January 10, 2017
In fall 2013, President Xi Jinping announced China’s “One Belt, One Road” (OBOR) economic initiative. As its name suggests, the OBOR is a Chinese-led investment strategy that hopes to promote overall integration in Asia by economically developing Central, South, and Southeast Asia. Additionally, the OBOR is designed to improve the trade routes between the Chinese market and the Middle East, Africa, and Europe. This points to growth in China’s presence in international trade and investment, as more of these emerging markets are opened to the rest of the world. With that brings many opportunities and risks for business and investment, specifically in the Central Asian “Belt” of China’s OBOR.
Numerous opportunities for business and investment exist in the Central Asian countries of the “Belt” – Kazakhstan, Kyrgyz Republic, Tajikistan, Uzbekistan, and Turkmenistan. Some of these countries are resource rich, especially in natural gas and oil – an industry of great importance, given China’s rising demand for energy. Central Asia also has some of the world’s largest supplies of precious and base metals, making it a potentially lucrative opportunity for the mining industry.
Beyond natural resources, overall trade with Central Asia is set to rise. In the past 20 years, Central Asia has experienced rapid economic growth averaging 7 percent. With increased investment from China and continued economic growth, there will be demand for more expensive consumer products, creating an opening for high tech, telecommunication, and luxury goods as well as high speed rail and other major infrastructure projects.
Many of the risks in dealing with Central Asia are political in nature. For example, only three of the five Central Asian countries along the “Belt” are WTO members. This can be problematic when businesses have intellectual property or trade secrets involved. Another notable risk is that China views OBOR as a way to absorb some of its economic problems. With excess construction and production of resources, such as steel and coal, China and its heavily leveraged industrial firms need more overseas business opportunities. As such, China will likely seek to hinder non-Chinese investment in OBOR countries where it can.
However, OBOR initiatives will help mediate some of the market-entry risks that currently exist, such as obtaining construction permits and gaining access to electricity. This will help companies and investors to take advantage of opportunities where they exist.