Uzbekistan’s Opportunities and Challenges from China’s Belt & Road Initiative

Posted by Written by Farzad Ramezani Bonesh

By Farzad Ramezani Bonesh

Uzbekistan’s independence was recognized by China in December 1991 and diplomatic relations between the two sides were established in January 1992. In the joint statement of establishing diplomatic relations in January 1992, the relations of more than three decades between the two countries, the promotion of friendship and cooperation in 2000, the 2005 partnership treaty, the 2012 joint statement, the 2013 agreement, the Comprehensive Strategic Partnership in June 2016, the visits of political officials, and the economy of the two countries have all been well documented, while the signing of over 100 bilateral agreements has further strengthened their economic cooperation.

In 2015, Uzbekistan became a partner of the Belt and Road Initiative (BRI) and joined the Asian International Investment Bank (AIIB).

China’s Goals and Opportunities
From 1992 to 2019, the trade volume between China and five Central Asian countries has increased 100 times. Shavkat Mirziyoyev, Uzbekistan’s President, participated in the Belt and Road Forums in 2017 and 2019. During the visit of Chinese President Xi Jinping to Uzbekistan in September last year, the two countries signed additional cooperation documents in various fields.

In line with its independent foreign policy and economic goals, China is expanding and deepening BRI cooperation in Uzbekistan. In the first meeting of the heads of C+C5 countries, China also asked Uzbekistan to deepen industrial cooperation, investment, and win-win cooperation in BRI and to increase regional industrial development in sectors such as digital economy, energy, and agriculture.

China by using the BRI, seeks to expand transportation and logistics infrastructure, trade links, prosperity, new opportunity for stability and growth, investment, technology and new markets, exports, industries, industrial promotion, green and digital economy, reducing electricity shortage, and increasing exchanges.

In a way, China’s interaction with Uzbekistan is an alternative to Russian and maritime routes, regional hydrocarbon and mineral resources, export markets, loans, and investments in the local economy. In addition, China’s foreign aid primarily focuses on its Asian neighbors, such as Uzbekistan. This aid is based on China’s national goals and is a form of South-South cooperation that serves the strengthening of BRI.

In the China-Central Asia-West Asia BRI Corridor, two of the BRI routes pass through Uzbekistan, which will connect the country to China and Iran faster than the previous, Soviet-era alternatives. Route 3 is the Kazakhstan, Uzbekistan (Tashkent, Samarkand, Navi), and Turkmenistan Corridor, while Route 4 is the Kyrgyzstan, Uzbekistan (Andijan, Pap, Tashkent, Samarkand, Navi) and Turkmenistan-Iran Corridor.

Additionally, all four corridors of the “China-Central Asia” gas pipeline pass through Uzbekistan. Apart from the 25-year bilateral contract for the sale of natural gas, a fifth route to transfer gas from Turkmenistan to Uzbekistan is also being considered.

Companies such as Power China entered the Uzbekistan market in 1999. But now the companies involved in BRI have a much more colorful role in Uzbekistan. Beijing, and the BRI is the largest source of foreign investment in Uzbekistan. Since 2017, China has invested more than US$10 billion in Uzbekistan.

More than 120 companies registered in Uzbekistan are 100% Chinese capitalized, while the number of enterprises with Chinese capital participation – Joint Ventures – has exceeded 2,000.

Bilateral agreements for the implementation of more than 150 joint projects are either to be implemented in the future or are ongoing. Significant Chinese companies such as Huawei, ZTE, and China’s Eximbank all operate in Uzbekistan.

China’s BRI has invested in Uzbekistan in sectors such as industries, raw materials, energy, infrastructure, telecommunications, advanced technology, construction of thermal power plants and upgrading of hydroelectric power plants, development of digital and fiber optic infrastructure, and 5G.

Chinese companies under the BRI are also active in the sectors such as renewable energy resources, and mining of Uzbekistan, especially in the cement sector and numerous factory projects, special economic zones, free trade zones, industrial parks (SEZs), building materials, chemical and chemical industry companies, agriculture and logistics, and textiles.
Cooperation between the BRI and the development strategy of “New Uzbekistan” for 2022-2026 has also been taken on by Beijing.

From China’s pespective, Uzbekistan is a considerable power in the heart of Central Asia with an increasingly strong role. The annual business volume is moving towards the goal of US$10 billion dollars. More attention has been paid to the China-Kyrgyzstan-Uzbekistan road corridor and the China-Kyrgyzstan-Uzbekistan railway. In mid-September 2022, the representatives of these three countries signed a memorandum of cooperation for the implementation of the China-Kyrgyzstan-Uzbekistan railway or CKU project.

The volume of trade between Uzbekistan and China has increased 140 times in the last 30 years. Bilateral trade increased by 20% to nearly US$9 billion in 2022.

Uzbekistan’s Objectives and Opportunities

With a relatively young population of about 37 million, Uzbekistan is the largest consumer market in Central Asia and a major regional agricultural and manufacturing exporter.

Since the introduction of the BRI project in 2013, Uzbekistan has become a significant Central Asian partner of China. The structure of Uzbekistan’s foreign policy changed with Shavkat Mirziyoyev coming to power and presenting a program of fundamental reforms.

Tashkent also supports the One China principle, Beijing’s interests in Taiwan and Xinjiang. Uzbekistan’s integrated program for development in various fields has strengthened strategic cooperation with China in the form of the Belt and Road Initiative.

China and Uzbekistan do not have a common border, but Uzbekistan’s location on the BRI route has also made Tashkent pay attention to partnering with China, solving geographical challenges, and becoming a regional transportation hub.

The BRI is in line with Uzbekistan’s plan for the future development of trade and transport routes. In this regard, the plan “Development Strategy of New Uzbekistan for 2022-2026” pays attention to the deep economic relations with China. From Uzbekistan’s point of view, by BRI, Uzbekistan can be balanced against Russia’s demands and could be the geographical axis of connecting China, South Eurasia, South Asia and the Middle East, the Caspian Sea, Persian Gulf ports and the Black Sea. Also, the completion of the BRI projects will greatly increase the trade, investment, and GDP of Uzbekistan, and the competitiveness of Uzbekistan’s exports.

Challenges and Prospects

Investors in Uzbekistan scan face confusing regulations, misinterpretations of regulatory laws, reduced benefits, restrictions on law enforcement, policy uncertainty, an extensive government presence in the economy, and arbitrary interpretation by different regions in Uzbekistan.

Religious groups such as Hizb ut-Tahrir and the Islamic Movement of Uzbekistan, and the Islamic State in Khorasan, have a more negative attitude towards China. The entry of BRI is not without cost. Relying too much on China can be seen as creating risk and a perception that cheaper products will lead to eliminating local companies and creating more demand for imports from China. In 2020, China’s loans to Uzbekistan increased to US$3 billion. There are also some fears about the sustainability of the BRI’s medium-term debt, the so-called “debt trap” and financial risks in some of the BRI’s infrastructure investments, such as the US$8 billion cost of projects like the CKU.

However, the BRI also presents more opportunities for Uzbekistan. China plans to increase trade with the five Central Asian countries to US$70 billion by 2030. Uzbekistan’s future potential for continued BRI inclusion is significant, with Uzbekistan signing BRI infrastructure related contracts worth US$16 billion with China in 2022. By using the BRI, Uzbekistan is diversifying its infrastructure network and reducing delivery times to the country by approximately 15%. With the BRI and cooperation program 2022-2026, Uzbekistan can increase export routes and the increase the volumes of Chinese tourists.

The Belt and Road Initiative in Uzbekistan is being seen overall as an important contribution to reaching the national GDP goal of US$100 billion in GDP, doubling exports to more than US$30 billion dollars by 2030, and diversifying the economy. In this regard, many in Uzbekistan and China hope that the construction of the China-Kyrgyzstan-Uzbekistan (CKU) railway will create more important business and economic opportunities, and will shorten access to the Persian Gulf, the Caucasus, Turkey, the Middle- East, and Southern Europe.

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