of whom have kinsmen in the neighboring Central Asian republics of the former Soviet Union.19 As a matter of fact, economic development of Xinjiang cannot be evaluated separately from the ethnic issues involved.

The discussion of economic development in Xinjiang should begin with the Qing Dynasty period. After incorporating Xinjiang as a province into the Chinese empire in 1884, the Qing Dynasty embarked upon an aggressive program of economic development. Agriculture began to be commercialized with a significant expansion of cultivation throughout the region, and there was also progress in other areas of the economy, such as the rise of handicrafts, coal and oil extraction (with Russian assistance) and flourishing foreign trade, which also benefited from the British-Russian imperial rivalry in Central Asia.

The political and social turmoil that followed the collapse of the Qing Dynasty in 1911 negatively influenced the economy of Xinjiang. Carla Wiemer distinguishes four different periods of volatility associated with four consecutive warlords who governed Xinjiang during the republican era. Accordingly, the reign of Yang Zengxin (1911-1928) was a period of “healthy recovery” during which agricultural development was prioritized and Xinjiang exported agricultural commodities in return for imports of industrial products. This was followed by the reign of Jin Shuren (1928-1933) marked by corruption and economic slowdown. Sheng Shicai (1933-1942) brought back recovery to the economy of Xinjiang through liberal reforms and the assistance of the Soviet Union, which was particularly crucial in the revival of extractive industries. The period after Shicai, under the leadership of Zhang Zhizong (1942-1949), was influenced by the civil war and the world war in China, as well as by souring of relations with the Soviet Union, resulting in an economic decline.20

In the 1940s, Uyghurs and other non-Han Chinese in certain parts of Xinjiang experienced a brief period of independence. In what the Chinese official histories call “Three Districts Revolution”, as an uprising against the nationalist central government, the Eastern Turkistan Republic was founded in 1944 with Soviet backing,.21 However, after the People’s Republic was founded in 1949, Xinjiang had to surrender to the People’s Liberation Army (PLA) and the Eastern Turkistan Republic was absorbed into the communist rule through what Chinese official histories call, the “peaceful liberation”.22

Soon after the establishment of the People’s Republic, the central government in Beijing launched two initiatives to consolidate its control over the economy of Xinjiang. The first was the settlement of Han Chinese to the region in order to strengthen the links between the region and the central government. This was important, because the Muslim Uyghur population’s loyalty to the new regime in Beijing was highly suspicious since they were neither pro-Chinese nor pro- Communist.23 Whereas in 1952 only 7.1% of Xinjiang’s population were Han Chinese, this ratio rose to 40.1% as of 1971 and remained almost unchanged ever since. Second was the establishment of the centrally managed Xinjiang Production and Construction Corps. This enterprise was composed of demobilized PLA soldiers, and had a significant economic presence in several fields, such as agriculture, steel, minerals, electricity, water, education, etc. Its share in Xinjiang’s GDP reached a peak level of 31.3% in 1971, later gradually fading down to 16.6% as of 2000.24

The Great Leap Forward and Cultural Revolution periods under Mao Zedong were marked by what Michael Clarke called a “contradiction created by the policy directives from Beijing and what was actually practicable in Xinjiang’s conditions”.25 Policies were implemented and targets were set without regard for the local conditions of Xinjiang and they were characterized by ideological influence that took mainly anti-Islam and anti-Soviet forms in Xinjiang. There was, however, some economic progress, albeit limited. In 1977, Jack Chen argued that China was industrializing without an exodus from the farms to big cities. He compared the rural population ratio of 87% in the unindustrialized China of 1949 with 80% in 1977. Chen was also pointing of a modernization of the economy, stating that the share of modern industry in the total value of industrial production in Xinjiang had risen from 2.9% in 1949 to 78% in 1977.26 As Chen was writing these lines, Deng Xiaoping rose as the leader of the post-Mao China, bringing greater liberalization to Xinjiang. What was remarkable in this period was China embarked on a series of market-oriented economic reforms within the framework of what is called the “socialist market economy”, a system where the state owns a large part of the economy and at the same time allows all entities to participate within a market economy.

At the outset of the reforms, Chinese authorities in Beijing concentrated on the development of the eastern parts of the country, hoping that the positive effects of the development would spill over to the rest of China. However, this plan turned out to be miscalculated, and the outcome was a rapid widening of regional disparities, with the western part of the country significantly remaining behind the eastern belt, and, in contrast with what Chen had written, a massive exodus occurring from rural China to metropolitan areas.27

The central government’s response to the growing disparities during the 1990s took the form of “preferential policies”, a series of privileges and incentives provided for western regions, such as economic zones and tax-sharing arrangements. However, while doing this, Beijing has also recentralized fiscal and decision making powers, keeping much of Xinjiang’s economy under the control of the state.28 There were disparities not only between Xinjiang (or the western part of China in general) and the coastal belt of the country, but also within Xinjiang itself, since the government was investing more in the northern part of Xinjiang, which was heavily colonized by Han Chinese. This was a major reason behind the rise of ethnic minority opposition to Chinese control of Xinjiang and unrest in the region during the 1990s.29

It has also to be remarked that during the 1990s, the central government’s economic strategy for Xinjiang was based on two pillars, “one black, one white”, referring to the priority given to oil extraction and cotton cultivation. While oil was seen as an important source of revenue for the region, the ultimate justification of the emphasis on cotton was the opening up of new land through reclamation, a key element in bringing in large numbers of Han settlers.30 Beijing’s overriding aim in Xinjiang during the decade was to integrate Xinjiang to the rest of China, and this was to be achieved not only by speeding up Han migration, but also by developing communication links, reinforcing military presence in Xinjiang and neutralizing the impact of the neighboring Central Asian states.31

The latter element deserves greater attention here. It was not Deng’s reforms per se that triggered Xinjiang’s opening up to the rest of the world in the economic and commercial sense, but rather the fact these reforms coincided with the breakup of the Soviet Union in 1991 and the resulting emergence of independent Central Asian republics neighboring Xinjiang. This opening up brought risks and benefits at the same time. There were risks, because Beijing feared that these republics, whose people share a common heritage and same ethnic roots with the non-Han in Xinjiang, would support the then emerging reassertions of the ethnic minority opposition to Chinese rule within the region. On the other hand, there were the economic prospects as well. Already before the Soviet collapse, Deng had initiated the “double opening” policy, implying the simultaneous orientation of the region’s economy towards both China and the then Soviet Central Asia.32

After 1991, liberalization of China’s foreign trade regime that coincided with the independence of the Central Asian republics led to a rapid growth in trade between China and Central Asia. This growth was not limited to the bilateral state level, but there was also growth in local trade between Xinjiang and the Central Asian republics in the form of border trade, border residents markets and tourist purchases.33 In sum, China’s strategy was to establish a buffer, while at the same time to benefit from larger amounts of cross border commerce.

As the 1990s were coming to a close, regional income disparities that arose as a result of China’s uneven growth remained a concern for the Beijing government. The most profound policy response came in the form of the “Great Western Development Strategy” launched in January 2000 as an attempt to alleviate the obstacles to development in the western regions of China34, by channeling China’s government spending from the coastal provinces to the west. The strategy focused on the following areas:

  • Infrastructure development (focusing on expanding the highway network and building more railway tracks, airports, gas pipelines, power grids, telecommunications networks).
  • Environment (projects to protect natural forests along the upper Yangtze River and the upper and middle reaches of the Yellow River).
  • Local industry (encouraging different regions to develop industries that maximize local comparative advantages in geography, climate, resources and other conditions; capitalizing on high-tech industries).
  • Investment environment (taking steps to attract more foreign investment, capital, technology and managerial expertise by improving industrial structure and reforming state-owned enterprises).
  • Science, technology and education.35

Within the framework of this strategy, cumulative fixed investments in Xinjiang totaled 1.4 trillion yuan36 over the period between 2000 and 2009, more than 80% of which coming from the central government.37 During this period, Xinjiang received four times as much investment as it had during the 1990’s, and investments were mainly made in infrastructure projects in agriculture, forestry, energy and transportation sectors.

Recently the central government has adopted the idea of focusing on Xinjiang’s development in order to deepen the Great Western Development Strategy. This approach was explicitly declared when, on 17-19 May 2010, the government held a central work conference on Xinjiang’s development, the first of its kind in the history of the People’s Republic. At this conference, President Hu Jintao announced the goals of the new approach, which are establishing a basic public health system by 2012; leveling the region’s per capita income with the Chinese average by 2015; and eliminating absolute poverty and achieving a “moderately prosperous” society by 2020. In order to attain these goals, fixed assets investment in Xinjiang over the period 2011-2015 will double that of the previous five-year period, income tax levels will be reduced, undeveloped land will be made available for construction, and access requirements to industries related to resources and/or those with high market demand will be relaxed.38

Although the central government is heavily funding the Great Western Development Strategy, and several important projects have already been brought to life in the region, there are two crucial points that have to be made. First, the western regions of China (including Xinjiang) exhibit a great diversity in terms of ethnic composition and despite denials by the Chinese government, there is an almost consensus among scholars that the Great Western Development Strategy is aimed at increasing material wealth of the people in order to ensure greater minority cooperation, which would lead to their integration with the Han Chinese and help silence the separatist movements. As Michael Clarke argues, the Great Western Development Strategy suggested that “while the state continues to stress the need to address the problems of uneven development in ethnic minority regions, it nonetheless maintains that this will be done on the basis of preserving ‘national unity’ and ‘social stability’ with the dominant ethnic group –the Han– as the leading agents of modernization”.39 Second, there is another influential opinion among scholars that the richer eastern parts of China are benefiting more from the Great Western Development Strategy than the western regions, because this strategy focuses on infrastructure, energy and natural resource extraction, instead of directly addressing the social issues in the western regions. It is argued that the western regions would have benefited more if the campaign had focused more on poverty relief, improvement in education and health care.40

Despite its problems and setbacks, Xinjiang is currently on a development path. The next section of the article will examine what this development means for China’s economic security.

3. The Role of Xinjiang in China’s Economic Security

Given its radical transformation and rapid growth rate, China is obliged to take the necessary measures to deal with collateral macroeconomic disturbances (such as unemployment, income equality, etc), and to ensure its continued access to world markets where it can sell its products. Since it relies to a great extent on imports of raw materials to fuel its economic growth, China has to ensure continued inflow of such supplies as well, while at the same time maintaining its economic independence, which is achieved by avoiding excessive reliance on a single source of imports and diversifying the sources instead. In this part of the article, we will discuss to what extent Xinjiang contributes to China’s economic security in the each of the areas mentioned above.

3.1. Macroeconomic Indicators

Macroeconomic disturbances threaten a country’s economic security. In China’s case, such disturbances emerge as a result of the country’s rapid growth and transformation, and appear in the form of rising unemployment; severe economic disparities between coastal and interior regions, as well as between urban and rural areas; and decentralization of authority in the Chinese economy and society. In order to deal with these insecurities, China has embarked on a series of adjustments since the mid-1990s, especially gradual institutional adjustments, establishing a social security system and coordinating the development of the regional economy.41

Xinjiang remains far behind the eastern provinces of China in terms of average incomes. In 2009, when Chinese GDP grew by 8.7% and most central and western provinces of the country achieved double-digit growth rates thanks to the stimulus package launched by the government as a measure against the effects of the global crisis, Xinjiang’s GDP rose by only 8.1%.

During the same year, average annual disposable income was 12,258 yuan for urban households, and 4,005 yuan for rural households in Xinjiang.42 Both figures were below the national averages, which are 17,175 yuan and 5,153 yuan, for urban and rural households respectively However, it has to be noted that the income gap between Xinjiang and the rest of China has begun to narrow, mainly because of rising employment in the region. Until 2008, Xinjiang’s employment rate was increasing slower than the China average. In 2009, however, total employment rose by 0.7% in China, whereas the increase in Xinjiang was 2.3%.43

On the negative side, however, inflation is rising faster in Xinjiang compared to the rest of China. In August 2010, while the consumer price index (CPI) increased by 2.8% on a year-on-year basis in China, this increase was 3.8% in Xinjiang, which is influenced by high levels of rural inflation.44
In sum, from a macroeconomic perspective, Xinjiang has a negative yet improving position as far as China’s economic security is concerned. Its economic backwardness relative to the more developed provinces can be regarded as major concern, whereas unemployment and rising inflation continue to pose a problem.

3.2. Security of Supply

Economic interdependence means that all countries are dependent on others to some extent for one kind of supplies or another. This implies that interruptions in imports of the supply can severely disrupt the national economy and also overseas suppliers can acquire a monopoly position turning the terms of trade against the importer. Vincent Cable argues that these two arguments usually go together and they are especially evident in the areas of food, strategic minerals (those used in industries regarded strategic such as aircraft production), energy (esp. oil and gas) and advanced technology.45 Food supply and energy supply are often defined as the most crucial determinants of China’s economic security, together with the macroeconomic disturbances discussed above. As the economy of China grows, so does its need for supplies of raw materials and resources, and security of supply becomes an increasing concern for the decision makers in Beijing. This part of the article will start with two areas of supply security, namely energy security and food security, the first associated with the needs of a growing economy and the latter with the needs of a growing population. Additionally, a third area will be discussed, which is of vital importance for China’s textile industry, namely cotton.

Energy. Due to the high rate of economic growth in China, demand for energy outstrips local supply and there is an increasing reliance on imports, although China is the world’s fifth largest oil producer with a production volume of 189 million tons in 2009.46 After 1978, as the oil consumption of the major economic powerhouses in the world (United States, Europe and Japan) almost remained constant, China’s consumption nearly quadrupled.

Dependence on imports is by itself an economic security concern, which is further heightened by the volatilities in global energy markets and political instability in the world’s energy producing regions. China is currently dependent on imported oil. Until 1993, it had been self-sufficient in this respect, even producing a surplus. However, after this year consumption increased faster than local production and the resulting gap is widening every year. The local production/consumption ratio, which was 120.8% in 1992, declined below the self- sufficiency line in 1993 with 98.8% and continued to decrease, to 72.7% in 2000 and to 46.7% in 2009.47 This means that today China is producing less than half of the oil it consumes and for the rest it depends on imports.48 As this ratio falls, imports increase (in 2009, China’s imports of crude oil rose by 13.8%), and so do the economic security concerns.

China’s approach to energy security is “evolving from a vision of tight government control and self-reliance to a more liberal outlook that accepts market forces and diversified energy types and sources”.49 Within this framework, China is establishing energy supply relations with countries all around the world. In 2009, the Middle East supplied 50.7% of China’s total oil imports, Africa 20.5%, Southeast Asia 13.5% and Russia 13.1%.50 Furthermore, in another attempt to ensure its economic security, China is purchasing stakes in foreign oil companies. For instance, the acquisition of PetroKazakhstan by China National Petroleum Corporation (CNPC), in October 2005 is considered a landmark in China’s overseas oil development.51

There is, however, a different picture as far as other energy sources, i.e. natural gas and coal, are concerned. China consumes gas and coal as much as it produces them, not more. In other words, China is self-sufficient in gas and coal.

Table 1. Distribution of China’s Oil Production by Regions

As a region within China, Xinjiang’s contribution to the country’s energy supply security takes two forms; first as a producer of energy resources, and second as a transit route of energy resources imported from abroad.

Xinjiang is a part of China’s quest to diversify its oil resources and this can be traced back to 1991 when the Chinese government granted the development rights of the Tarim Basin to Japan National Oil Corporation. Following this initial opening, Xinjiang’s oil output gradually increased. In 2009, Xinjiang produced 25.1 million tons of crude oil52, and, as seen in Table 1, Xinjiang is the third largest oil-producing region in the country. Yet the region can be expected to climb to higher ranks in the near future. Only 33% of China’s oil reserves are estimated to have been discovered so far and Xinjiang hosts large amounts of undiscovered oil reserves, particularly in Tarim Basin53, which is estimated to contain 10 billion tons of oil. CNPC is known to have plans to develop Xinjiang as a major oil and production center. Having invested over 300 billion yuan in the region so far, the company aims to increase annual production to 50 million tons by 2015, and to 60 million tons by 2020.54

Xinjiang has a key position in China’s oil supply security, not only because it is the third largest producer of oil among China’s provinces, but also because it functions as a transit route. Due to its strategic concerns over relying too heavily on maritime imports of oil, China has a significant interest in securing oil supplies through pipelines from Central Asia. Since Xinjiang is the only region in China that is neighboring the Central Asian republics, Central Asian oil (and a large proportion of Russian oil) has to enter the Chinese pipeline network from Xinjiang. The first transnational oil pipeline built for this purpose was that of the Sino-Kazakh Oil Pipeline Co. Ltd.55 which began pumping oil in July 2006. This pipeline starts in Atasu in northwestern Kazakhstan, enters Xinjiang territory at Alashankou on the Kazakh-Chinese border, and terminates at PetroChina Dushanzi Petrochemical Company. Half of the oil transported through this pipeline is Kazakh oil and the other half is Russian oil. When this pipeline reaches its full capacity of 20 million tones per year, it will account for around 15% of China’s oil imports. In the mean time, the oil extracted in or imported through Xinjiang is distributed to the rest of China through the Urumqi-Lanzhou oil product pipeline and the Shanshan-Lanzhou crude oil pipeline.

Table 2. Distribution of China’s Gas Production by RegionsAs far as the supplies of natural gas are concerned, Xinjiang is singled out as the largest producer region in China (see Table 2). Xinjiang’s gas output has been growing rapidly since the West-East Gas Pipeline started operation in December 2004. In 2005, the region produced 10.6 billion cubic meters of gas, and this figure rose to 24.5 billion cubic meters in 2009.56 According to the calculations of CNPC, Xinjiang holds 490 billion cubic meters of proven gas reserves, about 20% of the Chinese total.57

Although China is to a great extent self-sufficient in terms of natural gas, the government is planning to import Central Asian gas in order to ensure long term economic security and meet the rapidly increasing demand for cleaner burning fuel.

Table 3. Distribution of China’s Coal Production by RegionsTo that end, China inked a 30-year deal with Turkmenistan in 2006 for 10 billion cubic meters of gas per year, rising to 30 billion by 2012. The Kazakh part of the pipeline, which will carry the gas coming from Turkmenistan via Uzbekistan will link Shymkent on Uzbek-Kazakh border to Khorgos in Xinjiang, and will have a capacity of 40 billion cubic meters per year.

The gas arriving in Xinjiang will be distributed to the rest of China through the 4,200-kilometer West-East Pipeline linking Xinjiang to Shanghai in the east and a second line of 4,843 kilometers that connects Xinjiang with Guangzhou in the southeast.

Gas is important for China’s economic security, because abundant supplies of natural gas will help to overcome China’s dependence on coal. Coal is a basic energy source in China making up 70% of the country’s total primary energy consumption,58 and as discussed above, China is self-sufficient in terms of coal supplies. China is the largest coal producer in the world, with a share of 45.6% in the world’s total production as of 2009, and at the same also the largest consumer, with 46.9%.59 In other words, almost the half of the world’s coal is produced and consumed in China.

Although Xinjiang is not one of the major coal producing regions in China (see Table 3), it is rapidly growing its coal industry and making preparations for exploration of large- scaled coalmines.

Table 4. Distribution of China’s Farming Output by RegionsCurrently, coal resources already utilized only account for 13% of total deposits. An important portion of the unutilized resources is to be found in Xinjiang.

Whereas Xinjiang’s annual coal output amounts for the time being to around 50 million tons, the region’s coal production is expected to rise to 1 billion tones and account for more than 20% of the total output in China until 2020.60

Food. Food security should be dealt with within the larger framework of agriculture in Xinjiang. Stockbreeding and pastoralism dominate the region’s economy, however it is not possible to argue that agriculture is well developed in Xinjiang, mainly due to climatic and geographical problems.

There are severe irrigation problems in grasslands and deserts, as well as occasional droughts, which seriously undermine the agricultural output.

As a result, although its economy is dominated by agriculture, Xinjiang is not one of the leading producers in China, and therefore its contribution to China’s food security is minimal.

Table 5. Distribution of China’s Animal Husbandry Output by RegionsIn 2007, the total value of China’s farming output was 2.15 trillion yuan, whereas Xinjiang share in this was 2.97% with 63.9 billion yuan.

Similarly, in China’s total animal husbandry output value of 1.36 trillion yuan, Xinjiang’s share was only 1.39% with 18.9 billion yuan (See Tables 4 and 5).

Fruit, especially melons and grapes, are often regarded as the most important farming product in Xinjiang.

A closer look at production levels of various farming products reveals that although this is true, Xinjiang is still not one of the major producers of fruit in China.

The data in Table 6 suggests that Xinjiang’s share in China’s production of farming commodities exceeded 3% only in fruit and sugar crops.


Cotton. Another agricultural product, which is not related to food security but still important in terms of China’s security of supply, is cotton.

The textile industry is one of the major engines of China’s export growth and until recently it has been growing at a rate that exceeded the overall economic growth of China. The recent global economic downturn has negatively affected the Chinese textile industry and in 2009, and the industry experienced its largest decline in exports volume over the past three decades.61 Despite this drawback, China’s textile industry continues to increase its output. In 2009, China produced about 24 million tons of yarn, an increase of 12.7% year on year, and the amount of clothes produced was up from 6.9% to 23.75 billion units.62

Table 7. Distribution of China’s Cotton Output by Regions

China’s competitiveness in the textile industry is derived from its low cost base. While labor costs are crucial in this respect, there is also the need for low-cost raw materials, in this case cotton. As discussed earlier, cotton is one of the two pillars on which the Xinjiang economy is based. Indeed, Xinjiang is the leading cotton producer in China on a regional basis, accounting to around 40% of the total output (see Table 7). In 2009, the region produced 2.5 million tons of cotton, ensuring the supply security of China’s rapidly growing textile industry.

3.3. Access to Markets

In an age of growing economic interdependence, security in the economic realm is ensured not only by securing the supplies to be used for production, but also by ensuring access to markets where the output is to be sold. Export growth is an important engine of economic growth and increasing the exports requires access to markets in a sustainable manner. In our case, China can be said to capitalize on a significant level of market access and therefore economic security. This argument is supported by the fact that China’s export growth goes parallel to the growth in output, meaning that as China produces more, it also exports more, because it has sufficient access to markets. Moreover, China’s market access was consolidated after it joined the World Trade Organization (WTO) in 2001, which eliminated certain barriers to trade for China.

Market access can take two forms. The first is related to the level of trade barriers such as quotas and tariffs a country is facing. The second form is the physical one, which refers to logistical and geographical issues. Since the unit of analysis of this article is the regional level, this section will be only dealing with the latter, by analyzing Xinjiang’s place in China’s foreign trade, both in terms of volume and logistics.

Table 8. Regions’ Share in China’s Foreign Trade

Xinjiang has only a minimal share in China’s total foreign trade. In 2009, while China’s foreign trade totaled US$ 2.21 trillion (exports US$ 1.20 trillion, imports US$ 1.01 trillion), Xinjiang’s foreign trade volume was only US$ 13.8 billion (exports US$ 10.8 billion, imports US$ 3.0 billion). This is not surprising, because, as seen in Table 8, coastal provinces of China are accounting for the bulk of China’s foreign trade.63 However, two points should be made here. First, Xinjiang has by far the largest foreign trade volume among the western provinces of China (almost 50 times greater than Tibet’s trading volume).

Second, and more importantly, until the recent global economic crisis, Xinjiang has been rapidly increasing its foreign trade volume. Xinjiang’s foreign trade expanded by 50.7% in 2007 and by a massive 62% in 2008, before declining by 37.8% in 2009.64 A rapid recovery is on the way in Xinjiang, and it is safe to argue that Xinjiang is increasingly getting more assertive in foreign trade.

This increasing role of Xinjiang within China’s foreign trade is a result of the government’s policies to diversify China’s trading partners and there are several factors behind this. There is the intention to increase cost efficiency. Currently, China executes a substantial portion of its foreign trade through maritime routes.65 Although this is a natural result of China’s geographic position, it also leads to high logistics costs. Chinese logistics costs are already at 18.5% of the GDP, nearly double that of more developed countries, and this is a threat against Chinese exports’ competitiveness.66

Land transportation to and/or through Central Asian republics neighboring Xinjiang offers low-cost trading opportunities and this is why the Chinese government is heavily investing in the linkages between Xinjiang and Central Asian republics with the aim of turning the region into a transport and trading hub. For this purpose, the current railroad network, connecting Xinjiang with Kazakhstan, will be increased from 3,600 kilometers to 12,000 kilometers by 2020, with the addition of new lines linking Xinjiang with Kyrgyzstan, Uzbekistan, Afghanistan and Pakistan. In addition, 12 new highway projects with a total length of 7,155 kilometers are included in the development plans.67

Greater trade with Central Asian republics brings about significant prospects for China. Trade between China and Central Asian republics has advantages, not only due to geographical proximity, but also due to the common cultural values of Xinjiang and these republics, which make it easier to establish communication, mutual understanding and trust, as well as the complementary nature of the economies of Xinjiang and Central Asian republics.68 In the meantime, trade opportunities are not limited to bilateral trade with Central Asian republics, but also include trade with Europe. Railway transportation through Xinjiang and Central Asia to Europe is a cost-efficient alternative for maritime transportation, which halves current traveling time.69 In sum, Xinjiang is on its way to become China’s gateway opening to the west, first to Central Asia and then to Europe. Railways, highways, pipelines and trade routes are passing through Xinjiang and connecting China to the rest of the world in a more time and cost efficient manner
than the traditional maritime routes departing from the country’s east coast.


The empirical evidence analyzed in this paper suggests that Xinjiang is playing a vital and strategic role in China’s economic security, because:

It is the single largest contributor to China’s self-sufficiency in natural gas. It is also a major domestic producer of oil, while production of coal is expected to increase drastically in a decade. Furthermore, it is the transit route of energy resources imported from abroad, which will play an increasingly crucial role in China’s supply security.

As China’s gateway to Central Asia and beyond, its strategic importance vis-à- vis China’s foreign trade is rising. It is becoming the largest hub for foreign trade with reduced logistics costs. It is the single largest raw material supplier of China’s booming textile industry.

Although Xinjiang is behind most of the rest of China in terms of its share from the national income (and likely to remain so for years to come) the rest of China owes a great deal for its economic growth to Xinjiang. Apparently, Xinjiang’s economic structure fits the picture of the periphery, of which the main function is to provide the core with energy supplies and raw materials. This is precisely why the Chinese government focuses on the economic development of the region. A developed and stable Xinjiang is one of the keys of ensuring China’s economic security in the long term. Beijing cannot take the risk of instability in a region, which produces its energy supplies and cotton, serves as a major foreign trade hub, and hosts important transportation routes connecting China with the rest of the world are passing.

Beijing’s reliance on economic development as a strategy to deal with ethnic problems cannot be denied. However, the ethnic issue is rapidly becoming a sub- component of the economic security issue in this high-growth opening-up era of the Chinese economy. In other words, Beijing wants ethnic stability in Xinjiang not only for political reasons, but mainly for a stable, and problem-free Xinjiang that is required for China’s economic security. As economic pragmatism undermines all kinds of political ideologies in today’s globalizing world, ethnic issues such as those in Xinjiang cannot be understood without incorporating the matter of economy in the larger picture.

About the author:
*Altay Atli, PhD Candidate, Boğaziçi University, Department of Political Science and International Relations. E- mail:


Xinjiang Seethes Under Chinese Crackdown

KASHGAR, China — Families sundered by a wave of detentions. Mosques barred from broadcasting the call to prayer. Restrictions on the movements of laborers that have wreaked havoc on local agriculture. And a battery of ever more intrusive ways to monitor the communications of citizens for possible threats to public security.

A recent 10-day journey across the Xinjiang region in the far west of China revealed a society seething with anger and trepidation as the government, alarmed by a slow-boil insurgency that has claimed hundreds of lives, has introduced unprecedented measures aimed at shaping the behavior and beliefs of China’s 10 million Uighurs, a Turkic-speaking Muslim minority that considers this region its homeland.

Driving these policies is the government’s view that tougher security and tighter restraints on the practice of Islam are the best way to stem a wave of violence that included a knife attack at a coal mine that killed dozens of people in September.

The tough security measures are on full view for travelers as they stop at the ubiquitous highway checkpoints that slow movement across this rugged expanse of deserts and snowy peaks.

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Xi Announces Another Series of Infrastructure Projects For Africa

December 4, 2015


Chinese President Xi Jinping delivers a speech for the opening day of the World Climate Change Conference 2015 (COP21) at Le Bourget, near Paris, France, November 30, 2015. REUTERS/Stephane Mahe

JOHANNESBURG (Reuters) – China’s President Xi Jinping told African presidents on Friday at a summit that his country would provide $60 billion over three years to fund development on the continent.

Xi, who is co-chairing the Forum on China-Africa Cooperation where several African heads of state were attending, outlined a broad ten-point development plan driven by the Asian economic giant, saying he wanted to build a relationship of equals.

“To ensure the successful implementation of these ten cooperation plans, China decides to provide a total of $60 billion of funding support,” Xi told the summit.

Despite its own slowing economy, Xi said China would step up investment in factories manufacturing goods for export in Africa, in addition to building roads, ports and railways on a continent long seen as a major commodities source for China.

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China would cancel existing debts with zero interest loans for least developed countries that mature by end 2015, he said.

China will strengthen its cooperation with Africa in the fight against violent extremism and would not interfere with the political choices of countries in the continent, Xi said.

“China will implement ten cooperation plans with Africa in the next three years,” Xi said. “These plans (are) aimed at addressing three issues holding back Africa’s development, namely inadequate infrastructure, lack of professional and skilled personnel and funding shortage.”

Africans broadly see China as a healthy counterbalance to Western influence though Western governments charge China of turning a blind eye to conflicts and rights abuses on the continent as they pursue trade and aid policies there.

(Reporting by Joe Brock, Stella Mapenzauswa; Editing by James Macharia)